This is a passive ETF that tracks an index composed of variable-rate and floating-rate preferred stocks and functionally equivalent hybrid securities, holding its constituents on a market-capitalization-weighted basis.

It suits moderate-risk income investors who want preferred stock yields while reducing the price risk that interest rate changes create for preferreds.

Invesco launched it in 2014, and it is managed passively (index tracking).

The fund holds US dollar-denominated preferred stocks and hybrid securities with variable-rate or floating-rate structures, weighted by market capitalization. The structure reduces duration risk when interest rates rise, compared with fixed-rate preferreds, and it holds a mix of investment-grade and below-investment-grade issues.

• Relatively lower price sensitivity when rates rise, compared with fixed-rate preferred stock ETFs
• Monthly distributions provide a regular income stream

Assets under management (AUM) stand at $3.0B, and the expense ratio is 0.50% per year.

Comparable ETFs in the same category, PGX, PFXF, and PFFD, track fixed-rate or mixed preferred stock indexes, and their performance may diverge from VRP depending on the interest rate environment.

Because of its variable-rate structure, the fund tends to show relatively stable performance during rate-hike cycles compared with fixed-rate preferreds. However, during rate-cut cycles, its price appreciation may be limited compared with fixed-rate preferred stock ETFs.

Interest in variable-rate preferred stock ETFs tends to rise when interest rate volatility increases. With a high weighting in the financial sector, changes in the credit environment for banks and insurers may affect fund flows.

Reduced interest rate sensitivity and monthly distributions are its strengths, while financial sector concentration and the expense ratio are its weaknesses.

PGX, PFXF, and PFFD, shown in the table, are fixed-rate or mixed-structure preferred stock ETFs and are the main comparison targets for VRP within the preferred stock category. PGX has a relatively low expense ratio, PFXF focuses on non-financial preferreds with a reduced financial sector weighting, and PFFD pursues broad preferred stock exposure. Among comparison targets not in the table, PFF, the flagship fixed-rate preferred stock ETF, FPE and PFFA, which are actively managed preferred stock ETFs, and FLOT, a floating-rate corporate bond ETF, can also be considered as alternatives.

These are the key items to review before investing in VRP. It is important to confirm in advance whether the benefits of the variable-rate structure actually work in the current investment environment and whether the financial sector concentration risk is at a tolerable level.

The main risks are financial sector concentration and the credit risk that comes from holding below-investment-grade issues. During rate-cut cycles, price appreciation may be limited compared with fixed-rate preferred stock ETFs.

It is a suitable choice for investors who want preferred stock income while managing the risk of rising interest rates. It is advisable to compare it with fixed-rate preferred stock ETFs (PFF, PGX, PFFD) and then choose the product that fits your interest rate outlook.