For 30 years, fixed income was the part of your portfolio that under-promised and over-delivered.

Today bond holdings have become considerably less attractive, combining paltry yields with a high possibility of capital losses year to year as interest rates tick upward from historic lows. For older investors reliant on the income they provide, there are few options to boost yields high-yield corporate bonds, dividend stocks and they all involve greater risk.

One alternative worth considering right now is the preferred share ETF.

Preferred shares occupy the middle ground between equities and fixed income. Generally issued by blue-chip companies, they are shares that act like bonds, promising a set payout over a set term and usually varying little in price.

While preferred shares are difficult instruments to hold individually they are easily accessed through exchange-traded funds. Plus, their distributions are considered dividends, as opposed to interest, by the taxman. And in Canada, where the bulk of the preferred share universe is of the rate-reset variety—instead of offering a fixed payout perpetually, their coupon is reset in relation to the five-year Government of Canada bond rate every five years—they may offer more protection than bond funds from rising interest rates.

Allocating some of your fixed income to preferred ETFs does come with a trade-off in risk, however. This risk is lessened somewhat in a widely invested fund. But if you have concerns about rising interest rates, and maximizing income is a priority, preferred ETFs should make a good complement to your bond holdings.

Top Canadian Preferred Share ETFs

Cap-weighted fund reflecting the broad market for Canadian preferreds. BMO Laddered Preferred Share Index ETF ZPR: Horizons Active Preferred Share ETF HPR: A fund actively managed by Fiera Capital. Preferred Share Index ETF ZUP: Cap-weighted fund invested in U. First published on March 31, Find an Advisor Ask MoneySense Portfolio Builder Where to Buy.

iShares S&P/TSX Canadian Preferred Share Index ETF | CPD | COMMON

Bruce Sellery Jonathan Chevreau Dan Bortolotti David Aston Romana King Robert R. Brown Norm Rothery Jason Heath Barry Choi.

Home Investing ETFs A tantalizing fixed-income alternative. This first appeared in our investing newsletter. Show comments Hide comments 1.

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