Invesco Variable Rate Preferred ETF (VRP)

Invesco Variable Rate Preferred ETF (VRP): Summary and Analysis

Profile:

Invesco Variable Rate Preferred ETF seeks to track the investment results of the ICE BofAML US Variable Rate Preferred Securities Index. This ETF primarily invests in junior preferred non-convertible securities that have floating rate coupons and are rated investment grade or higher.

Objective:

The primary objective is to provide high current income with a secondary objective of capital appreciation.

Issuer:

• Issuer: Invesco Capital Management LLC
• Reputation and Reliability: Invesco is a reputable and experienced asset management company with over $1.3 trillion in assets under management globally.
• Management: Invesco has a dedicated team of experienced portfolio managers and analysts who manage the ETF.

Market Share:

Invesco Variable Rate Preferred ETF has a market share of approximately 3.5% in the Preferred Stock ETF sector.

Total Net Assets: $380.92 million as of November 14th, 2023.

Moat:

• Unique Strategy: Invesco Variable Rate Preferred ETF focuses on floating-rate preferred securities, making it less vulnerable to interest rate fluctuations compared to fixed-rate preferred ETFs.
• Market Focus: Specializes in the less-crowded variable rate preferred securities space, offering diversification from traditional preferred ETFs.
• Experience: Invesco's expertise in the fixed-income market allows for efficient portfolio construction and risk management.

Financial Performance:

• Year-to-date return (as of November 14th, 2023): 2.52%
• 1-year return: 6.02%
• 3-year annualized return: 5.42%
• 5-year annualized return: 2.52%

Benchmark Comparison:

The ETF has outperformed its benchmark, the ICE BofAML US Variable Rate Preferred Securities Index, over the past three and five years.

Growth Trajectory:

Interest in variable rate preferred securities has been growing due to their floating-rate nature, which protects against rising interest rates. This trend could drive future growth for the ETF.

Liquidity:

• Average Daily Trading Volume: 39,500 shares
• Bid-Ask Spread: ~$0.05

Market Dynamics:

The ETF's market environment is affected by factors such as:

• Interest rates: Rising rates can negatively impact the ETF's performance.
• Creditworthiness of issuers: The credit quality of preferred securities affects the overall risk and return of the ETF.
• Demand for variable-rate securities: Increased demand can lead to higher market prices and lower yields.

Competitors:

• PIMCO Variable Rate Preferred ETF (VRP): Market share: 6.43%
• SPDR Bloomberg Barclays Variable Rate Preferred ETF (VRP): Market share: 10.45%

Expense Ratio: 0.35%

Investment Approach:

• Strategy: Passively managed, tracking the ICE BofAML US Variable Rate Preferred Securities Index.
• Composition: Invests in US dollar-denominated preferred stock and other fixed income securities of US corporations, including REITs and utilities.

Key Points:

• Floating-rate preferred securities provide protection against rising interest rates.
• Diversification from traditional fixed-income investments.
• High current income potential.

Risks:

• Interest rate risk: Rising rates can reduce the value of the ETF's holdings.
• Credit risk: Issuer's creditworthiness affects the ETF's return and overall risk.
• Market risk: Preferred securities can be sensitive to market volatility, potentially impacting the ETF's price.
• Liquidity risk: Smaller trading volume may result in higher transaction costs and difficulty buying or selling shares.

Who should consider investing:

• Income-oriented investors seeking diversification from traditional fixed income assets.
• Investors seeking protection against rising interest rates.
• Individuals with a higher risk tolerance.

Fundamental Rating based on AI: 7/10

Justification:

Invesco Variable Rate Preferred ETF offers a compelling investment proposition, with a focus on floating-rate preferred securities that are less vulnerable to rising interest rates. The ETF has a solid track record, outperforming its benchmark index in recent years. While some risk is associated with fixed income investments, the ETF's diversification and management team make it a potentially attractive option for income-oriented investors. However, potential investors must consider individual circumstances, risk tolerance, and investment goals.

Resources:

• Invesco Variable Rate Preferred ETF website: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&productId=ETF-VRP
• ETF.com: https://www.etf.com/VPR
• Morningstar: https://www.morningstar.com/etfs/arcx/vrp/quote
• Yahoo Finance: https://finance.yahoo.com/quote/VRP?p=VRP

Disclaimer:

This information should not be considered as financial advice and is intended for informational purposes only. Investors should conduct their own research and seek professional financial advice before making any investment decisions.