Invesco Variable Rate Preferred Shares UCITS ETF (Acc)

Issuer: Invesco

Asset Class: Fixed Income

TER: 50bps

Trading Currency: USD

Pays Income: False

Listing Date: 10 Dec 2018

Ticker: VPAC

ISIN: IE00BHJYDT11

This fund offers exposure to a specific segment of the fixed income market: US-domiciled variable and floating-rate preferred securities. Preferred shares are hybrid instruments, blending features of both stocks and bonds. They typically offer higher yields than traditional bonds from the same issuer and hold a senior position to common stock in the capital structure, offering a degree of security. The primary focus on variable and floating-rate coupons makes this investment particularly relevant in an environment of changing interest rates.

Unlike fixed-coupon bonds that lose value when interest rates rise, the income stream from these floating-rate securities adjusts periodically based on a predetermined benchmark rate. This mechanism helps to mitigate interest rate risk, as the coupon payments can increase alongside rising rates, which in turn helps stabilize the security's market price. This strategy aims to provide investors with a potentially stable and attractive income stream while reducing the volatility typically associated with traditional fixed-rate debt instruments during periods of monetary tightening.

The fund is designed for income-seeking investors who are also concerned about the impact of rising interest rates on their fixed-income portfolios. It can serve as a diversifying agent within a broader portfolio, offering a unique risk-return profile compared to both common equities and conventional government or corporate bonds. By focusing on securities issued predominantly by financial institutions, it provides targeted exposure to this sector's credit quality. The physical replication method ensures direct ownership of the underlying securities.