VRP - VRP: Assessing My Floating Rate Preferred ETF As Interest Rates Set To Decrease

2024-07-19 23:34:18 ET

Summary

• The Invesco Variable Rate Preferred ETF has outperformed in a rising rate environment due to its low duration and floating rate nature.
• VRP is weighted heavily towards the financial sector - investors should be keenly aware of this.
• Despite anticipated interest rate cuts, VRP's preferred stock holdings may continue to reset at higher dividends until at least 2025. This means I will continue to rate VRP a Buy.

As all investors should know, securities that offer a set fixed return will perform poorly when interest rates rise, and deliver better returns when rates decrease. How much security prices react to changes in the interest rate environment depends on their duration measurement....

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