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Principal Launches ETF to Help U.S. Taxpayers Boost After-Tax Income

·6 mins read

First of its kind exchange traded fund focuses on qualified dividend income

Principal Global Investors launched today the Principal Spectrum Tax-Advantaged Dividend Active ETF (PQDI). PQDI is the first ETF in the market that is specifically designed to offer investors access to qualified dividend income by investing in securities from all three sectors of the global U.S. dollar capital securities market. PQDI is designed to help U.S. taxpayers boost after-tax income by targeting exposure to qualified dividends.

In changing market environments, preferred and capital securities have historically delivered attractive risk-adjusted returns, and active management can potentially enhance returns by selecting higher-quality and improving credits and avoiding speculative risks. Investors are seeking new innovative solutions to boost after-tax income, especially as interest rates remain low. PQDI exposure to preferred securities aims to provide tax-advantaged income as U.S. investors build and distribute wealth.

"This ‘first mover’ active ETF represents an improved alternative to the roughly $25B passive preferred securities ETF market, concentrated in $25 par preferreds, and aims to provide tax-advantaged income to U.S. taxpayers," said Kamal Bhatia, President and CEO, Principal Funds. "We know our advisory clients are craving long term opportunities that generate tax efficient spread income with substantial value from actively managing in a permanently altered financial environment. We built this strategy simply with their voices behind it."

Investors are increasingly looking to ETFs for active and fixed income products. PQDI is managed by Spectrum Asset Management, a leading preferred and capital securities investment team within Principal. PQDI is the second ETF managed by Spectrum, in addition to the Principal Spectrum Preferred Securities Active ETF (Ticker: PREF), which launched in 2017.

PQDI has the objective of providing income and will invest in a diversified portfolio of USD denominated securities from all major sectors of the global U.S. dollar preferred and capital securities market1. PQDI will focus on income from dividends eligible for beneficial tax treatment, but the fund also invests in securities that are not eligible for such treatment. In particular, PQDI will seek securities that, at the time of issuance, are eligible to pay dividends that qualify for reduced U.S. federal income tax rates for "qualified dividend income" ("QDI")2 or for the deduction of up to 20% of qualified real estate investment trust ("REIT") dividends ("QRD").

Principal has more than $2.7 billion in ETF assets under management globally and Principal Global Investors had $437 billion in assets under management as of 03/31/20.

About Principal ®

Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals – offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. Principal Global Investors® leads global asset management at Principal®. As a multi-investment team firm, we bring a focused perspective and offer expertise across a host of asset classes. To find out more, visit us at principal.com.

Carefully consider the Funds’ objectives, risks, charges, and expenses. Contact your financial professional, visit principalfunds.com or call Sales Support at 800-787-1621 for a prospectus, or summary prospectus if available, containing this and other information. Please read it carefully before investing.

Risks

Asset allocation and diversification do not ensure a profit or protect against a loss. Investing involves risk, including possible loss of principal.

Fixed income investments are subject to interest rate risk; as interest rates rise their value will decline. Risks of preferred securities differ from risks inherent in other investments. In particular, in a bankruptcy, preferred securities are senior to common stock but subordinate to other corporate debt. Contingent capital securities (CoCos) may have substantially greater risk than other securities in times of financial stress. An issuer or regulators decision to write down, write off or convert a CoCo may result in complete loss on an investment. Real estate investment options are subject to risks associated with credit, liquidity, interest rate fluctuation, adverse general and local economic conditions, and decreases in real estate values and occupancy rates.

There can be no assurance as to the portion of the Fund’s distributions that will qualify for favorable federal income tax treatment. The Fund may make investments and pay dividends that are ineligible for favorable tax treatment or that otherwise do not meet the requirements for such treatment, and shareholders must satisfy certain requirements to take advantage of beneficial tax treatment.

Unlike typical ETFs, there are no indices that the Principal Spectrum Tax-Advantaged Dividend Active ETF attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager.

ETFs can be tax efficient in that they are exchange-traded and redeem creation units from authorized participants by using redemptions in kind, which are not taxable transactions for the Fund. However, capital gains are still possible in an ETF, and if you reinvest the earnings of the ETF, you may owe taxes on your funds even if you didn’t sell any shares, potentially eating into your returns.

Spectrum Asset Management, Inc. is the investment manager of the fund and is an affiliate of Principal Global Investors, the investment adviser for Principal ETFs.

ETFs are subject to risk similar to those of stocks, including those regarding short-selling and margin account maintenance. Investor shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Ordinary brokerage commissions apply.

ALPS Distributors, Inc. is the distributor of the Principal ETFs.

ALPS Distributors, Inc. and Principal Funds are not affiliated.

Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc, a member of the Principal Financial Group.

1 Preferred securities generally pay fixed and floating rate distributions and are junior to all forms of a company’s senior debt but may have "preference" over common stock in the payment of distributions and the liquidation of a company’s assets. Capital securities include certain subordinated debt securities issued by U.S. and non‑U.S. financial institutions, contingent convertible securities ("CoCos"), and certain preferred securities, issued by U.S. and non‑U.S. corporations, financial institutions, and other issuers, for purposes of satisfying regulatory capital requirements or obtaining rating agency credit. ETF will primarily be invested in USD Denominated securities. Exposure to Non-USD denominated will be less than 10%.

2 Qualified dividend income is ordinary dividend income that meets specific criteria to be taxed at the lower long-term capital gains tax rate, rather than at a higher tax rate for an individual’s ordinary income.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200616005659/en/

Contacts

Teresa Thoensen, (515) 878-0800, thoensen.teresa@principal.com