S&P launches world’s first index for preferred stock on European and Asian markets

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Written by Ray Clancy

Tuesday, 24 August 2010 10:28

The first index dedicated to providing investors with exposure to preferred stock in developed European and Asian markets, has been announced.

Standard & Poor’s International Preferred Stock Index has been launched in response to demand for an investable benchmark of non US developer market preferred stocks and the high yields and diversifications that they can provide.

S&P, the world’s leading index provider, said the move creates first benchmark for international preference shares and follows last week’s launch of the S&P/TSX North American Preferred Stock Index, dedicated to North American preferred stocks.

Preferred stocks, or preference share, are a class of securities that combine the characteristics of debt and common stocks. While their expected volatility and returns fall between those of common stocks and bonds, their yields are typically higher than those of common stocks, bonds and money market instruments. With relatively low correlations to common stocks and bonds, they can serve as a good diversification instrument for investors.

‘Market conditions make this index, the first of its type, ideal for investors who are searching for higher yields at a time of historically low interest rates worldwide. The S&P International Preferred Stock Index will open up new avenues to access this increasingly sought after area of the market in Europe and Asia,’ said Steve Goldin, vice president of Strategy Indices at S&P Indices.

The S&P International Preferred Stock Index’s universe focuses on developed market preferred stocks that are traded on non US developed market exchanges. Emerging market issues and listings are excluded. Any preferred stock issued by a company to meet its capital financing requirements, such as floating and fixed rate preferreds, cumulative and non-cumulative preferreds, and preferred stocks with a callable or conversion feature, are also eligible for inclusion.

The Index is based on a modified market capitalisation weighting scheme. In order to improve liquidity, modifications are made to the index’s shares in order to prevent single issuer concentration. Rebalancing will be undertaken on a quarterly basis.