The Attraction of Purpose US Preferred Share Fund Non-Currency Hedged (RPU.B/U) and Its Dividend Stability in a High-Yield Environment

In an era of rising interest rates and persistent inflation, investors are increasingly seeking income-generating assets that can weather macroeconomic headwinds. Among these, preferred shares have emerged as a compelling hybrid between bonds and common stocks, offering a balance of yield, stability, and strategic advantages. The Purpose US Preferred Share Fund Non-Currency Hedged (RPU.B/U) has carved out a unique niche in this landscape, combining exposure to U.S. preferred shares with a non-hedged structure that leverages USD/CAD dynamics. This article evaluates how RPU.B/U's dividend stability and structural design make it a valuable addition to diversified income portfolios, particularly in a high-yield environment.

The Case for Preferred Shares in a Rising Rate Environment

Preferred shares occupy a middle ground between bonds and common equity. Unlike bonds, which are senior in a capital structure but rigid in their fixed coupon payments, preferred shares offer higher yields while retaining some flexibility. Many U.S. preferred shares, especially those held by RPU.B/U, feature floating rate coupons that reset periodically. This mechanism allows their yields to rise in tandem with central bank rate hikes, mitigating price declines that typically accompany higher interest rates. For example, RPU.B/U's consistent quarterly dividends of $0.094 per share (as seen in recent data) demonstrate its ability to maintain income streams even as rates climb.

This resilience contrasts sharply with traditional bonds, which face downward price pressure as yields rise. While preferred shares are not immune to market volatility, their floating-rate structure and active management by RPU.B/U's fund managers—focused on avoiding “negative yield-to-call” securities—help preserve income consistency. For income-focused investors, this dynamic makes preferred shares a more adaptive tool than bonds in a tightening rate environment.

The Strategic Edge of a Non-Currency Hedged Structure

RPU.B/U's non-currency hedged approach introduces both risks and rewards. For Canadian investors, the fund's U.S. dollar-denominated returns are amplified when the Canadian dollar weakens against the U.S. dollar. In 2025, for instance, the USD/CAD pair has seen fluctuations between 1.32 and 1.36, with the Canadian dollar trending lower in the second half of the year. This depreciation boosts the value of U.S. dollar income streams when converted back to CAD, effectively enhancing total returns.

Critics may argue that currency volatility introduces unpredictability, but RPU.B/U's structure avoids the 0.5-1.0% annual drag associated with hedging costs. By forgoing hedging, the fund maintains a lower expense ratio, which is critical in a low-margin income strategy. For investors who view U.S. financials as a core component of their portfolios—given their historical resilience and consistent dividend policies—the non-hedged approach aligns with long-term strategic goals.

Diversification and Risk Mitigation in a High-Yield Portfolio

Preferred shares are inherently more volatile than bonds but less so than common stocks. This makes them ideal for portfolios seeking to balance growth and income. RPU.B/U's focus on U.S. financial institutions—a sector known for robust capital structures and reliable dividend histories—further stabilizes its risk profile. For example, the fund's top holdings include preferred shares from banks and insurers, which are less cyclical than industrial or tech equities.

Moreover, RPU.B/U's active management strategy—excluding securities with negative yield-to-call characteristics—reduces reinvestment risk. This is particularly relevant in a rising rate environment, where callable bonds and shares could be redeemed at suboptimal times. By prioritizing high-quality issuers and favorable terms, the fund ensures that its dividend stream remains intact even during market stress.

Practical Considerations for Investors

While RPU.B/U offers compelling attributes, investors must weigh its suitability for their risk tolerance and time horizon. The fund is best suited for intermediate-term income seekers who can tolerate moderate price fluctuations. Its non-hedged structure also makes it less ideal for investors with rigid currency exposure constraints. However, for those comfortable with USD/CAD swings and seeking higher yields than traditional bonds, RPU.B/U provides a strategic edge.

To integrate RPU.B/U into a diversified portfolio, consider the following:
1. Allocation Balance: Treat it as a satellite holding within a core of bonds and equities, allocating 5-10% to preferred shares for yield enhancement.
2. Currency Exposure: Pair RPU.B/U with hedged alternatives (e.g., RPU.B's hedged counterpart) to manage FX risk while maintaining access to U.S. markets.
3. Reinvestment Strategy: Reinvest dividends into high-conviction sectors or use them to offset portfolio drawdowns during equity downturns.

Conclusion: A High-Yield Staple in a Volatile World

The Purpose US Preferred Share Fund Non-Currency Hedged (RPU.B/U) exemplifies how preferred shares can serve as a linchpin in diversified income portfolios. Its combination of floating-rate dividends, active management, and strategic currency exposure positions it to thrive in a high-yield environment. While rising rates and currency volatility remain challenges, RPU.B/U's structure and focus on U.S. financials offer a compelling solution for investors seeking stability without sacrificing returns. As markets continue to navigate macroeconomic uncertainty, assets like RPU.B/U will likely remain in demand for their unique ability to adapt and deliver.