Navigating Rising Rates with HPR: A Strategic Income Play in a Shifting Landscape

In an era where central banks are aggressively tightening monetary policy to combat inflation, income-focused investors face a dual challenge: preserving capital while maintaining attractive returns. The Global X Active Preferred Share ETF (HPR) emerges as a compelling solution, offering a unique blend of yield resilience, active management, and low discount risk. This article evaluates HPR's strategic advantages in a rising rate environment, positioning it as a robust vehicle for income generation amid macroeconomic uncertainty.

HPR's Yield Resilience: A Shield Against Rate Hikes

Preferred shares, the cornerstone of HPR's portfolio, are inherently less sensitive to interest rate fluctuations than traditional bonds. With a weighted average duration of 6.05 and a yield to maturity of 5.18%, HPR balances moderate interest rate exposure with a robust income stream. Its 12-month trailing yield of 4.04% (as of July 31, 2025) outpaces many fixed-income alternatives, even as rates climb. This is achieved through a focus on high-credit-quality preferred shares, which typically offer fixed dividends and are less volatile than common equities.

The fund's active management strategy, led by Fiera Capital, further enhances its resilience. By dynamically adjusting sector allocations and prioritizing securities with shorter maturities, HPR mitigates the drag of rising rates. For instance, its overweight position in provincial and corporate bonds with maturities under 10 years ensures a steady reinvestment of capital at higher yields as older securities mature.

Active Management: The Engine Behind HPR's Performance

Fiera Capital's approach to managing HPR is rooted in three pillars: Process, People, and Parent. The firm's disciplined investment process emphasizes rigorous fundamental analysis, technical indicators, and sentiment tracking to identify undervalued preferred shares. This multi-faceted strategy allows HPR to capitalize on market inefficiencies, even in turbulent environments.

A key differentiator is Fiera's use of interest rate sensitivity analysis, which models how portfolio valuations might shift under various rate scenarios. By maintaining a duration similar to its benchmark while optimizing yield curve positioning, HPR avoids the pitfalls of passive strategies that lock in long-term, rate-sensitive assets. Additionally, the fund employs optional hedging techniques to further insulate against sudden rate spikes, a critical advantage in today's unpredictable climate.

Discount Risk Mitigation: A Narrow Margin of Safety

One of the primary risks for ETF investors is the potential for a widening discount to NAV. HPR's current discount of -0.08% (as of August 19, 2025) is exceptionally narrow, reflecting strong market confidence in its active management and yield profile. This is a stark contrast to many closed-end funds, which often trade at significant discounts due to liquidity constraints or poor performance.

Fiera Capital actively monitors and manages discount risk through strategic portfolio adjustments. For example, by focusing on high-liquidity preferred shares and maintaining a conservative leverage profile, the fund minimizes the gap between its trading price and intrinsic value. This approach ensures that investors are not penalized by market sentiment-driven dislocations, a common issue in less actively managed alternatives.

Historical Context: Lessons from the Past

While HPR's specific historical performance during prior rate hikes is not fully detailed in available data, broader trends in the energy and preferred share sectors offer insights. Energy companies with strong balance sheets, like those in HPR's portfolio, historically outperform during early-stage tightening cycles when economic growth remains robust. For example, during the 2015–2018 rate hike period, energy stocks initially benefited from strong demand, though later faced headwinds as rates continued to rise. HPR's focus on shorter-duration preferred shares, however, likely softens the blow of prolonged rate increases compared to long-term bonds.

Moreover, HPR's active management allows it to adapt to shifting conditions. In 2022–2023, when the Fed's aggressive hikes caused market-wide volatility, HPR's tactical sector rotations and yield-enhancing strategies likely cushioned its performance relative to passive peers. This adaptability is a hallmark of its strategic value in a rising rate environment.

Investment Considerations: Balancing Risk and Reward

For investors seeking income in a high-rate world, HPR offers a compelling case. Its 4.04% yield, combined with active risk management, provides a stable income stream without excessive exposure to rate-sensitive assets. However, several factors warrant attention:
1. Diversification: While HPR's focus on preferred shares reduces volatility, it should be part of a broader fixed-income and equity portfolio.
2. Monitoring: Investors should track HPR's discount to NAV and distribution sustainability, as these metrics can shift with market conditions.
3. Tax Implications: Distributions may include a return of capital, which affects taxable gains.

Conclusion: A Strategic Play for Income Resilience

The Global X Active Preferred Share ETF (HPR) stands out as a resilient income vehicle in a rising rate environment. Its active management strategies, low discount risk, and yield-focused portfolio construction position it to outperform passive alternatives while mitigating the downsides of rate hikes. For investors prioritizing both income and capital preservation, HPR offers a strategic edge—leveraging the strengths of active management to navigate the complexities of today's market.

As central banks continue to navigate inflationary pressures, the ability to adapt and optimize yield without sacrificing stability will be paramount. HPR's disciplined approach, rooted in Fiera Capital's expertise, makes it a standout choice for those seeking to thrive in a high-rate world.