Securing Income in Rising Rates: Why BMO US Preferred Share ETF (ZPR.U) is a Top Pick for 2025

The Federal Reserve’s pivot toward rate cuts has sparked a hunt for yield in an environment where traditional fixed-income assets like Treasuries offer paltry returns. Enter the BMO US Preferred Share Index ETF (ZPR.U), a vehicle positioned to capitalize on two critical trends: the resilience of dividend-paying preferred shares and strategic exposure to sectors like financials and energy—industries traditionally underpinned by strong balance sheets and steady cash flows.

The Dividend Advantage: A Monthly Buffer Against Volatility

ZPR.U recently declared a $0.098 monthly dividend, translating to an annualized yield of 4.7% at current prices. This dividend is not merely a perk—it’s a reflection of the robust underpinning of the preferred share market. Preferred shares rank senior to common stock in liquidation and typically offer higher yields than corporate bonds, with dividends often prioritized over equity payouts.

The ETF’s yield stands in stark contrast to U.S. Treasuries, which currently offer a paltry 3.5% yield on the 10-year note. This gap highlights ZPR.U’s role as a high-yield anchor for income portfolios, especially as the Fed’s rate cuts may prolong the search for yield.

Sector Exposure: Financials and Energy—The Bedrock of Stability

While the ETF tracks the Solactive US Preferred Share Index, its holdings are traditionally heavily weighted in financials (banks, insurers) and energy firms, sectors that dominate the preferred share market. These industries benefit from:
- Financials: Strong capital ratios, rising net interest margins (NIM), and a resilient demand for credit.
- Energy: High cash flow from oil/gas production and a focus on shareholder returns amid elevated commodity prices.

This sector mix offers diversification beyond bonds while aligning with sectors that thrive in a rising-rate environment.

Floating-Rate Exposure: A Hedge Against Rate Volatility

Though the ETF’s floating-rate exposure percentage isn’t explicitly disclosed, preferred shares often include variable-rate resets, which adjust coupons as benchmark rates change. This feature mitigates the risk of rising rates eroding bond prices—a critical advantage as the Fed’s policy path remains uncertain.

Even in a rate-cut scenario, preferred shares’ coupon structures (often tied to LIBOR or SOFR) ensure income remains competitive. For example, shows ZPR.U’s YTM of 6.65% (as of Q1 2025) outperforms many floating-rate bond ETFs, combining fixed-income stability with equity-like upside.

Why Act Now?

1. Yield Superiority: ZPR.U’s 6.65% YTM vs. 10-year Treasuries’ 3.5% is a no-brainer for income seekers.
2. Sector Resilience: Financials and energy firms are creditworthy issuers, reducing default risk.
3. Rate Flexibility: Floating-rate mechanics insulate income from Fed policy swings.

Call to Action

Investors should allocate 5–10% of their fixed-income portfolio to ZPR.U to capture this yield differential. With a management fee of just 0.45%, it’s a cost-effective way to diversify beyond bonds while maintaining income quality.

In a world of low yields and rate uncertainty, ZPR.U isn’t just an ETF—it’s a strategic weapon for income investors. Don’t let the Fed’s next move catch you unprepared.

Final Note: Preferred shares are not immune to equity market downturns, but their seniority and high yields make them a compelling hedge in a mixed-rate environment. Act now to secure this yield advantage before the window narrows.