If You Invested in Invesco Variable Rate Preferred ETF (VRP)

Invesco Variable Rate Preferred ETF (VRP) is an exchange-traded fund sponsored by Invesco Ltd., a global independent investment management firm. According to Invesco, VRP invests in preferred securities, or securities that are comparable to preferred securities, that comprise its underlying index. The fund is part of Invesco’s broader ETF lineup and is associated with the investment advice sector.

Invesco has stated that VRP is designed to track an underlying index of preferred and hybrid securities. As disclosed in a company announcement, VRP previously tracked the Wells Fargo® Hybrid and Preferred Securities Floating and Variable Rate Index and transitioned to the ICE Variable Rate Preferred & Hybrid Securities Index. Both indices are described as rules-based benchmarks that include preferred stock and hybrid securities meeting specified eligibility criteria.

The ICE Variable Rate Preferred & Hybrid Securities Index is described as tracking the performance of floating and variable rate U.S. dollar denominated preferred stock and hybrid debt publicly issued by corporations in the U.S. domestic market. The index includes both investment grade and below investment grade securities that satisfy certain eligibility standards. VRP seeks to hold preferred securities, or comparable instruments, that are constituents of this index.

Invesco emphasizes that an investment cannot be made directly into an index, and that ETFs such as VRP are subject to risks similar to those of stocks. The firm notes that shares of the fund are not actively managed and that the fund’s return may not match the return of its underlying index. Ordinary brokerage commissions apply to trading in the ETF, and shares are not individually redeemable except in large creation unit aggregations.

The sponsor highlights several risk considerations relevant to VRP’s focus on preferred and hybrid securities. Preferred securities may be less liquid than many other securities, and issuers may redeem such securities before a specified date. There is also the risk that an issuer may be unable to meet interest or principal payments, which could reduce the value of its instruments and affect credit ratings. Invesco also notes interest rate risk, describing that bond prices generally fall as interest rates rise and vice versa.

Invesco states that there are risks involved with investing in ETFs, including possible loss of money, and that the funds’ returns may differ from the performance of their underlying indexes. The firm indicates that investors should consult the fund’s prospectus or summary prospectus for more complete information on investment objectives, risks, charges and expenses, and should consider these factors carefully before investing.

VRP is associated with Invesco Ltd., which is described as a global independent investment management firm with offices in more than 20 countries and a range of active, passive and alternative investment capabilities. Invesco presents VRP and its related index relationship within the context of its broader effort to align its ETFs with the needs and long-term investment objectives of shareholders.

Investment focus and index changes

In a public announcement, Invesco explained that it would change the underlying indexes of two ETFs, including the Invesco Variable Rate Preferred ETF. For VRP, the underlying index changed from the Wells Fargo® Hybrid and Preferred Securities Floating and Variable Rate Index to the ICE Variable Rate Preferred & Hybrid Securities Index. Invesco stated that these changes were part of its commitment to the needs and long-term investment objectives of shareholders and were intended to provide continuity for the ETFs.

The Wells Fargo® Hybrid and Preferred Securities Floating and Variable Rate Index is described as designed to track the performance of certain preferred stock and other hybrid securities that Wells Fargo Securities, LLC judges to be comparable to preferred stock and that meet specified eligibility criteria. The ICE Variable Rate Preferred & Hybrid Securities Index, to which VRP’s index exposure was transitioned, is described as tracking floating and variable rate preferred stock and hybrid debt that are publicly issued by corporations in the U.S. domestic market and meet defined eligibility standards.

Risk disclosures and structural features

Invesco’s disclosures emphasize that shares of VRP are not bank deposits, are not insured by the FDIC or any federal government agency, are not guaranteed by a bank, and may lose value. The firm notes that shares are not individually redeemable and that owners may acquire or redeem shares from the fund only in large creation unit aggregations, which typically consist of a specified number of shares as described in the fund’s materials.

The sponsor also notes that the fund is subject to risks related to short selling and margin maintenance requirements, and that the fund’s performance may diverge from that of its underlying index. Invesco directs investors to the prospectus for detailed information about these and other risks.

Relationship with index providers

Invesco explains that VRP is not sponsored, issued or advised by Wells Fargo or ICE Data Indices, LLC. Wells Fargo’s relationship to Invesco Capital Management LLC is limited to the licensing of certain trademarks, trade names and data used in connection with the former Wells Fargo index. Similarly, ICE Data and its suppliers license the ICE Variable Rate Preferred & Hybrid Securities Index and related data. Both Wells Fargo and ICE Data disclaim any warranties or representations regarding the advisability of investing in VRP or the ability of the indexes to track general market performance.

These disclosures underscore that the index providers do not administer, market or trade VRP and have no obligation to consider the needs of the fund or its shareholders when determining, composing or calculating index data. Invesco positions VRP as an ETF that seeks to reflect the performance of its designated index of preferred and hybrid securities, subject to the limitations and risks described in its offering documents.