Holders of This ETF Saw Their Possible Yield Fall Overnight

  • Index tracked by PowerShares Preferred ETF changed methodology
  • Result is a lower ‘worst case’ yield for the $4.9 billion ETF

A trader is reflected in a monitor as he works on the floor of the New York Stock Exchange.

Photographer: Jin Lee/Bloomberg
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Investors in the $4.9 billion PowerShares Preferred Portfolio, one of the biggest funds focusing on preferred shares, last month found that a huge chunk of their potential returns had vanished in short order.

A key measure of the yield for the exchange-traded fund’s underlying index plunged by nearly 3 percentage points on March 22. The change came because the index switched the way it calculates the metric known as yield to worst, which indicates the investor’s income from the fund in a worst-case-scenario.