Nasdaq can add IPOs in 15 days; preferred ETFs face duration risk

Nasdaq recently updated its listing rules to allow qualifying initial public offerings to enter the Nasdaq-100 as soon as 15 days after listing. To be eligible, a company must rank among the top 40 by market capitalization.

Rich Lee, head of program trading and execution strategy at Baird, noted index providers are updating criteria because companies are staying private longer and debuting with larger valuations. He added that combining an IPO and index inclusion in 15 days forces two volatile events to overlap and can complicate price discovery. As a comparison, Tesla waited five to ten years before joining the S&P 500.

The U.S. Securities and Exchange Commission is seeking public comment on proposed prediction market ETFs. Lee said a central question for regulators and fund designers is whether those products would hold underlying assets directly or rely on rolling futures contracts, which can introduce structural decay in some commodity-style ETFs.

Douglas Baker, portfolio manager and head of preferred securities at Nuveen, outlined the preferred securities market at roughly $1 trillion globally, with about $750 billion denominated in U.S. dollars. He noted investors are attracted to preferreds for higher yields and for income that can receive favorable tax treatment.

Baker explained rating agencies typically place preferreds about four notches below an issuer’s senior debt because preferreds sit lower in the capital structure. That can produce a situation where a fund with an average BBB rating is backed by issuers whose senior debt is rated in the single-A range.

Duration presents a key risk for preferred holdings, particularly in passive funds. Baker warned many passive preferred ETFs carry effective durations of eight to nine years and described that profile as “aggressive” given persistent inflation, higher government deficits and increased financing needs tied to geopolitical conflict. Nuveen’s Preferred and Income ETF (NPFI) actively manages duration in a three- to five-year range.

Baker noted Nuveen’s mutual fund version of the preferred strategy has outperformed its benchmark by more than 200 basis points annually on a gross basis over the past 20 years. He also pointed out preferred securities often have fixed or floating coupons and call provisions, features that affect yield and sensitivity to interest rate moves.

The comments were made on the ETF Prime podcast hosted by Nate Geraci. Lee appeared for Baird’s program trading and execution strategy team and Baker spoke for Nuveen’s preferred securities group. The discussion covered how faster index inclusion rules and the structure of preferred ETFs may affect investor portfolio choices.