The landscape of exchange-traded funds dedicated to high-yielding preferred stocks is not as large as other corners of the ETF arena, so there is room for some innovation here. Innovation arrived Tuesday with the debut of the Elkhorn S&P High Quality Preferred ETF (BATS: EPRF), the first preferred ETF to focus on the quality factor.
The Elkhorn S&P High Quality Preferred ETF follows the S&P U.S. High Quality Preferred Stock Index, which selects fixed-rate investment grade preferred issues (BBB- or higher) from U.S. listed preferred stocks and maintains an allocation of 75 percent to cumulative preferreds, according to Illinois-based Elkhorn.
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All of the issues in EPRF's underlying index are investment-grade while some of the holdings in other major preferred indexes and ETFs carry junk ratings. However, that does not mean EPRF investors make a yield sacrifice. The new ETF's index yields a tidy 5.75 percent.
What Are Preferreds?
A preferred stock is a type of security that offers characteristics of both bonds and equities. The primary source of allure with preferreds is yield, although preferred shareholders are higher on the totem pole in the event of issuer bankruptcy or default than are common equity holders. Preferred dividends are fixed.
EPRF holds 105 preferreds and the new ETF uses a modified equal-weighting methodology. None of EPRF's holdings accounts for more than 2.83 percent of the ETF's weight. Preferreds from financial services issuers account for 86.6 percent of EPRF's lineup while utilities preferreds check in at 11.4 percent, according to Elkhorn data.
EPRF charges 0.47 percent per year, or $47 for every $10,000 invested.
EPRF also represents another coup for Bats Global Markets, which continues bolstering its lineup of ETF listings.
Bats ranks as the top exchange operator for ETF trading with the Bats Exchanges BYX, BZX, EGDA, EDGX executing 24.7 percent of all ETF trading for the month of April 2016. Bats has been the #1 U.S. market for ETF trading and the #2 U.S. market for overall equities trading for every month of 2016, according to a statement.
EPRF is the second Elkhorn ETF to list on Bats.
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