Upstart exchange traded funds issuer Elkhorn Investments could add a preferred stocks ETF later this month. The Elkhorn S&P High Quality Preferred ETF, which would be Illinois-based Elkhorn’s third ETF, could debut before the end of May.
The new ETF will trade under the ticker EPRF and track the S&P U.S. High Quality Preferred Index. That index is comprised of Investment Grade, Cumulative Preferred Securities (BBB or higher). The index is designed to serve as an investable benchmark that represents the high-quality U.S. preferred stock market using quality characteristics pertaining to type of issuance, payment, and rating.
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Preferred stocks are a type of hybrid security that show bond- and equity-esque characteristics. The shares are issued by financial institutions, utilities and telecom companies, among others. Within the securities hierarchy, preferreds are senior to common stocks but junior to corporate bonds. Additionally, preferred stocks issue dividends on a regular basis, but investors are unlikely to enjoy capital appreciation on par with common shares.
[related_stories]While preferred stocks provide investors with an attractive source of yields, potential investors should keep in mind that the assets are vulnerable in a rising interest rate environment. If rates rise, the holdings must decline in price to elevate their yield to attractive levels. Furthermore, most preferred stocks are either perpetual or long-dated, which exposes investors to significant interest-rate risk.
Elkhorn’s other ETFs include the Elkhorn FTSE RAFI U.S. Equity Income ETF (BATS: ELKU), which follows the performance of high yield U.S. stocks that have been screened for fundamental factors to target sustainable income. The underlying index screens for financial health based on the return on assets, cash flow to short-term debt plus interest expenses and net operating asset scaled by total assets.
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The Elkhorn S&P 500 Capital Expenditures Portfolio (NasdaqGM: CAPX) targets those companies that are diligently reinvesting in their businesses to increase market share and competitive moat. Specifically, CAPX takes the top 100 S&P 500 companies based on efficient capital expenditure as a way to track U.S. firms that have reinvested their money toward meaningful growth and innovation. The ETF was launched at the end of May.
For more news on New ETFs, visit our New ETF category.