GraniteShares, a new kind of ETF company, acquired a U.S. high-income focused ETF strategy that invests in securities structured as pass-through entities.
On Monday, GraniteShares took over the HIPS US High Income ETF (NYSEArca: HIPS) and lowered the management fee on the ETF to 0.70% from 1.47%.
The GraniteShares HIPS US High Income ETF will try to reflect the performance of the TFMS HIPS 300 Index, which includes a basket of securities structured as pass-through entities such as master-limited partnerships, real estate investment trusts, closed-end funds and business development companies.
MLPs profit off the quantity of oil and natural gas they are able to move around. An MLP provides income potential as the firms typically pay out the majority of operating cash to investors on a quarterly basis.
REITs are securities that trade like a stock and invest in real estate directly through property ownership or mortgages. Consequently, revenue are mainly generated through rents or interest on mortgage loans. To qualify for special tax considerations, the asset also distributes the majority of income, about 90% of taxable profits, to investors as dividends.
Closed-end funds or CEFs are a publicly traded investment company that raised a certain amount of capital once through an initial public offering. The price of the CEF can fluctuate like any other stock listed on an exchange. However, unlike ETFs, a CEF issues a set number of shares, so the CEF can trade at a high premium or discount to its underlying net asset value.
BDCs essentially help fund small $5 million to $100 million businesses and offer attractive income opportunities since they are required to pay out 90% of income in form of dividends, a structure similar to what income investors find with real estate investment trusts.
Given its focus on high dividend-paying stocks, HIPS shows an attractive 7.38% 12-month dividend yield.
HIPS’s current portfolio sector exposures include asset management and BDCs 21%, CEFs 3%, commercial equity REITs 21%, energy processing and transportation 20%, energy production 1%, mortgage REITs 15% and residential/diversified equity REITs 19%.
Top holdings include Simon Property Group 6.3%, Blackstone Group 5.0%, Enterprise Prod Partners 4.3%, Welltower 3.1% and Ventas 2.8%.
“HIPS is an important acquisition for the firm as it seeks to serve as the benchmark for high income pass-through securities and has historically been one of the highest yielding ETFs in the market,” GraniteShares CEO and ETF entrepreneur Will Rhind said in a note. “This fund looks to mitigate sector risk associated with portfolio overconcentration, something often found with MLP investments. With its diversity, liquidity and yield, HIPS furthers our mission of providing good ideas to investors in the form of ETFs.”
For more information on new fund products, visit our new ETFs category.