Published on 22 Jun 2016
The
current low-yield, high-volatility market is making preferred stocks
all-the-more attractive, said Ben Fulton, CEO of Elkhorn Investments.
Fulton launched the Elkhorn S&P High Quality Preferred ETF last
month. The EPRF is based on 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% to cumulative preferreds. 'This is a way for people to
take risk off in a preferred portfolio,' said Fulton. 'There was no
investment grade only preferred exposure in the ETF space so we are
delighted to bring this.' In general, preferred stock is a class of
equity security that pays a specified dividend that must be paid before
any dividends can be paid to common stockholders, and which takes
precedence over common stock in the event of the company's liquidation.
Although preferred stocks represent a partial ownership interest in a
company, preferred stocks generally do not carry voting rights and have
economic characteristics similar to fixed-income securities. Preferred
stocks generally are issued with a fixed par value and pay dividends
based on a percentage of that par value at a fixed or variable rate.
Additionally, preferred stocks often have a liquidation value that
generally equals the original purchase price of the preferred stock at
the date of issuance. 'We have not distributed yet, but we are
anticipating a 5.5% to 6% type of yield,' said Fulton. Unlike most
preferred stock funds which hold predominantly bank issues, the EPRF has
a very large REIT allocation, holding preferreds from the likes of
Kimco , Boston Properties and Public Storage . 'REITs have a very good
history of paying because they want to come back to the market,' said
Fulton. 'They have to pay back the preferred holders both past dividends
and future. That's why they tend to have a higher credit rating in the
marketplace.'
