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.’
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