The GraniteShares HIPS US High Income ETF (NYSEArca: HIPS) is revising its index methodology.
GraniteShares took control of the fund in late 2017. At that time, HIPS’ objective was 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.
Earlier this week, GraniteShares revised the fund’s index methodology.
“The revised index, officially renamed the TFMS HIPS Index, rolled out July 1, 2019, and includes several key enhancements that could potentially benefit investors,” according to a statement issued by GraniteShares.
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.
Inside The New Index Methodology
“First, a quantitative screen was applied to the stock selection process to help minimize index volatility and dampen the effect of recent market uncertainty on index return,” said GraniteShares. “Additionally, a cap was introduced that limits the index to holding no more than 60 high-income securities, versus 300 securities measured in the original index.”
HIPS also holds closed-end funds and business development companies. 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 the form of dividends, a structure similar to what income investors find with real estate investment trusts.
“HIPS is historically one of the highest-yielding ETFs in the U.S., and currently boasts a very competitive yield,” said GraniteShares. “HIPS is part of GraniteShares’ growing ETF suite that has surpassed over $625 Million in total assets under management in just over two years.”
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