Innovative Portfolios debuts two income-focused ETFs

Mar 8th, 2022 | By | Category: Equities

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Indiana-based investment manager Innovative Portfolios has debuted two income-focused ETFs that combine dividend-paying securities with option strategy overlays in order to amplify total yield.

Innovative Portfolios rang the opening bell at Cboe to celebrate the launch of their two new ETFs.

Innovative Portfolios rang the opening bell at Cboe to celebrate the launch of their two new ETFs.

The $16 million Dividend Performers Fund (IPDP US) and $13m Preferred-Plus Fund (IPPP US), which have been listed on Cboe BZX Exchange, were created by converting two of the firm’s actively managed mutual funds.

Each ETF comes with an expense ratio of 0.85% and makes distributions to investors on a quarterly basis.

Dave Gilreath, Managing Director and Chief Investment Officer of Innovative Portfolios, said: “As our investors’ interests are a top priority, we recognize the benefits in converting our mutual funds to actively managed ETFs. ETFs offer greater transparency, tax efficiency, and lower fees for investors who are looking to add the potential for greater income generation.”

Dividend Performers

The Dividend Performers ETF selects its constituents from the Nasdaq US Dividend Achievers Index which consists of US-listed companies that have increased their dividends every year for at least the last ten years.

Innovative Portfolios utilizes its proprietary research to select 50 stocks from this universe that have the lowest perceived downside risk based on an evaluation of free-cash-flow, revenue stability, profitability trends, leverage, stock price volatility and correlation, and earning surprise persistency.

The ETF also maintains approximately a 20% asset exposure to a put spread option strategy which consists of selling short-term put options on the S&P 500 and simultaneously buying short-term put options with a lower strike price.

The put spread strategy collects income from the difference in put prices and will generally be profitable if the S&P 500 is flat or trends upwards during the life of the options. It will suffer if the S&P 500 falls but losses will be capped when the price falls below the strike price of the long put which acts as a hedge.

Preferred-Plus

The Preferred-Plus ETF, meanwhile, invests in a diverse range of preferred securities issued by US and non-US companies including traditional, hybrid, floating rate, and convertible preferreds, as well as ETFs that invest in these securities.

While the fund may invest in securities of any quality, it will aim to maintain a weighted average credit rating that stays within the investment-grade segment.

When selecting securities for inclusion, Innovative Portfolios evaluates an issuer’s creditworthiness and corporate structure, prevailing market factors such as the likely direction of credit ratings, and structural security features such as calls, conversions, and other provisions.

The ETF also utilizes a similar put option spread based on the S&P 500; however, the option overlay will represent approximately 10% of the fund’s total exposure.

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