The Innovator S&P Investment Grade Preferred ETF (EPRF) seeks to track investment-grade preferred stocks, which are hybrid securities that combine features of both stocks and bonds, typically paying fixed dividends and ranking above common stock in bankruptcy proceedings.
How It Works
EPRF uses a passively managed approach to replicate the performance of investment-grade preferred securities issued by U.S. corporations. The fund focuses on preferred stocks with credit ratings of BBB- or higher from major rating agencies. Holdings are selected based on credit quality, liquidity, and market capitalization criteria. The fund rebalances periodically to maintain alignment with its investment-grade mandate and may hold 50-150 preferred stock positions across various sectors including financials, utilities, and REITs.
Key Features
- Targets investment-grade preferred stocks only, reducing credit risk compared to high-yield preferred ETFs
- Offers attractive 5.01% dividend yield with quarterly distributions from preferred stock dividend payments
- Zero expense ratio provides cost-effective access to preferred securities market typically requiring large minimum investments
Risks
- This ETF can lose significant value when interest rates rise, as preferred stocks are interest-rate sensitive and may decline 10-20% during rate hiking cycles
- Credit downgrades of underlying preferred issuers can force sales and cause price volatility, particularly affecting financial sector holdings
- Preferred stocks generally underperform during strong equity bull markets as investors favor common stocks with higher growth potential over fixed-income securities
Who Should Own This
Best suited for income-focused investors with 3-5 year time horizons seeking higher yields than bonds but lower volatility than common stocks. Appropriate as 5-15% satellite allocation for conservative portfolios. Requires medium risk tolerance due to interest rate sensitivity and credit risk exposure.