October 7, 2025 • 45 mins
Rate cuts change the math on income, but your cash flow doesn’t have to shrink. We invited Will Rind of GraniteShares to unpack a practical way to keep payouts steady as short-term yields slide: a diversified basket of pass-through securities inside the HIPS ETF that aims for an all-weather stream of monthly income. We dig into how REITs, MLPs, BDCs, and fixed income–oriented closed-end funds each respond to different growth and inflation regimes, and why blending them can smooth the ride when markets lurch.
We walk through the index rules that power HIPS—screening for the highest yields and the lowest volatility within each sector, then equal-weighting the results—and why the pass-through structure matters. Because these entities distribute most of their income and avoid corporate tax, more of the cash makes it to investors, and a return of capital component can improve after-tax outcomes. We also get candid about trade-offs: NAV will move with markets, but the fund has paid the same fixed monthly amount for more than a decade, including through the 2020 shock when many dividend strategies cut or suspended payouts.
From portfolio fit to policy risk, we tackle the real questions advisors and investors ask. Should HIPS be core or a satellite? How does it complement the Agg or government bonds without doubling down on duration or credit? What do expense ratios mean when BDCs are involved, and how should you interpret acquired fund fees? We compare liquid, transparent alternative income to private credit’s lockups and opaque marks, then explore pairing HIPS with GraniteShares’ options-based Yield Boost strategies for those seeking weekly distributions and higher-octane cash flow—recognizing the higher volatility that comes with it.
If you’re planning for consistent cash in a falling-rate world, this conversation offers a clear framework, a battle-tested track record, and practical ways to assemble an income sleeve that pays. Subscribe, share this episode with a friend who manages income portfolios, and leave a quick review to tell us what topic you want us to tackle next.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:11):
Glad that some people are here for what will be
a very good conversation arounduh hips, and I don't mean uh the
body part.
Uh I mean uh the uh ticker uhhips.
The hips don't lie, exactly.
That should be a slogan for forhips.
Uh for those that are uh herethat are uh financial advisors,
do me a favor if you have to bephysically in an office, please
tell other advisors that thiswebinar is taking place.
(00:32):
I have uh been traveling thelast seven weeks.
It's been quite a bit of backand forth away from home, and
now I'm back in action and gonnabe getting back in the swing of
things with webinars withsponsors and clients and great
people like Will Ryan of GraniteShares.
So uh for those that are herefor the CE credits, do me a
favor, uh stick around to theend of the presentation.
We'll probably keep this toaround 30, 40 minutes or so.
Uh, I will email you afterwards,get your information, uh, submit
(00:55):
that to the CFP board.
Uh so stay tuned for that.
And uh with that said, I want myfriend Mr.
Will Ryan of Granite Shares totake from here, talk about HIPS,
alternative unconvinced income.
SPEAKER_01 (01:05):
Exactly.
Well, thank you, Michael, andthank you, everybody, for tuning
in today to this session.
And we're doing this todaybecause obviously, after
yesterday's rate cut, um, Ithought it'd be a good time to
remind everybody in now what isalmost certainly a declining
interest rate environmenttowards the end of this year,
(01:26):
about how to generate yield in aportfolio.
And there are still places to gofor high yields and different
areas of the market where youstill get an attractive risk
reward uh return when maybe thenice returns or the nice yields
that you've been used to seeingfrom you know short-term
treasuries or from money marketsby the end of the year might not
(01:49):
look so appealing.
So, with that, let's jump intoit.
And we're gonna talk a littlebit just between us.
So I'm going through apresentation, but at the same
time, it's really just to sortof reference uh this
conversation as we go along.
So, for those of you that don'tknow us or are not familiar with
Granite Shares, we're an ETFissuer.
(02:11):
Uh, means we're an asset managerthat focuses exclusively on the
creation, the launch, themanagement, the marketing of
exchange traded funds, allthings exchange traded.
We're a global company basedhere in New York City, um, but
we have a presence all aroundthe world, um, including major
Asian markets and running uhsomewhere between 10 and 11
(02:36):
billion of AUM these days.
We do a number of differentETFs.
There are actually too many tofit on these different pages.
Um, so you just get a briefsnapshot of what we do.
Um, but suffice to say, we havea lot of different strategies in
our portfolio that range fromcommodity-based ETFs like
(02:58):
physical gold or broad uhcommodities to growth equity
income, in the case of optionsincome and our yield boost
family, uh leveraged ETFs onsingle stocks, uh, and of
course, the subject for today,uh, which is our HIPS ETF.
(03:20):
So a lot of different productsavailable for all sorts of
different investment needs.
But again, we're gonna focus onHIS today.
So, as I said, um, you know, inlight of the rate decision
yesterday, and in light ofexpectations that we could see
another couple of rate cuts umtowards the end of the year, and
(03:42):
maybe magnitude still somewhatin question, but let's say for
argument's sake, around 75 basispoints, maybe more between now
and the end of the year, thatit's worth talking about uh the
income environment again.
And, you know, again, maybe justa step back a bit that, you
know, just to frame thisconversation, that, you know,
(04:04):
from a historical perspective,up until the last few years, um
we were in an environment wherethe majority of return that was
coming from fixed incomeinvestments was coming from
capital gains and not fromyields or from income
generation.
And that all changed, obviously,when the the Fed started hiking
(04:25):
interest rates.
We started to go into a risinginterest rate environment.
And in that particular scenario,people lost money in bonds from
a capital perspective and yieldsimproved significantly in that
time.
So now that we're at the top ofthat cycle or on the other way
(04:45):
down again, um, you know, whatcan investors do about a
scenario where we have declininginterest rates?
And again, we're back to sort ofsomewhat similar position
before, where we have a morevolatile fixed income
environment where people haveexperiences gains and losses and
yields that are sort offluctuating.
(05:07):
Is there anywhere we can getmore stability in terms of yield
and portfolio?
So this chart here shows alittle bit of the historical
context just displayed in chartformat.
And what you're looking at hereis the 10-year treasury uh in
blue against the ag total returnin red, and then the ag dividend
(05:32):
return in sort of orangey yellowcolor.
And again, just to show that umyour environment where rates are
falling, that bond prices wererising, and people did well in
the ag, but that growth or thatgain was coming from a capital
appreciation as opposed to toincome or yield.
And now we're on the other sideof that where um we're starting
(05:55):
to see interest rates come downagain.
So, for those of you that arenot familiar, um, we're gonna be
talking about alternative incomein today's conversation.
So, alternative income is aphrase that uh we use to
describe what HIPS does.
And this is a category that umrefers to non-traditional fixed
income.
So, first and foremost, the HIPSis not a fixed income ETF, and
(06:19):
we're not talking about bondsspecifically.
That um we're talking about atype of security that is not a
traditional either stock or bondor a stock, a dividend-paying
stock, and specifically.
And you know, what we're talkingabout is a sort of subset of the
market called pass-throughsecurities.
(06:42):
And pass-through securities area subsection of the market,
which are securities that arerequired by law to distribute
substantially all of theirincome generated to
shareholders.
And so they do that uniquelywithout any corporation
(07:02):
taxation.
So pass-through securities arestrict, they are are typically
structured as pass-throughs, uh,and therefore they avoid
corporation taxes.
How this looks in sort ofpractice is a bit like here,
where we try and uh chart or youknow show by way of a picture
(07:26):
the difference between takingincome from an entity, a
corporation, in this particularcase, that is subject to
corporation tax.
And that's the top sort of threeuh circles or bubbles.
Um, and then below ones that arenot subject, i.e., pass-through
securities.
(07:47):
So the bottom line here is whenyou have corporation tax in the
middle, you're automatically uhreceiving net income amount that
is lower than if you were notpaying any corporate tax.
So to start with, when you havean investment in a pass-through
entity, the amount of incomethat you're receiving is free
(08:08):
from corporation tax, but you'restarting obviously at a higher
level of income versus theequivalent, which has been paid
away in terms of corporationtaxes.
Now, for pass-throughsecurities, there are four main
sectors of the pass-throughsecurity world, which we'll
discuss today.
(08:28):
But namely, those four mainsectors are gonna be real estate
investment trusts, so REITs thatinvest in mainly a combination
of physical property or physicalreal estate andor mortgages and
the other type of REITs.
So master limited partnerships,these are entities that
(08:52):
typically invest in energyinfrastructure, so oil and gas
infrastructure, be it pipelines,et cetera.
Um, BDCs or business developmentcompanies, these are entities
that typically act as lenders ornon-bank lenders to small and
medium-sized businesses.
Uh, and then you have closed-endfunds, which can have a variety
(09:16):
of different strategies, uh, etcetera.
But the ones that we're going tobe talking about today are
typically in the fixed incomearena.
And again, with all of these uhparticular strategies or
sectors, uh, they are requiredby law to distribute almost all
of their income to shareholdersand do not pay corporation tax.
(09:38):
So I think if there's one slideuh in this presentation to take
away, then this is probably it.
And we use this one tospecifically describe the value
uh that we that we perceive inHIPS, the ETF.
And you know, the bottom linewith HIPS is we're trying to
(09:58):
create an all-weather incomeportfolio.
And what does that mean?
It simply means that we're ableto pay a consistent monthly
distribution throughout marketcycles.
So, in other words, it doesn'tmatter what the market is doing,
whether the market's up, whetherthe market's down, whether we
(10:20):
are in a high growthenvironment, a low growth
environment, whether we're in ahigh inflation environment, a
low inflation environment, thatin all market cycles, we have a
part or portions of theportfolio that will do well in
these particular environments.
So if you look here, what thisis showing you is throughout the
(10:43):
economic cycle, if you look atthe respective quadrants here in
this particular chart, whetheryou're in a high inflation
environment but a low growthenvironment, that's going to
favor investments in the topleft, like the cash-like
investments, closed-end thumbs,particularly those that are
involved in more loan strategiesor mortgage rates.
(11:07):
And then conversely, on theother side of the chart, uh top
right, I'm now looking at whereyou have a high growth
environment and a high inflationenvironment.
That particular environmentfavors something more like hard
assets, or which is MLPs, uh,particularly upstream types of
MLPs, equity REITs, which ownphysical real estate.
(11:31):
Um, so there's always going tobe something in the portfolio
that can benefit in thesedifferent market environments.
And obviously, given the trackrecord of HIPS, that's exactly
what's happened over the last 10plus years of track record.
So HIPS is an index fund, whichmeans that we're tracking a
(11:53):
underlying index.
Now, how that index isconstructed is as follows is
that you start with the fourmain sectors of the pass-through
security universe, MLPs, REITs,closed ends, and BDCs.
And then you sort those orscreen those for the 10 highest
(12:14):
yielding securities in eachsector and the 10 least volatile
securities in each sector.
And then you put those togetherand equal weight them, and that
becomes the portfolio.
So you end up with an equallyweighted portfolio that's
represented across all sectors,uh comprising of the highest
(12:35):
yielding securities with thelowest volatility.
And again, the idea behind thatis that we want to create um a
high distribution yield, but wealso want something that is
stable, something that isconsistent and not super
volatile.
So if you look at um what theportfolio holds today, you've
(12:57):
got the the top 10 fund holdingsum on the right-hand table.
But of course, the beauty of anyETF uh in the market is of
course you can go to graniteshares.com or you can go to most
of the public websites that uhyou know catalog this kind of
data and see the holdings on adaily basis.
(13:18):
So ETFs are completelytransparent and you can see
these holdings.
Um, the top 10 here isrepresented.
And then the sector chart on theleft-hand side, where you can
see uh roughly equalrepresentation for those sectors
with a residual cash amount.
And again, that's all availableon the website, and you can look
(13:39):
at that, uh, download theholdings every day for not just
hip, but for any ETF.
So here again is performancethat um you can see on the
website, um, be it the one-yearperformance, the five-year, or
since inception.
And again, that is performancewhich includes the
(14:00):
distributions, and HIPS isdistributed every month, um, a
fixed distribution amount sinceinception, so over 10 years.
Again, this is a representationof the performance um since
inception.
And the important thing here, Ithink, in this table is just to
show you really the one um, youknow, worst-case scenario, if
(14:22):
you want to call it that, whichwas in 2020 uh or the COVID
pandemic.
And this was really the kind ofworst-case scenario for income
investing.
And remember, in this particularenvironment, when the market
crashed, um, was also anenvironment where we shut down
the vast majority of theeconomy.
(14:43):
And in that particular case, youhad companies that were dividend
payers uh in the market, cuttingdividends or postponing
dividends.
You had funds which were incomeor dividend-based funds that
were cutting dividends andorsuspending or canceling uh
dividends.
And in this particular time, inthe HIPS portfolio, we just had
(15:06):
one security or one company,which was a hotel REIT, that
actually stopped payingdistributions.
So even in this time, while theNAV, along with everything else
in the market, crashed, um, thestrategy continued to pay
distribution uh every month uhwithout fail in this particular
(15:27):
time.
And of course, after the marketstarted to recover, so did the
nav, so the portfolio value,just like everything else in the
market.
And we continued on from there.
So it's really just todemonstrate that one of the good
things about something like Hipsis you've got a long, long track
record.
And in that time, we've beenthrough multiple uh economic uh
(15:51):
cycles, different marketenvironments, including probably
what was the worst case scenariofor any income or dividend fund
in history, which was COVID.
And again, the probably the maintakeaway, you know, if you're an
investment or if you're aninvestor looking for consistent
monthly income, then HIPS reallyis the fund to consider.
(16:15):
Uh every single month sinceinception, we've paid 10.75
cents per share.
And, you know, over time, we'venever missed the distribution on
a monthly basis.
And so, again, for somebody whovalues consistency of income,
that is the core of the HIPSinvestment proposition.
(16:37):
And you know, at the moment, uh,and and actually through through
time, that's always around about10% per annum.
So depending on, again, what uhwhat the market condition is of
the market at the time, um, it'sgive or take more than 10% or
slightly less than 10%, but youknow, the the yield of the fund
is around 10% per annum.
(16:59):
One um other important thing totalk about is that um with any
income fund, the taxation ofthat distribution is clearly an
important talking point.
And here there is a return ofcapital component to that uh
distribution, which can help ordoes help in terms of making
(17:22):
that income or distribution moretax efficient.
And what we're talking about ishere in the table, you can see
um every year up until lastyear, the historical return of
capital per share.
And that varies depending onobviously the year, from a high
of around 80% back in 2019 toactually uh a low, which is 2024
(17:47):
or 15%.
Um, but there's a variableamount of return of capital.
And just to be clear, that comesfrom the income component,
typically from the MLP part ofthe portfolio, is not from the
fund selling assets uh andreturning investors their own
money.
So that is just a taxconsequence of owning MLPs in
(18:11):
the main as part of theconstituents uh in the
portfolio.
Another one to head off here,and this is why we have a slide
on it, is that um HIPS is a fundthat is quite unique because we
own BDCs.
And because we own BDCs, we havea high um total expense ratio on
(18:32):
a relative basis.
So if you look and you see1.99%, um, this is to explain
why that exists.
And the bottom line is it's justbecause we own BDCs and BDCs are
taxed in a different way as faras declaring expense ratios is
concerned.
So BDCs are taxed likeregistered investment companies
(18:55):
or 40 Act funds or mutual funds,as opposed to corporations.
And therefore, the expensesrequired by the regulator are
shown very differently toexpenses, say, if you owned a
corporation.
The bottom line is that you haveexpenses or an expense ratio, a
management fee, whatever youwant to call it, that comes out
(19:18):
of the fund's asset.
So a management fee is somethingthat comes out of the assets of
the fund or the nav.
And then you have the acquiredfund fees and expenses, which
makes up the remainder of thisover 1%.
And that is just from orincluded in the price of the
securities.
So, in other words, that doesn'tcome out of the fund's asset.
(19:41):
So anybody that's familiar withbuying BDCs or holding a BDC
fund will understand this.
But for those of you that arelooking at BDCs or looking at a
fund that owns BDCs for thefirst time, this might be new.
It's nothing to worry about.
Uh, you pay the management fee.
Um, just like any other ETF,it's just the disclosure of the
(20:03):
expenses around BDCs, aredifferent or unique to BDCs.
So I think one of the mainthings to touch on before we
kind of get into a QA is likehow you practically use uh funds
like HIPS in the portfolio.
And what's interesting is thatyou know, when you talk about
(20:24):
bond portfolios, you're exposedto interest risk and credit risk
in the main.
And the main thing or the mainadvantage you get with
alternative income isimmediately you're not exposed
to such risks in the same waybecause it's a different asset,
different asset class.
So combining alternative income,you know, with traditional bond
(20:47):
solutions can potentiallyimprove overall yield to the
portfolio while reducing ormaintaining a similar risk
profile.
And I think sometimes it's easyto contextualize this uh in a
slide like this, where on theright hand side you have this
(21:08):
bar chart where the differentbars are represented by a
representative index.
So, for example, with the withthe equities on the left-hand
side there in gray, that's the SP 500 index.
And so the annualized yield isabout 1.2% um per annum from the
(21:28):
SP.
And then you move up to theright in terms of the different,
you know, the higher theannualized yield for the
different asset classes.
And so you get to something likeHIPS on the right, which is a
combination of these multiple umbars, be it BDCs, closed ends,
MLPs, and automatically you'rejust in a different yield
(21:52):
category to that of traditionaldividend-paying funds or
traditional bond funds.
And so that I think is is a niceway to show the value add of
more income, but to complementthat with either traditional uh
dividend-paying stocks or bonds.
And the correlations here youhave um these different charts
(22:15):
represented by uh the SP on theleft, uh, the Bloomberg AG index
in the middle, and then the10-year government bonds.
So you see the R squared for thetwo on the middle, and then on
the right hand side, the fixedincome R squared is very, very
low.
So showing you that hips is notcorrelated really at all to
(22:39):
traditional fixed income.
And then on the left-hand sideversus the SP, you have a higher
R squared, meaning that on thecorrelation front, you know,
HIPS is going to correlate morelike equities as opposed to
fixed income.
And here's just a few slides tofinish off in terms of what
happens if you were to integrateHIPS into traditional
(23:00):
strategies.
So in this case, this is agovernment bond portfolio.
In this case, this is 80%government bonds, um, 20% HIPS.
And here you can see that byputting in a high-yielding asset
such as HIPS into a governmentbond portfolio, you're able to
generate a higher total returnin terms of that particular
(23:24):
portfolio and increase the yieldper unit of risk.
And then similar here, this isum integrating HIPS into a US ag
bond portfolio.
Again, in this case, it's 90% uhAG with a 10% uh weighting
towards HIPS.
And again, you generate highertotal return performance or
(23:46):
total yield to the portfolio,but you lower the overall
volatility and increase theyield per unit of risk.
So some potential advantages ofHIPS, it's not correlated to
traditional or conventionalfixed income.
So you avoid concentration risk,and otherwise, you don't you
don't double down on duration orcredit risks.
(24:08):
You have uh the very long trackrecord, 10 years plus of
consistent distributions, of1.75 cents per share every
month, um, diversification,equally weighted portfolio
across the four main sectors ofthe pass-through security world,
um, provides that all-weather uhincome portfolio regardless of
(24:33):
economic cycles.
And you're around about give ortake a 10% per annum yield.
And then you have the benefitsclearly of the ETF wrapper,
whereas there's a liquidportfolio.
A lot of these assets, um,sometimes people say they're
private credit-like or light,but you don't have the lockups
(24:53):
or any of the hassles associatedwith private funds.
This is a liquid ETF wrapperthat can be bought and sold with
the tax efficiency of ETFs.
So just to sum up, historicallyattractive distributions,
consistent monthly income of1075 per share, uh, 10-year
(25:15):
track record, diversification,over 100 million in assets under
management, uh, yields that havehistorically averaged around 10%
or exceeded 10%, and ability toenhance yield and or risk.
To find us, please contact us atuh granite shares.com or send us
(25:36):
an email to info at graniteshares uh or call us on the
number below.
So thank you for listening.
Let's uh let's have a chat.
SPEAKER_00 (25:44):
Yeah, let's do a quick one.
And I see uh there's maybe acouple of questions here in the
QA.
Uh, how often is the portfoliorebalanced and what is the
portfolio turnover?
SPEAKER_01 (25:52):
Yeah, so in terms of rebalancing, this rebalances um
on a quarterly basis.
I don't have the exact number ofthe turnover, but it's
relatively low.
Um, you know, again, this is youknow the the pastoral universe
is not that big in the grandscheme of things.
(26:12):
Um, but the main thing here isthat it's uh you know fairly
standard in terms of turnoverand or rebalance.
SPEAKER_00 (26:22):
So obviously there's been incredible demand for
anything that's got you knowconsistent high yield, high
income potential, uh certainlyamong retail, but that's growing
obviously into the institutionaladvisor space.
Yeah.
Um you've got not just this, butwe also have a yield boost fund
family, which we should touchon.
But if you think about HIPS, ifsomebody wants to just generate
a pure income-only portfolio,like that's the only objective,
(26:47):
would you consider HIPS to be uhcore to other fixed income?
Would you consider it uh to be asatellite?
How should one think about thiswithin an income portfolio
overall?
SPEAKER_01 (26:57):
Yeah, I think it goes back to you know ultimately
your expectation and what theproblem is you're trying to
solve.
So the problem that we weretrying to solve is for the
income investor that just wantsconsistent monthly income.
So you might have, you know,whatever the liabilities may be
(27:19):
in your life, whereby whetherit's a mortgage or whatever else
it was, you need consistency ofthat income.
And clearly the one thing thatyou get with the majority of
funds or investments in themarket, for better or for worse,
is you don't have the surety ofthat distribution or the
dividend.
You might get a monthly dividendor a distribution, but that
(27:40):
varies every month.
And I think the problem that wewere trying to solve with hips
is the consistency.
So making sure that, you know,with the fixed cash
distribution, that whenever youbuy in, so you can buy in today,
you can buy in six months fromtime, for six months from now or
six years from now, you'relocking in that yield when you
buy because of the fixed cashdistribution.
(28:02):
And that's a very attractivecomponent to people.
The flip side to doing that isthat the nav or the value with
the fund rises and falls withthe market.
In other words, the value of theunderlying securities that are
in the portfolio, namely theBDCs, the REITs, etc.
(28:23):
So because of that, some peoplewill be completely happy with
that.
In other words, we'll prioritizethe monthly income,
understanding that the value ofthe portfolio will rise and fall
with the market.
For other people, that might betoo much.
And what they might want is morestability in terms of the nav of
(28:47):
the portfolio, and therefore thetrade-off would be less yield.
So it really just sort ofdepends on what problem you're
looking to solve.
And clearly, this is not asubstitute for a money market
fund or something where you'regoing to have a fixed nav for
the most part, and you know,your principle is not at risk in
(29:09):
the classical sense, but thetrade-off is you're getting a
commensurate amount of yield forthat.
And you know, that yield isgoing down, especially because
you're at the short end of thecurve, you know, between now and
the end of the year, and youknow, who knows what's going to
happen next year.
And so I think that there's anopportunity for people that want
to capture a high level of yieldin an environment where yields
(29:33):
now are falling.
But in our examples, that's whywe kind of show, okay, it's a
10% holding, a 20% holding.
You know, it doesn't reallymatter.
But the assumption, I guess, toyour point, Michael, is that
hipsters never going to be theentirety of your income
portfolio, but it's a complementto existing portfolios where you
(29:54):
can increase the amount of yieldthat you generate across the
portfolio while maintaining.
The same level of risk, if notlowering your risk in the
portfolio, given HIPS actsdifferently because you're not
doubling down on durationalcredit risk.
SPEAKER_00 (30:11):
The big question, of course, with all these types of
funds is uh how does this naverosion look?
So there's a question here fromDevin.
Uh, is there any nav erosionover the years?
SPEAKER_01 (30:20):
I mean, not really, to be honest.
I mean, it depends on again whatyou mean by nav erosion, because
um if you're talking aboutmaking a distribution that is in
excess of the yield that'sgenerated from the portfolio,
then no, there's no nav erosion.
(30:41):
If you're talking about justmaking a distribution from the
income that's received and notreinvesting it, then yes, there
will be nav erosion because bydefinition, the fund pays out
from the nav to fund thosedistributions.
But ultimately, the nav of aportfolio in hips comes from the
(31:03):
value of the underlyingsecurities.
And as I've said, the value ofthe underlying securities rise
and fall with the market.
So it's not a case that thevalue of the portfolio is
constantly falling, providingnav erosion.
The value of the underlying, aswe've seen in the sort of past
(31:24):
here, which the one, I'll justgo back to the chart quickly.
You can see like it sort ofappreciates or has appreciated
over time, but it but it risesand falls because these are
securities in the market thatare priced by the market.
And I think what I would say topeople is that again, the
objective here is consistentmonthly income.
(31:46):
So if you end up with a nav thatis in and around the value that
you've you've invested in, youknow, that's the win.
It's not a growth portfolio.
If you're looking for growth,this is not the investment.
So I think there's always likeit's always a good question to
remind people of, again, whatproblem are you looking to
solve?
(32:07):
That this is about generatingconsistent monthly income and
trying to do it in a way that'ssustainable or as sustainable as
possible over time, which youclearly see from the track
record.
This fund's been around for over10 years, paid the same amount
every month, the portfolio isstill here.
Does that mean that the value ofthe underlying goes up and down?
Yes, it does, but that's atrade-off against the fixed
(32:30):
value of the monthlydistributions.
SPEAKER_00 (32:32):
Let's talk about uh pairing hips against some of
these other funds that you'vegot, in particular yield boost,
your fund family, which I justsaw crossed, I think, over 400
million.
So congrats on that.
We should hit on what yieldboost.
500.
500.
Oh, that's that was from lastweek.
Look how quick you're growing.
Uh let's talk about yield boostsuh and how to fit that into
hips.
SPEAKER_01 (32:51):
Yeah, so that's so this is a good segue into again
the subject of risk and return.
So yield boost, for those thataren't familiar, is a fund of
options-based income ETFs.
So that's a family ofoptions-based ETFs that Granite
Shares has.
And they're most famous forpaying the probably the highest,
(33:14):
but certainly one of the highestlevels of distributions or
yields in the market, in theentire ETF market.
So to put that into context, ifHIPS has an annual yield of
around 10%, it's not uncommonfor a yield boost ETF to have an
annual yield of over 100%, andin some cases 150% or more.
(33:37):
So people listening to thisnaturally would be like, well,
how do you do that?
Or how is that possible?
And first and foremost, this isbecause the income is generated
through a completely differentway to traditional dividend
stocks or from bonds.
This is through options.
And specifically, this isselling options to generate
(33:58):
yield.
And by selling options, yougenerate yield.
These are typically referred toas covered calls or call writing
or put writing strategies foryield boost.
Um, it's actually an even moresophisticated strategy called a
put spread, which is essentiallya combination of selling a put
option and buying a put optionat the same time.
(34:22):
But we do this on underlyingleveraged ETFs.
So to put that into context, ifyou were to sell an option on an
underlying stock, let's forargument's sake, say Tesla, you
might get the implied volatilityof Tesla or the option might be,
say, 70.
(34:42):
And if you were to sell exactlythe same option on a two times
leveraged Tesla ETF, then youwould expect two times the
implied volatility, so by 140.
And so more implied volatilityor a higher implied volatility
means a higher notional premium.
In this case, it would be twotimes the notional premium.
Therefore, you have two timesthe amount to pay out to
(35:07):
investors.
Now, going back to the navquestion, if you look at um
something like yield boost, thenagain, the trade-off for having
a yield that is, let's, forargument's sake, say 100% or
150%, is that you have much morevolatility with the underlying
portfolio.
(35:27):
So again, this is all about thetrade-off between risk and
reward, that you have aportfolio that is highly income
generating, and your boost alsodistributes on a weekly basis,
which is interesting.
A lot of investors we have wantto be paid on a weekly basis,
and so these funds do that, butthey're ultra-high income
(35:47):
payers.
And because of that, they have amuch more volatile underlying
than, say, obviously on theother extreme, a money market
fund.
SPEAKER_00 (35:56):
And again, go back to 400 million or 500 million,
who's counting?
Uh, obviously, there's there'sbig demand for that of that uh
fund family which Yeah, I mean,I think it's the biggest growing
category in the ETF industry.
SPEAKER_01 (36:08):
Yeah, by far.
And and again, I come back tothe same, you know, although
although it's not the subject oftoday's presentation, it is
within the context of today'spresentation, because we're
talking about alternativeincome.
In other words, we're talkingabout the craze, the trend at
the moment to generate incomefrom sources that are not
(36:29):
traditional, i.e., dividendpaying stocks or bonds.
SPEAKER_00 (36:32):
Anything that we missed here?
So you mentioned, you know,obviously falling interest rate
environment yield, probably evenmore important, especially
consistent high yield.
Anything else that's um youthink should be addressed in the
context of monetary policy withthese products?
SPEAKER_01 (36:44):
Um well, we probably did miss something.
I mean, there's always that Ithink the the relevant fact is
clearly that uh we're again in adifferent rate environment.
And you know, while the shortend, and again, we're talking
about Fed funds, obviously, whenwe talk about official interest
rates, which if you look at the10-year today, you might be
(37:05):
thinking, oh, I mean it's 10years going up and you know, Fed
funds have gone down.
But that is the differencebetween the market rate and you
know, the Fed funds rate.
But I think again, it it's youknow, absent inflation andor you
know other market-drivenfactors.
You know, we're clearly in anenvironment where interest
(37:25):
rates, at least Fed fund rates,are coming down.
And that will impact in the mainholders of short-term fixed
income andor money marketsecurities.
So, you know, people that havebeen sitting pretty in money
market funds in short-termtreasuries that were earning
(37:45):
probably close to 5%, that thenwent to 4% and is now dropping
between now and the end of theyear below below that.
So I think this talks to anotherthing, which we didn't talk
about directly, but we can talkabout it now.
Maybe it's a bullish, a bullishfactor or a bullish indicator
(38:06):
that you'll hear people talkingabout for the market more
broadly, which is there's thiswall of money sitting in
short-term money markets and/orfixed income that presumably
will seek a higher rate ofreturn as rates continue to
drop.
And therefore, that's theargument that you'll hear a lot
in terms of the further stimulusfor the market, that that money
(38:29):
will have nowhere to go otherthan into the market.
And you know, that's more demandfor existing stocks, other
investments, which, all thingsbeing equal, will help drive up
prices.
SPEAKER_00 (38:43):
Again, folks, for those of you here for the CE
Credits, I will email youafterwards to get your uh
information to submit it to theCFP board.
Again, this is a granite sharesponsored webinar.
Um, for those that uh want tolearn more about the funds,
obviously visit graniteshares.com.
Also sign up, put your emailaddress there, get some great
content from granite shares aswell as on their substack,
granite shares.substack.com.
(39:03):
Make sure you also follow theGranite Shares handle uh where
rate distribution announcementsfor the various fund families
are announced.
Um I mean, I'm I'm personally uha big fan of hips, and I think
uh as a diversified solution toincome and generation, it's
definitely done well.
SPEAKER_01 (39:20):
Yeah, I mean, look, it it's what what's nice about
it, and this doesn't get talkedabout enough, I think, is
there's been um you know a huge,huge rush for private credit,
right?
People have been piling intoprivate credit funds, private
credit solutions, all for theattractive yields that private
credit generates.
(39:40):
But the flip side to that isthat you know people are locked
up.
And it probably sounds okay, youknow, when you sign up to one of
these funds and say there's athree-year lockup or whatever it
is, but time changes veryquickly and things move on, and
people that look to get theirmoney back or get their money
out, circumstances change, theycan't do that.
And a lot of the HIPSinvestments, well, I'm not
(40:02):
saying clearly that it's privatecredit, it's private credit-like
in the sense that a lot of theseassets that you're buying in
private credit funds are thesame things we're holding in
HIPS.
It's just they're privateinstead of publicly traded, and
certainly similar payoffs andprofiles, but you get the
benefit of a liquid wrapper,which you know, in some cases
(40:23):
there's pros and cons.
The pro is obviously that youget liquidity whenever you want
it and you can buy and sell.
The con, potentially, for thosethat make the private credit
comparison is that you have anav which is freely traded on
the market.
So a nav that goes up and down.
And you're not able to concealthe volatility of the nav
(40:46):
through a private fundstructure, which you know is
what a lot of what goes on andthe appeal of something at
private credit say, well, yeah,great.
I get you know 8% per annumyield, but I've no idea the
volatility of my nav or no ideathe value of the underlying
investments.
So I think the more and more, atleast what we see is, and that
(41:06):
goes again to the popularity ofyield boost, people are saying,
you know what?
I I get the I get the sort ofthe idea behind the private
credit, and it's interesting.
But if I can achieve the sameyield with a publicly traded
investment, or achieve case ofyield boost, clearly like way
higher yields, then why do Ineed to go private or just buy
an ETF?
SPEAKER_00 (41:26):
Yeah, I think that that makes a lot of sense.
Um I think that's probably agood place to wrap this uh
webinar up.
Uh appreciate those thatattended.
Again, I'll send you an email onthe CE credits.
Uh, learn more about hips againat growingthechairs.com.
We're also doing another webinartalking about gold, uh, which if
you haven't noticed has been ontape uh for viewers and granite
has a fun layer also, which isworth talking about.
So uh stay tuned for that emailannouncement.
(41:48):
Uh Will, take it away.
Uh anything that you want towrap up with.
SPEAKER_01 (41:51):
I think the you hit on the points, but for anybody
that again has questions um onthis webinar, anything we do,
please uh reach out to usdirectly.
Website is granite shares.com.
You'll find all the informationon the funds there.
We have multiple ways for you toreach out from the chat bar on
the site, um, which is a realperson, by the way, uh, to
calling us, uh, whatever modeyou feel more comfortable with.
(42:14):
Or as Michael said, you can findus on social media at
GraniteShares on X, myself, atWill Rind, the Substack, uh
Granite Shares, and of course onLinkedIn.
So please reach out if you'vegot any questions on anything
that we do or any ideas youwould like us to bring to
market.
Uh, always enjoy talking toeverybody.
But thank you, everybody, forlistening today.
(42:36):
Uh, much appreciated.
Thank you, Burning.
Enjoy the rest of your day.
Glad that some people are here for what will be
a very good conversation arounduh hips, and I don't mean uh the
body part.
Uh I mean uh the uh ticker uhhips.
The hips don't lie, exactly.
That should be a slogan for forhips.
Uh for those that are uh herethat are uh financial advisors,
do me a favor if you have to bephysically in an office, please
tell other advisors that thiswebinar is taking place.
(00:32):
I have uh been traveling thelast seven weeks.
It's been quite a bit of backand forth away from home, and
now I'm back in action and gonnabe getting back in the swing of
things with webinars withsponsors and clients and great
people like Will Ryan of GraniteShares.
So uh for those that are herefor the CE credits, do me a
favor, uh stick around to theend of the presentation.
We'll probably keep this toaround 30, 40 minutes or so.
Uh, I will email you afterwards,get your information, uh, submit
(00:55):
that to the CFP board.
Uh so stay tuned for that.
And uh with that said, I want myfriend Mr.
Will Ryan of Granite Shares totake from here, talk about HIPS,
alternative unconvinced income.
SPEAKER_01 (01:05):
Exactly.
Well, thank you, Michael, andthank you, everybody, for tuning
in today to this session.
And we're doing this todaybecause obviously, after
yesterday's rate cut, um, Ithought it'd be a good time to
remind everybody in now what isalmost certainly a declining
interest rate environmenttowards the end of this year,
(01:26):
about how to generate yield in aportfolio.
And there are still places to gofor high yields and different
areas of the market where youstill get an attractive risk
reward uh return when maybe thenice returns or the nice yields
that you've been used to seeingfrom you know short-term
treasuries or from money marketsby the end of the year might not
(01:49):
look so appealing.
So, with that, let's jump intoit.
And we're gonna talk a littlebit just between us.
So I'm going through apresentation, but at the same
time, it's really just to sortof reference uh this
conversation as we go along.
So, for those of you that don'tknow us or are not familiar with
Granite Shares, we're an ETFissuer.
(02:11):
Uh, means we're an asset managerthat focuses exclusively on the
creation, the launch, themanagement, the marketing of
exchange traded funds, allthings exchange traded.
We're a global company basedhere in New York City, um, but
we have a presence all aroundthe world, um, including major
Asian markets and running uhsomewhere between 10 and 11
(02:36):
billion of AUM these days.
We do a number of differentETFs.
There are actually too many tofit on these different pages.
Um, so you just get a briefsnapshot of what we do.
Um, but suffice to say, we havea lot of different strategies in
our portfolio that range fromcommodity-based ETFs like
(02:58):
physical gold or broad uhcommodities to growth equity
income, in the case of optionsincome and our yield boost
family, uh leveraged ETFs onsingle stocks, uh, and of
course, the subject for today,uh, which is our HIPS ETF.
(03:20):
So a lot of different productsavailable for all sorts of
different investment needs.
But again, we're gonna focus onHIS today.
So, as I said, um, you know, inlight of the rate decision
yesterday, and in light ofexpectations that we could see
another couple of rate cuts umtowards the end of the year, and
(03:42):
maybe magnitude still somewhatin question, but let's say for
argument's sake, around 75 basispoints, maybe more between now
and the end of the year, thatit's worth talking about uh the
income environment again.
And, you know, again, maybe justa step back a bit that, you
know, just to frame thisconversation, that, you know,
(04:04):
from a historical perspective,up until the last few years, um
we were in an environment wherethe majority of return that was
coming from fixed incomeinvestments was coming from
capital gains and not fromyields or from income
generation.
And that all changed, obviously,when the the Fed started hiking
(04:25):
interest rates.
We started to go into a risinginterest rate environment.
And in that particular scenario,people lost money in bonds from
a capital perspective and yieldsimproved significantly in that
time.
So now that we're at the top ofthat cycle or on the other way
(04:45):
down again, um, you know, whatcan investors do about a
scenario where we have declininginterest rates?
And again, we're back to sort ofsomewhat similar position
before, where we have a morevolatile fixed income
environment where people haveexperiences gains and losses and
yields that are sort offluctuating.
(05:07):
Is there anywhere we can getmore stability in terms of yield
and portfolio?
So this chart here shows alittle bit of the historical
context just displayed in chartformat.
And what you're looking at hereis the 10-year treasury uh in
blue against the ag total returnin red, and then the ag dividend
(05:32):
return in sort of orangey yellowcolor.
And again, just to show that umyour environment where rates are
falling, that bond prices wererising, and people did well in
the ag, but that growth or thatgain was coming from a capital
appreciation as opposed to toincome or yield.
And now we're on the other sideof that where um we're starting
(05:55):
to see interest rates come downagain.
So, for those of you that arenot familiar, um, we're gonna be
talking about alternative incomein today's conversation.
So, alternative income is aphrase that uh we use to
describe what HIPS does.
And this is a category that umrefers to non-traditional fixed
income.
So, first and foremost, the HIPSis not a fixed income ETF, and
(06:19):
we're not talking about bondsspecifically.
That um we're talking about atype of security that is not a
traditional either stock or bondor a stock, a dividend-paying
stock, and specifically.
And you know, what we're talkingabout is a sort of subset of the
market called pass-throughsecurities.
(06:42):
And pass-through securities area subsection of the market,
which are securities that arerequired by law to distribute
substantially all of theirincome generated to
shareholders.
And so they do that uniquelywithout any corporation
(07:02):
taxation.
So pass-through securities arestrict, they are are typically
structured as pass-throughs, uh,and therefore they avoid
corporation taxes.
How this looks in sort ofpractice is a bit like here,
where we try and uh chart or youknow show by way of a picture
(07:26):
the difference between takingincome from an entity, a
corporation, in this particularcase, that is subject to
corporation tax.
And that's the top sort of threeuh circles or bubbles.
Um, and then below ones that arenot subject, i.e., pass-through
securities.
(07:47):
So the bottom line here is whenyou have corporation tax in the
middle, you're automatically uhreceiving net income amount that
is lower than if you were notpaying any corporate tax.
So to start with, when you havean investment in a pass-through
entity, the amount of incomethat you're receiving is free
(08:08):
from corporation tax, but you'restarting obviously at a higher
level of income versus theequivalent, which has been paid
away in terms of corporationtaxes.
Now, for pass-throughsecurities, there are four main
sectors of the pass-throughsecurity world, which we'll
discuss today.
(08:28):
But namely, those four mainsectors are gonna be real estate
investment trusts, so REITs thatinvest in mainly a combination
of physical property or physicalreal estate andor mortgages and
the other type of REITs.
So master limited partnerships,these are entities that
(08:52):
typically invest in energyinfrastructure, so oil and gas
infrastructure, be it pipelines,et cetera.
Um, BDCs or business developmentcompanies, these are entities
that typically act as lenders ornon-bank lenders to small and
medium-sized businesses.
Uh, and then you have closed-endfunds, which can have a variety
(09:16):
of different strategies, uh, etcetera.
But the ones that we're going tobe talking about today are
typically in the fixed incomearena.
And again, with all of these uhparticular strategies or
sectors, uh, they are requiredby law to distribute almost all
of their income to shareholdersand do not pay corporation tax.
(09:38):
So I think if there's one slideuh in this presentation to take
away, then this is probably it.
And we use this one tospecifically describe the value
uh that we that we perceive inHIPS, the ETF.
And you know, the bottom linewith HIPS is we're trying to
(09:58):
create an all-weather incomeportfolio.
And what does that mean?
It simply means that we're ableto pay a consistent monthly
distribution throughout marketcycles.
So, in other words, it doesn'tmatter what the market is doing,
whether the market's up, whetherthe market's down, whether we
(10:20):
are in a high growthenvironment, a low growth
environment, whether we're in ahigh inflation environment, a
low inflation environment, thatin all market cycles, we have a
part or portions of theportfolio that will do well in
these particular environments.
So if you look here, what thisis showing you is throughout the
(10:43):
economic cycle, if you look atthe respective quadrants here in
this particular chart, whetheryou're in a high inflation
environment but a low growthenvironment, that's going to
favor investments in the topleft, like the cash-like
investments, closed-end thumbs,particularly those that are
involved in more loan strategiesor mortgage rates.
(11:07):
And then conversely, on theother side of the chart, uh top
right, I'm now looking at whereyou have a high growth
environment and a high inflationenvironment.
That particular environmentfavors something more like hard
assets, or which is MLPs, uh,particularly upstream types of
MLPs, equity REITs, which ownphysical real estate.
(11:31):
Um, so there's always going tobe something in the portfolio
that can benefit in thesedifferent market environments.
And obviously, given the trackrecord of HIPS, that's exactly
what's happened over the last 10plus years of track record.
So HIPS is an index fund, whichmeans that we're tracking a
(11:53):
underlying index.
Now, how that index isconstructed is as follows is
that you start with the fourmain sectors of the pass-through
security universe, MLPs, REITs,closed ends, and BDCs.
And then you sort those orscreen those for the 10 highest
(12:14):
yielding securities in eachsector and the 10 least volatile
securities in each sector.
And then you put those togetherand equal weight them, and that
becomes the portfolio.
So you end up with an equallyweighted portfolio that's
represented across all sectors,uh comprising of the highest
(12:35):
yielding securities with thelowest volatility.
And again, the idea behind thatis that we want to create um a
high distribution yield, but wealso want something that is
stable, something that isconsistent and not super
volatile.
So if you look at um what theportfolio holds today, you've
(12:57):
got the the top 10 fund holdingsum on the right-hand table.
But of course, the beauty of anyETF uh in the market is of
course you can go to graniteshares.com or you can go to most
of the public websites that uhyou know catalog this kind of
data and see the holdings on adaily basis.
(13:18):
So ETFs are completelytransparent and you can see
these holdings.
Um, the top 10 here isrepresented.
And then the sector chart on theleft-hand side, where you can
see uh roughly equalrepresentation for those sectors
with a residual cash amount.
And again, that's all availableon the website, and you can look
(13:39):
at that, uh, download theholdings every day for not just
hip, but for any ETF.
So here again is performancethat um you can see on the
website, um, be it the one-yearperformance, the five-year, or
since inception.
And again, that is performancewhich includes the
(14:00):
distributions, and HIPS isdistributed every month, um, a
fixed distribution amount sinceinception, so over 10 years.
Again, this is a representationof the performance um since
inception.
And the important thing here, Ithink, in this table is just to
show you really the one um, youknow, worst-case scenario, if
(14:22):
you want to call it that, whichwas in 2020 uh or the COVID
pandemic.
And this was really the kind ofworst-case scenario for income
investing.
And remember, in this particularenvironment, when the market
crashed, um, was also anenvironment where we shut down
the vast majority of theeconomy.
(14:43):
And in that particular case, youhad companies that were dividend
payers uh in the market, cuttingdividends or postponing
dividends.
You had funds which were incomeor dividend-based funds that
were cutting dividends andorsuspending or canceling uh
dividends.
And in this particular time, inthe HIPS portfolio, we just had
(15:06):
one security or one company,which was a hotel REIT, that
actually stopped payingdistributions.
So even in this time, while theNAV, along with everything else
in the market, crashed, um, thestrategy continued to pay
distribution uh every month uhwithout fail in this particular
(15:27):
time.
And of course, after the marketstarted to recover, so did the
nav, so the portfolio value,just like everything else in the
market.
And we continued on from there.
So it's really just todemonstrate that one of the good
things about something like Hipsis you've got a long, long track
record.
And in that time, we've beenthrough multiple uh economic uh
(15:51):
cycles, different marketenvironments, including probably
what was the worst case scenariofor any income or dividend fund
in history, which was COVID.
And again, the probably the maintakeaway, you know, if you're an
investment or if you're aninvestor looking for consistent
monthly income, then HIPS reallyis the fund to consider.
(16:15):
Uh every single month sinceinception, we've paid 10.75
cents per share.
And, you know, over time, we'venever missed the distribution on
a monthly basis.
And so, again, for somebody whovalues consistency of income,
that is the core of the HIPSinvestment proposition.
(16:37):
And you know, at the moment, uh,and and actually through through
time, that's always around about10% per annum.
So depending on, again, what uhwhat the market condition is of
the market at the time, um, it'sgive or take more than 10% or
slightly less than 10%, but youknow, the the yield of the fund
is around 10% per annum.
(16:59):
One um other important thing totalk about is that um with any
income fund, the taxation ofthat distribution is clearly an
important talking point.
And here there is a return ofcapital component to that uh
distribution, which can help ordoes help in terms of making
(17:22):
that income or distribution moretax efficient.
And what we're talking about ishere in the table, you can see
um every year up until lastyear, the historical return of
capital per share.
And that varies depending onobviously the year, from a high
of around 80% back in 2019 toactually uh a low, which is 2024
(17:47):
or 15%.
Um, but there's a variableamount of return of capital.
And just to be clear, that comesfrom the income component,
typically from the MLP part ofthe portfolio, is not from the
fund selling assets uh andreturning investors their own
money.
So that is just a taxconsequence of owning MLPs in
(18:11):
the main as part of theconstituents uh in the
portfolio.
Another one to head off here,and this is why we have a slide
on it, is that um HIPS is a fundthat is quite unique because we
own BDCs.
And because we own BDCs, we havea high um total expense ratio on
(18:32):
a relative basis.
So if you look and you see1.99%, um, this is to explain
why that exists.
And the bottom line is it's justbecause we own BDCs and BDCs are
taxed in a different way as faras declaring expense ratios is
concerned.
So BDCs are taxed likeregistered investment companies
(18:55):
or 40 Act funds or mutual funds,as opposed to corporations.
And therefore, the expensesrequired by the regulator are
shown very differently toexpenses, say, if you owned a
corporation.
The bottom line is that you haveexpenses or an expense ratio, a
management fee, whatever youwant to call it, that comes out
(19:18):
of the fund's asset.
So a management fee is somethingthat comes out of the assets of
the fund or the nav.
And then you have the acquiredfund fees and expenses, which
makes up the remainder of thisover 1%.
And that is just from orincluded in the price of the
securities.
So, in other words, that doesn'tcome out of the fund's asset.
(19:41):
So anybody that's familiar withbuying BDCs or holding a BDC
fund will understand this.
But for those of you that arelooking at BDCs or looking at a
fund that owns BDCs for thefirst time, this might be new.
It's nothing to worry about.
Uh, you pay the management fee.
Um, just like any other ETF,it's just the disclosure of the
(20:03):
expenses around BDCs, aredifferent or unique to BDCs.
So I think one of the mainthings to touch on before we
kind of get into a QA is likehow you practically use uh funds
like HIPS in the portfolio.
And what's interesting is thatyou know, when you talk about
(20:24):
bond portfolios, you're exposedto interest risk and credit risk
in the main.
And the main thing or the mainadvantage you get with
alternative income isimmediately you're not exposed
to such risks in the same waybecause it's a different asset,
different asset class.
So combining alternative income,you know, with traditional bond
(20:47):
solutions can potentiallyimprove overall yield to the
portfolio while reducing ormaintaining a similar risk
profile.
And I think sometimes it's easyto contextualize this uh in a
slide like this, where on theright hand side you have this
(21:08):
bar chart where the differentbars are represented by a
representative index.
So, for example, with the withthe equities on the left-hand
side there in gray, that's the SP 500 index.
And so the annualized yield isabout 1.2% um per annum from the
(21:28):
SP.
And then you move up to theright in terms of the different,
you know, the higher theannualized yield for the
different asset classes.
And so you get to something likeHIPS on the right, which is a
combination of these multiple umbars, be it BDCs, closed ends,
MLPs, and automatically you'rejust in a different yield
(21:52):
category to that of traditionaldividend-paying funds or
traditional bond funds.
And so that I think is is a niceway to show the value add of
more income, but to complementthat with either traditional uh
dividend-paying stocks or bonds.
And the correlations here youhave um these different charts
(22:15):
represented by uh the SP on theleft, uh, the Bloomberg AG index
in the middle, and then the10-year government bonds.
So you see the R squared for thetwo on the middle, and then on
the right hand side, the fixedincome R squared is very, very
low.
So showing you that hips is notcorrelated really at all to
(22:39):
traditional fixed income.
And then on the left-hand sideversus the SP, you have a higher
R squared, meaning that on thecorrelation front, you know,
HIPS is going to correlate morelike equities as opposed to
fixed income.
And here's just a few slides tofinish off in terms of what
happens if you were to integrateHIPS into traditional
(23:00):
strategies.
So in this case, this is agovernment bond portfolio.
In this case, this is 80%government bonds, um, 20% HIPS.
And here you can see that byputting in a high-yielding asset
such as HIPS into a governmentbond portfolio, you're able to
generate a higher total returnin terms of that particular
(23:24):
portfolio and increase the yieldper unit of risk.
And then similar here, this isum integrating HIPS into a US ag
bond portfolio.
Again, in this case, it's 90% uhAG with a 10% uh weighting
towards HIPS.
And again, you generate highertotal return performance or
(23:46):
total yield to the portfolio,but you lower the overall
volatility and increase theyield per unit of risk.
So some potential advantages ofHIPS, it's not correlated to
traditional or conventionalfixed income.
So you avoid concentration risk,and otherwise, you don't you
don't double down on duration orcredit risks.
(24:08):
You have uh the very long trackrecord, 10 years plus of
consistent distributions, of1.75 cents per share every
month, um, diversification,equally weighted portfolio
across the four main sectors ofthe pass-through security world,
um, provides that all-weather uhincome portfolio regardless of
(24:33):
economic cycles.
And you're around about give ortake a 10% per annum yield.
And then you have the benefitsclearly of the ETF wrapper,
whereas there's a liquidportfolio.
A lot of these assets, um,sometimes people say they're
private credit-like or light,but you don't have the lockups
(24:53):
or any of the hassles associatedwith private funds.
This is a liquid ETF wrapperthat can be bought and sold with
the tax efficiency of ETFs.
So just to sum up, historicallyattractive distributions,
consistent monthly income of1075 per share, uh, 10-year
(25:15):
track record, diversification,over 100 million in assets under
management, uh, yields that havehistorically averaged around 10%
or exceeded 10%, and ability toenhance yield and or risk.
To find us, please contact us atuh granite shares.com or send us
(25:36):
an email to info at graniteshares uh or call us on the
number below.
So thank you for listening.
Let's uh let's have a chat.
SPEAKER_00 (25:44):
Yeah, let's do a quick one.
And I see uh there's maybe acouple of questions here in the
QA.
Uh, how often is the portfoliorebalanced and what is the
portfolio turnover?
SPEAKER_01 (25:52):
Yeah, so in terms of rebalancing, this rebalances um
on a quarterly basis.
I don't have the exact number ofthe turnover, but it's
relatively low.
Um, you know, again, this is youknow the the pastoral universe
is not that big in the grandscheme of things.
(26:12):
Um, but the main thing here isthat it's uh you know fairly
standard in terms of turnoverand or rebalance.
SPEAKER_00 (26:22):
So obviously there's been incredible demand for
anything that's got you knowconsistent high yield, high
income potential, uh certainlyamong retail, but that's growing
obviously into the institutionaladvisor space.
Yeah.
Um you've got not just this, butwe also have a yield boost fund
family, which we should touchon.
But if you think about HIPS, ifsomebody wants to just generate
a pure income-only portfolio,like that's the only objective,
(26:47):
would you consider HIPS to be uhcore to other fixed income?
Would you consider it uh to be asatellite?
How should one think about thiswithin an income portfolio
overall?
SPEAKER_01 (26:57):
Yeah, I think it goes back to you know ultimately
your expectation and what theproblem is you're trying to
solve.
So the problem that we weretrying to solve is for the
income investor that just wantsconsistent monthly income.
So you might have, you know,whatever the liabilities may be
(27:19):
in your life, whereby whetherit's a mortgage or whatever else
it was, you need consistency ofthat income.
And clearly the one thing thatyou get with the majority of
funds or investments in themarket, for better or for worse,
is you don't have the surety ofthat distribution or the
dividend.
You might get a monthly dividendor a distribution, but that
(27:40):
varies every month.
And I think the problem that wewere trying to solve with hips
is the consistency.
So making sure that, you know,with the fixed cash
distribution, that whenever youbuy in, so you can buy in today,
you can buy in six months fromtime, for six months from now or
six years from now, you'relocking in that yield when you
buy because of the fixed cashdistribution.
(28:02):
And that's a very attractivecomponent to people.
The flip side to doing that isthat the nav or the value with
the fund rises and falls withthe market.
In other words, the value of theunderlying securities that are
in the portfolio, namely theBDCs, the REITs, etc.
(28:23):
So because of that, some peoplewill be completely happy with
that.
In other words, we'll prioritizethe monthly income,
understanding that the value ofthe portfolio will rise and fall
with the market.
For other people, that might betoo much.
And what they might want is morestability in terms of the nav of
(28:47):
the portfolio, and therefore thetrade-off would be less yield.
So it really just sort ofdepends on what problem you're
looking to solve.
And clearly, this is not asubstitute for a money market
fund or something where you'regoing to have a fixed nav for
the most part, and you know,your principle is not at risk in
(29:09):
the classical sense, but thetrade-off is you're getting a
commensurate amount of yield forthat.
And you know, that yield isgoing down, especially because
you're at the short end of thecurve, you know, between now and
the end of the year, and youknow, who knows what's going to
happen next year.
And so I think that there's anopportunity for people that want
to capture a high level of yieldin an environment where yields
(29:33):
now are falling.
But in our examples, that's whywe kind of show, okay, it's a
10% holding, a 20% holding.
You know, it doesn't reallymatter.
But the assumption, I guess, toyour point, Michael, is that
hipsters never going to be theentirety of your income
portfolio, but it's a complementto existing portfolios where you
(29:54):
can increase the amount of yieldthat you generate across the
portfolio while maintaining.
The same level of risk, if notlowering your risk in the
portfolio, given HIPS actsdifferently because you're not
doubling down on durationalcredit risk.
SPEAKER_00 (30:11):
The big question, of course, with all these types of
funds is uh how does this naverosion look?
So there's a question here fromDevin.
Uh, is there any nav erosionover the years?
SPEAKER_01 (30:20):
I mean, not really, to be honest.
I mean, it depends on again whatyou mean by nav erosion, because
um if you're talking aboutmaking a distribution that is in
excess of the yield that'sgenerated from the portfolio,
then no, there's no nav erosion.
(30:41):
If you're talking about justmaking a distribution from the
income that's received and notreinvesting it, then yes, there
will be nav erosion because bydefinition, the fund pays out
from the nav to fund thosedistributions.
But ultimately, the nav of aportfolio in hips comes from the
(31:03):
value of the underlyingsecurities.
And as I've said, the value ofthe underlying securities rise
and fall with the market.
So it's not a case that thevalue of the portfolio is
constantly falling, providingnav erosion.
The value of the underlying, aswe've seen in the sort of past
(31:24):
here, which the one, I'll justgo back to the chart quickly.
You can see like it sort ofappreciates or has appreciated
over time, but it but it risesand falls because these are
securities in the market thatare priced by the market.
And I think what I would say topeople is that again, the
objective here is consistentmonthly income.
(31:46):
So if you end up with a nav thatis in and around the value that
you've you've invested in, youknow, that's the win.
It's not a growth portfolio.
If you're looking for growth,this is not the investment.
So I think there's always likeit's always a good question to
remind people of, again, whatproblem are you looking to
solve?
(32:07):
That this is about generatingconsistent monthly income and
trying to do it in a way that'ssustainable or as sustainable as
possible over time, which youclearly see from the track
record.
This fund's been around for over10 years, paid the same amount
every month, the portfolio isstill here.
Does that mean that the value ofthe underlying goes up and down?
Yes, it does, but that's atrade-off against the fixed
(32:30):
value of the monthlydistributions.
SPEAKER_00 (32:32):
Let's talk about uh pairing hips against some of
these other funds that you'vegot, in particular yield boost,
your fund family, which I justsaw crossed, I think, over 400
million.
So congrats on that.
We should hit on what yieldboost.
500.
500.
Oh, that's that was from lastweek.
Look how quick you're growing.
Uh let's talk about yield boostsuh and how to fit that into
hips.
SPEAKER_01 (32:51):
Yeah, so that's so this is a good segue into again
the subject of risk and return.
So yield boost, for those thataren't familiar, is a fund of
options-based income ETFs.
So that's a family ofoptions-based ETFs that Granite
Shares has.
And they're most famous forpaying the probably the highest,
(33:14):
but certainly one of the highestlevels of distributions or
yields in the market, in theentire ETF market.
So to put that into context, ifHIPS has an annual yield of
around 10%, it's not uncommonfor a yield boost ETF to have an
annual yield of over 100%, andin some cases 150% or more.
(33:37):
So people listening to thisnaturally would be like, well,
how do you do that?
Or how is that possible?
And first and foremost, this isbecause the income is generated
through a completely differentway to traditional dividend
stocks or from bonds.
This is through options.
And specifically, this isselling options to generate
(33:58):
yield.
And by selling options, yougenerate yield.
These are typically referred toas covered calls or call writing
or put writing strategies foryield boost.
Um, it's actually an even moresophisticated strategy called a
put spread, which is essentiallya combination of selling a put
option and buying a put optionat the same time.
(34:22):
But we do this on underlyingleveraged ETFs.
So to put that into context, ifyou were to sell an option on an
underlying stock, let's forargument's sake, say Tesla, you
might get the implied volatilityof Tesla or the option might be,
say, 70.
(34:42):
And if you were to sell exactlythe same option on a two times
leveraged Tesla ETF, then youwould expect two times the
implied volatility, so by 140.
And so more implied volatilityor a higher implied volatility
means a higher notional premium.
In this case, it would be twotimes the notional premium.
Therefore, you have two timesthe amount to pay out to
(35:07):
investors.
Now, going back to the navquestion, if you look at um
something like yield boost, thenagain, the trade-off for having
a yield that is, let's, forargument's sake, say 100% or
150%, is that you have much morevolatility with the underlying
portfolio.
(35:27):
So again, this is all about thetrade-off between risk and
reward, that you have aportfolio that is highly income
generating, and your boost alsodistributes on a weekly basis,
which is interesting.
A lot of investors we have wantto be paid on a weekly basis,
and so these funds do that, butthey're ultra-high income
(35:47):
payers.
And because of that, they have amuch more volatile underlying
than, say, obviously on theother extreme, a money market
fund.
SPEAKER_00 (35:56):
And again, go back to 400 million or 500 million,
who's counting?
Uh, obviously, there's there'sbig demand for that of that uh
fund family which Yeah, I mean,I think it's the biggest growing
category in the ETF industry.
SPEAKER_01 (36:08):
Yeah, by far.
And and again, I come back tothe same, you know, although
although it's not the subject oftoday's presentation, it is
within the context of today'spresentation, because we're
talking about alternativeincome.
In other words, we're talkingabout the craze, the trend at
the moment to generate incomefrom sources that are not
(36:29):
traditional, i.e., dividendpaying stocks or bonds.
SPEAKER_00 (36:32):
Anything that we missed here?
So you mentioned, you know,obviously falling interest rate
environment yield, probably evenmore important, especially
consistent high yield.
Anything else that's um youthink should be addressed in the
context of monetary policy withthese products?
SPEAKER_01 (36:44):
Um well, we probably did miss something.
I mean, there's always that Ithink the the relevant fact is
clearly that uh we're again in adifferent rate environment.
And you know, while the shortend, and again, we're talking
about Fed funds, obviously, whenwe talk about official interest
rates, which if you look at the10-year today, you might be
(37:05):
thinking, oh, I mean it's 10years going up and you know, Fed
funds have gone down.
But that is the differencebetween the market rate and you
know, the Fed funds rate.
But I think again, it it's youknow, absent inflation andor you
know other market-drivenfactors.
You know, we're clearly in anenvironment where interest
(37:25):
rates, at least Fed fund rates,are coming down.
And that will impact in the mainholders of short-term fixed
income andor money marketsecurities.
So, you know, people that havebeen sitting pretty in money
market funds in short-termtreasuries that were earning
(37:45):
probably close to 5%, that thenwent to 4% and is now dropping
between now and the end of theyear below below that.
So I think this talks to anotherthing, which we didn't talk
about directly, but we can talkabout it now.
Maybe it's a bullish, a bullishfactor or a bullish indicator
(38:06):
that you'll hear people talkingabout for the market more
broadly, which is there's thiswall of money sitting in
short-term money markets and/orfixed income that presumably
will seek a higher rate ofreturn as rates continue to
drop.
And therefore, that's theargument that you'll hear a lot
in terms of the further stimulusfor the market, that that money
(38:29):
will have nowhere to go otherthan into the market.
And you know, that's more demandfor existing stocks, other
investments, which, all thingsbeing equal, will help drive up
prices.
SPEAKER_00 (38:43):
Again, folks, for those of you here for the CE
Credits, I will email youafterwards to get your uh
information to submit it to theCFP board.
Again, this is a granite sharesponsored webinar.
Um, for those that uh want tolearn more about the funds,
obviously visit graniteshares.com.
Also sign up, put your emailaddress there, get some great
content from granite shares aswell as on their substack,
granite shares.substack.com.
(39:03):
Make sure you also follow theGranite Shares handle uh where
rate distribution announcementsfor the various fund families
are announced.
Um I mean, I'm I'm personally uha big fan of hips, and I think
uh as a diversified solution toincome and generation, it's
definitely done well.
SPEAKER_01 (39:20):
Yeah, I mean, look, it it's what what's nice about
it, and this doesn't get talkedabout enough, I think, is
there's been um you know a huge,huge rush for private credit,
right?
People have been piling intoprivate credit funds, private
credit solutions, all for theattractive yields that private
credit generates.
(39:40):
But the flip side to that isthat you know people are locked
up.
And it probably sounds okay, youknow, when you sign up to one of
these funds and say there's athree-year lockup or whatever it
is, but time changes veryquickly and things move on, and
people that look to get theirmoney back or get their money
out, circumstances change, theycan't do that.
And a lot of the HIPSinvestments, well, I'm not
(40:02):
saying clearly that it's privatecredit, it's private credit-like
in the sense that a lot of theseassets that you're buying in
private credit funds are thesame things we're holding in
HIPS.
It's just they're privateinstead of publicly traded, and
certainly similar payoffs andprofiles, but you get the
benefit of a liquid wrapper,which you know, in some cases
(40:23):
there's pros and cons.
The pro is obviously that youget liquidity whenever you want
it and you can buy and sell.
The con, potentially, for thosethat make the private credit
comparison is that you have anav which is freely traded on
the market.
So a nav that goes up and down.
And you're not able to concealthe volatility of the nav
(40:46):
through a private fundstructure, which you know is
what a lot of what goes on andthe appeal of something at
private credit say, well, yeah,great.
I get you know 8% per annumyield, but I've no idea the
volatility of my nav or no ideathe value of the underlying
investments.
So I think the more and more, atleast what we see is, and that
(41:06):
goes again to the popularity ofyield boost, people are saying,
you know what?
I I get the I get the sort ofthe idea behind the private
credit, and it's interesting.
But if I can achieve the sameyield with a publicly traded
investment, or achieve case ofyield boost, clearly like way
higher yields, then why do Ineed to go private or just buy
an ETF?
SPEAKER_00 (41:26):
Yeah, I think that that makes a lot of sense.
Um I think that's probably agood place to wrap this uh
webinar up.
Uh appreciate those thatattended.
Again, I'll send you an email onthe CE credits.
Uh, learn more about hips againat growingthechairs.com.
We're also doing another webinartalking about gold, uh, which if
you haven't noticed has been ontape uh for viewers and granite
has a fun layer also, which isworth talking about.
So uh stay tuned for that emailannouncement.
(41:48):
Uh Will, take it away.
Uh anything that you want towrap up with.
SPEAKER_01 (41:51):
I think the you hit on the points, but for anybody
that again has questions um onthis webinar, anything we do,
please uh reach out to usdirectly.
Website is granite shares.com.
You'll find all the informationon the funds there.
We have multiple ways for you toreach out from the chat bar on
the site, um, which is a realperson, by the way, uh, to
calling us, uh, whatever modeyou feel more comfortable with.
(42:14):
Or as Michael said, you can findus on social media at
GraniteShares on X, myself, atWill Rind, the Substack, uh
Granite Shares, and of course onLinkedIn.
So please reach out if you'vegot any questions on anything
that we do or any ideas youwould like us to bring to
market.
Uh, always enjoy talking toeverybody.
But thank you, everybody, forlistening today.
(42:36):
Uh, much appreciated.
Thank you, Burning.
Enjoy the rest of your day.
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