PSK: Lagging Peers In A Lagging Asset Category (NYSEARCA:PSK)

PSK strategy

SPDR® ICE Preferred Securities ETF (NYSEARCA:PSK) started investing operations on 9/16/2009 and tracks the ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index. It has 148 holdings, a 30-day SEC yield of 5.70% and a total expense ratio of 0.45%. Distributions are paid on a monthly basis.

As described in the prospectus by SSGA, the fund invests in U.S. dollar denominated non-convertible preferred stocks and equivalent securities listed on the NYSE or NASDAQ exchanges. Eligible securities must have:

• an investment grade rating;
• a par amount of $25;
• a minimum amount outstanding of $250 million;
• a 6-month average monthly volume of at least 250,000 trading units;
• at least 18 months to final maturity at the time of issuance.

The underlying index may include securities of companies headquartered outside the U.S. and is market capitalization weighted, with a maximum of 5% by issuer. The portfolio turnover rate in the most recent fiscal year was 19%.

As a reminder, preferred stocks have priority over common stocks in the payment of dividends and proceeds of liquidation, but are generally junior to debt and don’t carry voting rights. They are considered hybrid assets and their price behavior is between stocks and bonds.

Portfolio

As of writing, 70% of assets are issued by financial companies. Utilities weigh 11.4% and other sectors are below 7%.

The next table lists the top 10 issuers, representing 44.3% of asset value. Each of these companies has several securities listed in PSK holdings.

Ticker	Name	Weight%	EPS growth %TTM	P/E ttm	P/E fwd	Yield%
WFC	Wells Fargo & Co.	5.03	21.57	10.83	10.39	3.03
BAC	Bank of America Corp.	5.02	-18.14	13.44	11.74	2.72
MS	Morgan Stanley	4.97	7.04	15.58	13.51	3.91
JPM	JPMorgan Chase & Co.	4.92	15.32	11.38	11.49	2.25
	Athene Holding Ltd	4.60
COF	Capital One Financial Corp.	4.20	-18.60	12.64	10.35	1.79
PSA	Public Storage	4.12	-53.75	29.32	30.12	3.83
T	AT&T, Inc.	4.02	233.27	11.14	8.79	5.72
USB	U.S. Bancorp	3.74	-12.45	13.25	11.09	4.69
C	Citigroup, Inc.	3.70	-43.17	16.19	10.18	3.86

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The top 4 names are major banks, with an aggregate weight of 19.9%: Wells Fargo, Bank of America, Morgan Stanley and JPMorgan Chase.

Performance

Since inception, PSK has lagged a 50/50 stock and bond benchmark by 3.3% in annualized return (including distributions). Additionally, it shows a significantly higher risk measured in maximum drawdown and a much lower risk-adjusted performance (Sharpe ratio in the table below).

	Total Return	Annual Return	Drawdown	Sharpe ratio	Volatility
PSK	103.28%	4.88%	-30.10%	0.44	8.89%
50% SPY + 50% BND	221.47%	8.17%	-19.72%	0.89	8.14%

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The share price has lost 15.69% since inception, as reported by the next chart. At the same time, the cumulative inflation was about 45% based on the Consumer Price Index, resulting in a large loss in inflation-adjusted value for shareholders.

Distribution history is not more attractive. The annual sum of distributions went down from $3.05 per share in 2013 to $2.16 in 2023. For shareholders, this is a 29% decrease in income stream in 10 years, while the cumulative inflation was about 32%.

PSK vs. competitors

The next table compares the characteristics of PSK and four popular preferred stocks ETFs:

• iShares Preferred and Income Securities ETF (PFF)
• Invesco Preferred ETF (PGX)
• VanEck Preferred Securities ex Financials ETF (PFXF)
• Invesco Financial Preferred ETF (PGF)

	PSK	PFF	PGX	PFXF	PGF
Inception	9/16/2009	3/26/2007	1/31/2008	7/16/2012	12/1/2006
Expense Ratio	0.45%	0.46%	0.50%	0.41%	0.56%
AUM	$821.87M	$14.42B	$4.33B	$1.73B	$913.40M
Avg Daily Volume	$5.03M	$109.02M	$35.68M	$8.56M	$2.23M
Yield TTM	6.35%	6.35%	6.00%	7.43%	6.27%
Div. Growth 5 Yr CAGR	-3.35%	-0.75%	-2.76%	4.08%	-1.32%

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PSK is the smallest (in assets) and least liquid (in dollar volume) of these funds. The yield is similar to peers, but it shows the steepest decay in distributions. The chart below plots 10-year total returns. PSK is lagging the pack.

All these funds have lost between 17% and 23% in value for 10 years:

PSK is second to last over the last 12 months:

Takeaway

I don’t see SPDR® ICE Preferred Securities ETF as a long-term investment: both price and distributions are down by more than 20% in 10 years, while inflation was over 30%. Therefore, I give PSK a “Sell” rating, although it may be an interesting trading instrument to capture short-term price anomalies.