New Preferred Stock SPDR Hits the Market

Today, State Street Global Advisors (SSgA) launched its preferred stock ETF, the SPDR Wells Fargo Preferred Stock ETF (PSK - commentary - Trade Now). The fund is designed to track the performance of the Wells Fargo Hybrid and Preferred Securities Aggregate Index.

Preferred stock is similar to common stock in that it gives investors partial ownership of a given company. However, unlike traditional stock, investors holding these instruments have no voting right. Also, similar to bonds, returns for preferred stock are heavily reliant on a fixed payment.

Veteran ETFs such as the iShares S&P U.S. Preferred Stock Index (PFF - commentary - Trade Now) and PowerShares Financial Preferred (PGF - commentary - Trade Now), which have been around since March 26, 2007, and Dec. 1, 2006, respectively, are the biggest competitors to PSK as it begins trading.

Looking at all three of the funds' holdings, PSK, PFF and PGF have exposure to the preferred stock of financial companies, including HSBC (HBC - commentary - Trade Now), Wells Fargo (WFC - commentary - Trade Now) and Barclays (BCS - commentary - Trade Now).

Year-to-date for the period ending Sept. 16, the two older funds have performed well, with PFF gaining 33.5% and PGF gaining 30.5%.

Perhaps the biggest thing going for SSgA's newest arrival is its low 0.45% expense ratio. PFF and PGF carry fees of 0.48% and 0.6%, respectively.

As the new fund gains attention from investors, it will be interesting to see if it will become a big player. Until then, it may be best to stick to older, more reliable preferred stock funds as the PSK attempts to find a niche.

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At the time of publication, Dion had no positions in the stocks mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.