SPDR Wells Fargo Preferred Stock ETF (PSK) started trading yesterday (September 17, 2009). This is the fourth ETF to cover this niche; SPDR obviously saw a hole in their product guide and did not want to leave the space to iShares U.S. Preferred Stock (PFF), PowerShares Preferred Portfolio (PGX), and PowerShares Financial Preferred Portfolio (PGF). Those funds have been doing quite well this year, once they got past the devastating first couple of months.

Income-oriented investors like preferred stocks because they generally have a fixed dividend payout and also the potential for price appreciation. PSK tracks an index of such stocks, almost all of which come from the financial sector. Top holdings include issues from HSBC, Barclays, Allianz, Credit Suisse, and Deutsche Bank.

As of 8/31/09 the index on which PSK is based had a dividend yield of 8.4%. This may sound attractive, but investors should keep in mind that higher yields usually reflect higher risk. “Investment Grade” no longer means what it once did. On the other hand, governments and central banks around the world have made it clear that major financial institutions will not be allowed to default – even if it means letting taxpayers cover their liabilities. No one wants another Lehman Brothers debacle. PSK is not exactly a Treasury bond fund, but probably does not carry the risk level that preferred stocks did in the pre-bailout era.

PSK has an expense ratio of 0.45% and the portfolio includes 164 preferred stock issues. As noted above, financial sector exposure is heavy at almost 90%, with the balance from coming mostly from telecom and utilities. PSK should be a decent alternative for those who want a slice of their portfolio in preferred stocks.