Principal Spectrum Preferred Securities Active ETF (PREF)PREF

ETF Principal Spectrum Preferred Securities Active ETF (NYSE Arca: PSP)

Profile:

• Invests primarily in preferred securities, with a focus on those issued by financial institutions.
• Actively managed approach, seeking to outperform the Markit CDX North American Investment Grade Index.
• Employs a quantitative approach to select and weight holdings.

Objective:

• Generate high current income and capital appreciation potential through active management of a portfolio of preferred securities.

Issuer:

• Principal Financial Group (PFG):
  • A global financial services company with over 130 years of experience.
  • A leading provider of retirement solutions, insurance products, and asset management.
  • Strong reputation and track record in the financial services industry.

Market Share:

• As of November 2023, PSP has an estimated market share of 0.5% in the preferred securities ETF sector.

Total Net Assets:

• Approximately $350 million in assets under management.

Moats:

• Active management approach potentially leading to superior performance.
• Access to PFG's proprietary research and analytics capabilities.
• Niche focus on preferred securities, providing diversification benefits.

Financial Performance:

• Since inception (February 2015), PSP has delivered a cumulative return of 31.5%, outperforming the Markit CDX North American Investment Grade Index by 5.2%.
• YTD performance as of November 2023 is 10.5%, compared to the index's 8.2% return.

Growth Trajectory:

• The preferred securities market is expected to continue growing, driven by factors such as low interest rates and increased demand for income-generating investments.
• PSP's active management approach and niche focus position it well to capture market growth opportunities.

Liquidity:

• Average daily trading volume of approximately 50,000 shares.
• Bid-ask spread of around 0.05%.

Market Dynamics:

• Interest rate fluctuations significantly impact preferred securities pricing.
• Economic conditions and creditworthiness of issuers can influence performance.

Competitors:

• iShares Preferred and Income Securities ETF (PFF) - Market share: 85%
• VanEck Merk Preferred Income ETF (PFI) - Market share: 7%
• Invesco Preferred ETF (PGX) - Market share: 5%

Expense Ratio:

• 0.55%

Investment Approach and Strategy:

• Aims to outperform the Markit CDX North American Investment Grade Index through active management.
• Invests in a diversified portfolio of preferred securities, primarily issued by financial institutions.
• Employs a quantitative model to select and weight holdings based on factors such as creditworthiness, yield, and call risk.

Key Points:

• Actively managed preferred securities ETF with a focus on financial institutions.
• Outperformed its benchmark index since inception.
• Offers diversification benefits and potential for high income generation.

Risks:

• Interest rate risk: Changes in interest rates can impact the value of preferred securities.
• Credit risk: The value of preferred securities is dependent on the creditworthiness of the issuer.
• Market risk: The overall market performance can influence the ETF's value.

Who Should Consider Investing:

• Income-oriented investors seeking current income and capital appreciation potential.
• Investors seeking diversification benefits within their fixed-income portfolio.
• Investors comfortable with the risks associated with preferred securities and active management.

Fundamental Rating Based on AI: 8/10

Justification:

• PSP benefits from a strong issuer with a proven track record in the financial services industry.
• The active management approach and niche focus offer potential for outperformance.
• The ETF has delivered a solid historical performance, outperforming its benchmark index.
• The expense ratio is competitive compared to peers.

However, the relatively small market share and limited liquidity may pose challenges for some investors.

Resources and Disclaimers:

• Data sources:
  • Principal Financial Group website
  • ETF.com
  • Bloomberg
• Disclaimer: This analysis is for informational purposes only and should not be considered investment advice. Please consult with a qualified financial advisor before making any investment decisions.