Quarterly Rebalancing of S&P Preferred Stock Index

We are certain that many of you have already read some of the READER INITIATED ALERTS, but we wanted to make sure that everyone caught the S&P U.S. Preferred Stock Index rebalancing.

Effective January 22nd the S&P U.S. Preferred Stock Index will trade with a rebalanced composition.  The Index is representative of the entire U.S. preferred stock market and most recently contains 283 issues.

The key item to know is that there is a very large ETF which tries to mimic the performance of the S&P U.S. Preferred Stock Index–to a fair degree.  This is the iShares US Preferred Stock ETF (NYSE:PFF).  PFF has $14 billion in net assets and holds 293 individual preferred stock issues and moves markets when they sell (maybe less so on the buy side).  To match up with the index, when changes to the index are made every 3 months, PFF will sell issues which are being removed from the index and purchase shares in the issues being added to the index.

The press release announcing the index changes was published last Friday, January 4th.  The press release is here.

For folks wishing to do further research you can look over the holdings of PFF here.

So when you see unexplained drops and increases in prices of issues that are being dropped from or added to the index you might have an idea of what is happening–and just maybe you will find a real bargain in the mix.



9 thoughts on “Quarterly Rebalancing of S&P Preferred Stock Index”

  1. Hi Tim, I posted this comment late last year and was hoping you or other commentators could weigh in..

    I’ve read several comments relating to some prefs issued when 10-yr rates were at some-level and now with change in rates they get repriced. In the spirit of educating us FI newbies could you please elaborate more on asset repricing and how it specifically affects preferred issues. thank you.

    1. Jay–it would normally follow the simple-‘when rates go up prices go down’. Obviously this has not been true for the last couple of months–BUT that generality will return. In December we had a ‘throw the baby out with the bathwater’ mentality–folks simply wanted out, at any price.

      I think it is safe to say that the pricing on preferred got ahead of itself last summer—by the time January is over we will likely know the level at which investors think these issues should trade at–a repricing based on interest rates at that time and the outlook for further changes in interest rates further out in the year.

      Because of ‘repricing’ by the marketplace you have to be in shares for the long term as over short term periods investors change their minds as to the correct pricing levels.

      1. Right now, ETF PSK which invests in only in IG rated issues (Moody’s or SP only), must trade at reasonably levels over 90 days and follows an index, is paying about 6.3%. Seems to be repriced at about the right level when you consider some issues are BAA1, A rated and includes utilities. Prior to the pullback, it was paying 5.8%.

        1. Thank you Tim and Steve for your comments. Late Dec pricing dip was sure a fire sale event. Glad I found this site in time to give me the courage to pick few shares.
          All the best.

  2. I tried to find the composition of the new ICE index but was not successful. I scoured their website, looked at the prospectus, nada. I was hoping to maybe buy something that was going to be added.

    1. Hi Tech guy–yes I was going to look for it also, but haven’t had the chance as of yet. Will post a link if I have time to scour the site.

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