From Chaos To Control: The Virtus InfraCap US Preferred Stock ETF's Potential To Deliver Value In A Dynamic Market

Amid a complex economic and geopolitical environment, investors have been motivated to consider traditional safe-haven assets. Generally, this category encompasses commodities like gold or government-backed debt instruments such as U.S. Treasuries. However, the unique nature of these challenging waters shines a bright spotlight on the Virtus InfraCap U.S. Preferred Stock ETF PFFA.

Managed by financial services provider Infrastructure Capital Advisors – better known as Infrastructure Capital – PFFA is an actively managed exchange-traded fund that invests primarily in preferred securities of U.S. companies. Primarily, the Fund aims to deliver robust monthly income with the potential for capital appreciation, through the following core activities:

• Investing in well-researched, high-yield preferred stocks, which sit between debt instruments and common equity in the capital stack.
• Applying leverage (typically around 20% to 30%) to enhance portfolio beta and current income.
• Security selection and weightings are based on a variety of quantitative, qualitative, and relative valuation factors

While PFFA has long commanded relevance for essentially providing an on-ramp for retail investors interested in preferred securities, its utility has arguably accelerated in recent sessions. First, the Federal Reserve recently held interest rates steady at 4.25% to 4.50% for a fourth straight meeting, aligning with market expectations. Though not directly helpful to PFFA due to the often inverted relationship between preferred stock valuations and interest rates, the Fed has acted predictably.

More importantly, the central bank sees a reduced growth environment, with policymakers projecting real GDP at 1.4% this year compared to their prior forecast of 1.7%. Furthermore, growth in 2026 was revised downward from 1.8% to 1.6%. As such, the lack of capital gains potential in many areas of the economy could potentially intrigue investors toward income-generating assets such as PFFA.

Another indirect influence that could drive interest in the Virtus InfraCap U.S. Preferred Stock ETF is escalating tensions in the Middle East. With Israel launching a series of airstrikes against Iran, the potential for global disruption has risen. Mainly, the flight to safety encompasses the usual suspects, such as gold. However, a portfolio of income-generating preferred stocks – especially one curated by expert active management – could be relevant at this juncture.

Why The PFFA ETF Offers An ‘Active' Edge During These Difficulties

Leading the charge on behalf of PFFA stakeholders is Jay D. Hatfield, Infrastructure Capital's founder, CEO and Portfolio Manager. Commanding almost three decades of experience in the securities and investment industries, Hatfield manages several other funds under Infrastructure Capital's umbrella, along with a series of private funds. Thanks to his broad experience – covering diverse sectors such as real estate and energy infrastructure – Hatfield has a historical record  navigating the complexities of contemporary market cycles.

More than words to occupy space on a resume, the Infrastructure Capital's CEO's expertise represents a core attribute of the PFFA ETF. This Fund distinguishes itself from many other income-generating assets through its active management process. For example, passive ETFs merely attempt to replicate the performance of benchmark indices. In sharp contrast, PFFA is comprised of carefully curated preferred securities that seek to offer a rare balance of high yield, high stability, and potential for capital appreciation.

What really sets PFFA apart, though, is the dynamic use of leverage and active strategies. First, the income Fund applies modest leverage to enhance portfolio beta, which colloquially means that fund managers borrow money at a lower interest rate to buy more preferred stock. This activity can also provide the Fund substantial capacity to participate in newly issued preferred stock opportunities or purchase securities during market dislocations – all activities that passive funds or individual investors may not have capacity or ability to do. 

PFFA's active strategies and trading activities allow it to quickly tilt the portfolio to position. For example, if the Fed pivots to increase rates, they can quickly increase exposure to floating, fixed-to-floating or other higher yielding securities, and harvest gains in less desirable securities in an effort to position PFFA for income and total return opportunities. Passively managed preferred funds track an index and rebalance infrequently (such as quarterly or semi-annually), thus it can take many months for these funds to rebalance and shift based on changing market environments; while PFFA can act quickly.

Subsequently, the difference between what is earned from the preferred stock yield and what is paid (in terms of borrowing cost) may provide additional income for the stakeholder and can increase total return. 

How PFFA Eases Entry Into A Rarefied World

Thanks to the COVID-19 crisis, participation in the equities market has soared, even toward the over-the-counter market, where investors can find speculative penny stocks not listed on major exchanges. Still, the common denominator is that retail investors largely prefer common securities. For the most part, preferred stock represents the domain of institutions and funds.

One pain point that hangs over preferred securities is their relative complexity compared to common securities. Nowadays, with multiple apps and platforms, it's easy to get involved with common stocks; it's a different matter with the preferred variety. Also, the latter investment category doesn't move in accordance with key financial metrics such as earnings. Instead, they tend to move in a narrower range based on interest-rate risk or the underlying company's credit risk.

Naturally, then, both the administrative and fundamental factors driving preferred securities are alien to many (if not most) retail investors. But that's also another value proposition that PFFA brings to the table. Through its public offering, the income fund allows everyday investors to experience the attributes of preferred securities that institutions have relied on for decades.

A Preferred Alternative To Navigating Market Uncertainty

Due to an increasingly complex environment, investors have been moving their funds toward traditional safe-haven assets. However, policymakers have also acknowledged that, while certain segments of the economy have stabilized, growth may be difficult to come by. Subsequently, the potential monthly income generation of the Virtus InfraCap U.S. Preferred Stock ETF provides an alternative for everyday market participants.

Sitting between bonds and common securities, the preferred stocks that comprise the PFFA ETF offer an intriguing balance, integrating income with capital gains potential. Furthermore, PFFA is actively managed by Infrastructure Capital's CEO, Jay Hatfield, a market expert with decades of experience navigating complex environments. Armed with an eclectic overall strategy, the Fund delivers a convenient mechanism to participate in a rarified arena.

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This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.

Please consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information about the Fund. Contact us at 1-888-383-0553 or visit www.virtus.com for a copy of the Fund’s prospectus. Read the prospectus carefully before you invest or send money.

Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs to the portfolio of owning shares of an ETF may exceed the cost of investing directly in the underlying securities. Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Leverage: When the Fund leverages its portfolio, the Fund may be less liquid and/or may liquidate positions at an unfavorable time, and the value of the Fund's shares will be more volatile and sensitive to market movements. Non-Diversified: The portfolio is not diversified and may be more susceptible to factors negatively impacting its holdings to the extent the portfolio invests more of its assets in the securities of fewer issuers than would a diversified portfolio. Market Price/NAV: At the time of purchase and/or sale, an investor's shares may have a market price that is above or below the fund's NAV, which may increase the investor's risk of loss. Market Volatility: The value of the securities in the portfolio may go up or down in response to the prospects of individual companies and/or general economic conditions. Local, regional, or global events such as war or military conflict, terrorism, pandemic, or recession could impact the portfolio, including hampering the ability of the portfolio's manager(s) to invest its assets as intended. Prospectus: For additional information on risks, please see the fund's prospectus. PFFA, PFFR, and AMZA are distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc.