Virtus InfraCap U.S. Preferred Stock ETF (NYSE Arca: PFFA)

What is Preferred Stock?

Preferred stock is a class of capital equity that pays regular dividends at a specified rate and has priority over common stock, but not corporate debt, in the payment of dividends and in any liquidation of the corporation’s assets (hence the term “preferred”).

Preferreds are often described as “income hybrid” securities, since they exhibit characteristics of both stocks and bonds, potentially enabling them to play a powerful diversifying role vis-à-vis traditional balanced stock and bond portfolios.

Why Invest in Preferred Securities?

Preferred stocks have tended to be overlooked and underutilized by many investors, despite their many potential benefits:

• Yield advantage: Historically, preferred stocks’ dividend yield has been competitive with other income-oriented assets, including high yield bonds – and has usually been higher than the dividend yield on the issuer’s common stock and the coupon payment on its bonds.
• Payment priority: Preferred stock shareholders have priority claim over common stock shareholders to the corporation’s assets in the event of bankruptcy/liquidation. They also stand ahead of common stockholders for dividend payouts.
• Limited rate risk: Preferred stocks’ yield advantage may help offset the negative price impact of rising interest rates. The fixed-to-floating coupon structure of many preferreds may also help mitigate rate risk by reducing their sensitivity to rate changes.
• Tax-favored income: Dividend payments are typically taxed at lower rates than other types of income for corporations and individuals, magnifying preferreds’ after-tax returns.
• Lower correlations: Historically, preferreds have been only moderately correlated with traditional stocks and bonds, and even less correlated with 10-year Treasuries, providing potential diversification benefits.

Why Invest in PFFA?

PFFA Aims to:

• Minimize the concentration risk found in the preferred market universe;
• Manage the call risks seen in most passive preferred stock portfolios;
• Maximize the strategy’s yield-to-call using modest amounts of prudent leverage.

Key Features

1. Preferred Stocks — Historically, preferreds’ negative correlation with interest rates has provided a non-traditional source and pattern of returns within an income portfolio.
2. Actively Managed — InfraCap’s experienced team focuses on minimizing exposure to callable preferreds trading at a negative yield-to-call.
3. Focus on Income — PFFA opportunistically employs modest leverage to enhance current income.

Learn More about PFFA and Get Current Yield/Performance