Active Management in Preferred Stocks Offers Texas Investors Potential Income and Appreciation

Preferred stocks can offer investors a dual benefit: a steady stream of income and the potential for capital appreciation. With higher yields than common stocks and bonds, tax-advantaged dividends, and low correlation to traditional asset classes, preferreds are increasingly attractive in a high-interest-rate, inflationary environment. However, these securities come with unique risks that may be challenging for passive investment strategies to manage effectively.

Risks include call risk, where issuers may redeem shares at a preset price, potentially cutting off income and causing capital losses if shares were purchased above redemption value. Interest rate risk is another concern; rising rates can erode market value as newly issued instruments offer higher yields. Concentration risk and the possibility of dividend suspension during financial stress further complicate the landscape.

To address these challenges, the Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA) employs active management. With over $2 billion in assets under management as of September 11, 2026, PFFA invests in a diversified basket of preferred stocks, with less concentration in financials and more in sectors like real estate and utilities. The fund uses a low band of leverage without daily reset to potentially enhance diversification, income, and total return.

Jay D. Hatfield, founder, CEO, and portfolio manager at Infrastructure Capital Advisors, brings nearly three decades of experience in investment banking, hedge fund management, and portfolio construction. His active approach allows PFFA to dynamically adjust holdings based on market conditions. For instance, if the Federal Reserve raises rates, Hatfield can quickly increase exposure to floating-rate or higher-yielding securities and harvest gains from less-desirable holdings. Passive funds, which track indices and rebalance infrequently, may take months to shift positioning, potentially missing opportunities.

PFFA also actively manages call risk by monitoring call dates daily to minimize exposure to callable securities trading above par, aiming to preserve capital and capture profits before redemptions. The fund diversifies between fixed-rate and fixed-to-floating-rate securities to mitigate interest rate risk. Additionally, the portfolio management team continuously assesses issuers’ financial health and monitors concentrations daily, limiting or selling exposure to struggling companies to guard against dividend defaults.

Beyond risk management, PFFA seeks opportunities such as investing in newly issued preferred securities before index inclusion, identifying credit improvements, and capitalizing on merger-related redemptions. The fund can deploy leverage when markets are depressed and purchase discounted preferred shares, strategies often unavailable to passive funds.

For Texas investors, PFFA’s active management may offer a compelling way to pursue high current income and total return while navigating the complexities of preferred stocks. As interest rates and inflation remain uncertain, the fund’s dynamic approach could provide valuable diversification and risk mitigation. To learn more, visit the fund’s website.