PFFA's active management and leverage delivered a ~10% yield and 32% five-year return, while passive rival PGX lost 5% over the same period.
PFXF strips financials from the preferred universe entirely, making it the right tool for investors already overloaded with bank credit elsewhere in their portfolio.
PFFA's 2% expense ratio compounds relentlessly against underperformance, making it suitable only for income maximizers who fully accept leverage and manager risk.
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Preferred stock ETFs sit in an awkward corner of the income market: too rate-sensitive to feel like true fixed income, too subordinated to trade like common equity. That structural quirk is where the active-versus-passive debate gets sharp, and where the Virtus InfraCap U.S. Preferred Stock ETF (NYSEARCA:PFFA) makes its case against low-cost benchmarks like the Invesco Preferred ETF (NYSEARCA:PGX).
The question: Is PFFA's 2.11% expense ratio earning its keep against rivals, including PGX, the iShares Preferred and Income Securities ETF (NASDAQ:PFF), the Global X U.S. Preferred ETF (NYSEARCA:PFFD), and the VanEck Preferred Securities ex Financials ETF (NYSEARCA:PFXF)? For a specific type of investor, yes. For everyone else, cheaper tools do the job.
The 10-year Treasury sits at about 4.5%, near the middle of a roughly 4% to 4.7% range this year. Preferred shares are perpetual, deeply subordinated, and priced almost entirely off long-duration risk-free rates plus a credit spread. When the curve chops sideways, passive indexes end up owning whatever the biggest issuers have printed most recently, mostly bank capital, at whatever yield the market clears. An active manager can pick and choose across coupons, call dates, and issuers to squeeze more income out of the same asset class.
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The preferred ETF market rarely gets more actively managed than the Virtus InfraCap U.S. Preferred Stock ETF (PFFA). The fund runs roughly $2.41 billion across 196 holdings, uses modest leverage with total assets of $2.95 billion against net assets of $2.35 billion, and its manager routinely holds multiple series of the same issuer to capture yield differentials that passive indexes often miss.
A closer look at the portfolio shows how different the strategy is from a traditional index approach. PFFA owns five different series of Triton International preferreds, six series of Chimera Investment, and four series of Vornado Realty. A passive fund would either equal-weight these positions or skip the smaller series entirely. Active selection lets the manager lean into whichever coupon or call structure looks mispriced.
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