Seeking Income With Capital Appreciation? Learn What Active Management In The Preferreds Space Can Offer Investors

By Meg Flippin, Benzinga

DETROIT, MICHIGAN - September 17, 2026 (NEWMEDIAWIRE) - In principle, preferred stocks may offer the best of both worlds - a regular income stream and the potential for share price gains. Plus, preferred stocks tend to offer higher yields than common stocks and bonds, can pay out tax-advantaged dividends and typically have low correlations to traditional asset classes.

In an environment marked by high interest rates and stubbornly persistent inflation, it’s not surprising that preferreds are attractive to income-seeking investors. After all, investors in preferred stocks may be able to earn current dividend income, and potentially see their shares rise in value if interest rates fall later. Not to mention, preferreds can be used to diversify their portfolios, an important attribute of a modern investment account.

Risks Of Preferred Shares

The complexity involved with preferred stocks can make them risky for the untrained investor. Call risk could cut off an expected income stream if the issuer redeems the shares, buying them back at a preset call price and potentially leaving investors to reinvest at lower yields. Investors who bought securities above the redemption price would face potential capital losses if their securities are redeemed.

There’s also the risk that an investor could end up too heavily concentrated in a specific sector or overly exposed to interest rate changes. The latter is particularly true if the U.S. Federal Reserve (Fed) raises rates to try to tame inflation. Increased rates could potentially erode preferred stocks' market value as investors focus on newly issued instruments with higher yields. Additionally, an issuer could suspend its dividend payments during periods of financial stress.

Help Mitigate Risk With The Virtus InfraCap U.S. Preferred Stock ETF (PFFA)

Given all of that, passive funds can often fall short of providing the best outcomes for investors. Handling the complexities specific to the asset class may require the finesse of an active manager, which is what the Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA) provides.

The actively managed ETF, which has over $2 billion in assets under management as of 9/11/2026, invests in a diversified basket of preferred stocks that is less concentrated in financials and more concentrated in sectors like real estate and utilities, aiming to provide diversification while maintaining attractive income generation.

PFFA dynamically deploys a low band of leverage (with no daily reset) to potentially boost diversification, income, and total return. if the Fed were to increase interest rates, for example, Jay D. Hatfield, founder, CEO, and portfolio manager at Infrastructure Capital Advisors, could quickly increase exposure to floating, fixed-to-floating, or other higher-yielding securities in PFFA, and harvest gains in less-desirable securities. That would position investors for income and total return opportunities. Passively managed preferred funds track an index and rebalance infrequently, which means it can take months for the funds to shift positioning based on changing market environments.

Deep Experience To Drive Success

Hatfield, who has nearly three decades of experience across investment banking, hedge fund management, and portfolio construction, can also adjust PFFA dynamically to overweight sectors offering higher yields or more attractive risk-adjusted returns, while underweighting stressed sectors like financials during crises. A passive fund can’t do that.

To address call risk, PFFA monitors call dates daily to minimize exposure to callable securities trading above par. By doing that, PFFA seeks to preserve capital and capture profits before redemptions occur. Under Hatfield’s charge, PFFA is also able to help mitigate interest rate risk by diversifying between fixed-rate and fixed-to-floating-rate securities.

PFFA seeks total return and high current income by arbitraging gaps that emerge when floating preferreds trade in line with their fixed-rate preferred parity issues, fixed-to-floating preferreds are converting in the near future at higher coupon rates, and management is encouraged to call floating preferreds at par value when interest rates are high. Again, all of this isn’t possible if you are invested in a passive preferred shares ETF or mutual fund.

To help guard against an issuer defaulting on its dividend payment, the portfolio management team runs a continuous assessment of issuers’ financial health and monitors portfolio concentrations daily. If a company is not well-positioned, the Fund can limit exposure to the preferred stock or sell preferred shares of companies that are struggling.

Going Beyond Risk Management For Opportunities

Beyond managing the risks associated with preferred stocks, Hatfield and his team actively work to seize market opportunities, something not easily achieved with a passive ETF. For instance, the fund can invest in newly issued preferred securities before they are included in indices, can identify opportunities where credit profiles improve, or premiums are offered for redemption during mergers and acquisitions. PFFA can use leverage and deploy capital when markets are depressed. Passive funds may not have the ability to purchase preferred shares when they trade at a discount, as the actively managed PFFA does.

Preferred shares provide investors with the potential for higher yield and appreciation, but they aren’t without risk. While investors can get exposure through a passive fund, they may not be able to navigate the challenges the way an actively managed fund can. The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) has over $2 billion in assets under management in a diverse basket of preferred stocks. To learn more, click here.

Featured image from Shutterstock.

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 is distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc.

This content was originally published on Benzinga. Read further disclosures here.

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