Virtus ETF Solutions has partnered with Infrastructure Capital Advisors to launch a new U.S. preferred stock ETF that may provide yield-hunters a suitable income alternative.
The recently launched Virtus InfraCap U.S. Preferred Stock ETF (NYSEArca: PFFA) has a 1.36% expense ratio.
The actively managed Virtus InfraCap U.S. Preferred Stock ETF tries to generate current income and capital appreciation, according to a prospectus sheet.
Jay D. Hatfield, co-founder and president of Infrastructure Capital Advisors, and Edward F. Ryan, co-founder and chief financial officer, chief compliance officer and chief operating officer of Infrastructure Capital Advisors, serve as the portfolio managers of the fund and will be responsible for the day-to-day management of the fund’s portfolio.
How PFFA Seeks Income
Hatfield said the new ETF will try to seek current income and capital appreciation in a sector that may be less understood by investors. The fund invests in a portfolio of over 100 preferred securities issued by U.S. companies with market capitalizations of more than $100 million, with a focus on income. The fund may provide the potential for attractive yields and generate compelling total return results.
Preferred stock are a class of equity security that typically pay fixed or floating dividends to investors and have “preference” over common stock, but they are subordinated to bonds. The issuing company must pay dividends to preferred stockholders before common stockholders, and in the event of a bankruptcy or liquidation of the company’s assets, must put the claims of the preferred stockholders ahead of the claims of the common stockholders.
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The portfolio managers will rely on a variety of quantitative, qualitative and relative valuation factors to select securities and weightings. They will evaluate companies for their competitive position, potential to earn high returns on capital, stability and reliability of profits, potential to generate cash in excess of growth needs and access to capital. Leverage may be used to seek enhanced portfolio beta and options strategies are used to seek enhanced current income.
“We are excited to offer PFFA because the nuances of preferred stock investing demands active management, which we can provide in an ETF form,” Hatfield said. “Investors can benefit from active management in this sector, as the call features of preferred stock often require portfolio managers to avoid capital losses on mandatory calls.”
For more information on new fund products, visit our new ETFs category.