PFFA Set to Surge as Rate Cuts Loom, But Risks Linger

The Virtus InfraCap US Preferred Stock ETF, known as PFFA, is anticipated to outperform the S&P 500, represented by SPY, as economic conditions shift towards potential interest rate cuts. This marks a significant pivot from earlier assessments that deemed PFFA a “strong sell.” Current labor market indicators show weakness, which diminishes the likelihood of a wage-price spiral and provides the Federal Reserve with the latitude to consider further rate reductions.

Consumer demand remains robust, with recent data suggesting a recovery from previous tariff-related disruptions. While retail sales reports have shown some volatility, broader economic indicators paint a more stable picture. These factors contribute to an environment where PFFA could see increased performance, particularly as market sentiment shifts.

Despite these positive signs, investing in PFFA carries substantial risks. The ETF holds leveraged positions in junk-rated preferred securities, primarily in sectors sensitive to interest rate fluctuations. In general, equities may offer a more favorable long-term investment compared to preferred stocks, given their potential for higher returns.

It is crucial for investors to note that the distributions from PFFA are partially reliant on capital gains. As such, reinvesting dividends is essential for fully capitalizing on the total return potential compared to equities. This aspect highlights the importance of a strategic approach for anyone considering this investment.

My initial analysis of PFFA was published on April 28, 2025, when I issued a “strong sell” rating. At that time, a majority of analysts were advocating for a buy recommendation on the ETF. This contrarian stance was based on the prevailing market conditions, which have since evolved, prompting a re-evaluation of PFFA’s outlook.

In terms of disclosures, I, the author, do not hold any stock, options, or similar financial instruments related to the companies discussed in this article, nor do I plan to initiate any such positions in the next 72 hours. My analysis is based solely on my independent research and opinions. I do not receive compensation for this article, aside from that provided by Seeking Alpha, and have no business relationships with any of the mentioned companies.

Investors should approach PFFA with caution, considering both the potential for growth in a changing economic landscape and the inherent risks associated with its investment strategy. As always, past performance does not guarantee future results, and no specific investment advice is being provided.