PFFA's 9.19% SEC Yield: A Strategic Play for Income Investors in a Rising-Rate World

In an era where central banks have aggressively hiked interest rates to combat inflation, income-focused investors face a paradox: higher yields on traditional fixed-income assets come with increased volatility and duration risk. Yet, the Virtus InfraCap U.S. Preferred Stock ETF (PFFA) has emerged as a compelling alternative, offering a 9.19% 30-day SEC yield as of July 31, 2025, alongside a consistent $0.1700 monthly dividend since April 2025. This performance underscores the strategic value of preferred stock ETFs in rising-rate environments, where their unique structural advantages and active management can outperform conventional income strategies.

The Case for Preferred Stock ETFs in a High-Yield World

Preferred stocks, the hybrid securities that sit between equity and debt in a company's capital structure, have long been a cornerstone of income portfolios. Unlike bonds, which are sensitive to interest rate hikes due to their fixed coupon payments, preferred stocks often include fixed-to-floating rate structures or reset provisions that mitigate duration risk. For example, PFFA's active management team at Infrastructure Capital Advisors (ICA) has strategically increased exposure to these instruments in 2023–2024, allowing the fund to hedge against rate volatility while maintaining high yields.

The 9.19% SEC yield—a standardized metric that accounts for income and expenses—reflects PFFA's ability to generate consistent returns even as the Federal Reserve tightens monetary policy. This yield is significantly higher than the 4.3% yield on the 10-year Treasury as of August 2025, and it outpaces high-yield corporate bonds, which trade at a 5.8% yield but carry higher credit risk. For income investors, this represents a rare combination of high yield, low default risk, and tax efficiency, as preferred dividends often qualify for qualified dividend income (QDI) treatment, taxed at lower rates for individual investors.

Active Management: PFFA's Secret Weapon

PFFA's success in a rising-rate environment is not accidental. The fund's active management approach, led by CIO Jay D. Hatfield and CFA Andrew Meleney, has been pivotal in navigating the challenges of 2023–2024. Unlike passive ETFs that track broad indices, PFFA dynamically adjusts its portfolio to optimize yield and manage risk. Key strategies include:

1. Sector Rotation: PFFA has reduced exposure to volatile sectors like regional banking (e.g., post-2023 bank failures) while increasing allocations to stable, regulated industries such as utilities and real estate.
2. Leverage Utilization: The fund employs 20–30% leverage to amplify returns, a tactic that becomes particularly effective in a high-yield environment.
3. Call Risk Management: By proactively monitoring call dates and harvesting gains from securities trading above par, PFFA minimizes capital losses in a rising-rate scenario.

These strategies have enabled PFFA to maintain a consistent $0.1700 monthly dividend since April 2025, up from $0.1675 in earlier months. This consistency is rare in a market where many high-yield assets face dividend cuts or volatility.

Why PFFA Stands Out in a Rising-Rate Environment

Preferred stock ETFs like PFFA offer distinct advantages in a rising-rate world:

• Lower Duration Risk: Unlike long-term bonds, preferred stocks with fixed-to-floating rate structures reset their coupons in line with market rates, reducing price sensitivity.
• Diversification Benefits: Preferreds have historically exhibited low correlations with equities and other fixed-income assets, making them a valuable diversifier.
• Tax Efficiency: QDI treatment and the “dividends received deduction” for corporate investors enhance after-tax returns.

PFFA's 9.19% SEC yield is not an outlier. The broader preferred securities market has seen yields climb to 7.84% as of December 2024, driven by deep discounts to par value (13% as of late 2023). This valuation discount creates a compelling entry point for income investors, particularly as the Fed signals potential rate cuts in 2025—a scenario historically favorable to preferreds.

Strategic Implications for Income Portfolios

For investors seeking reliable, market-agnostic returns, PFFA exemplifies how preferred stock ETFs can enhance yield without sacrificing capital preservation. Its active management model allows it to adapt to macroeconomic shifts, while its focus on high-quality issuers (e.g., banks, utilities) ensures credit stability.

Consider the following allocation strategy:
- Core Income: Allocate 10–15% of fixed-income portfolios to PFFA to capture its 9.19% yield while diversifying away from bond duration risk.
- Tactical Adjustments: Use PFFA as a hedge during rate-hike cycles, leveraging its active management to rebalance toward floating-rate preferreds as rates rise.
- Tax Optimization: Hold PFFA in taxable accounts to maximize the benefits of QDI treatment, which can reduce effective tax rates by up to 15% for high-income earners.

Conclusion: A High-Yield, Low-Risk Proposition

The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) has demonstrated its value as a strategic tool for income investors in a rising-rate environment. With a 9.19% SEC yield, consistent $0.1700 monthly dividend, and active management that mitigates interest rate risk, PFFA offers a compelling alternative to traditional fixed-income assets. As the Fed's rate-hike cycle nears its peak, the structural advantages of preferred stocks—low duration, tax efficiency, and diversification—position PFFA as a must-consider addition to income-focused portfolios. For investors prioritizing yield preservation and capital stability, the time to act may be now.