Why PFFA Is a Strategic Addition to Income-Driven Portfolios in 2026

In an investment landscape marked by persistent uncertainty and evolving macroeconomic dynamics, the pursuit of income has become a central focus for investors. Traditional fixed-income assets, such as corporate and government bonds, have seen yields plateau or decline, while equities remain vulnerable to volatility. Against this backdrop, preferred equity-particularly through vehicles like the Virtus InfraCap U.S. Preferred Stock ETF (PFFA)-emerges as a compelling solution. This article examines why PFFA, with its unique yield advantages and diversification potential, is a strategic addition to income-driven portfolios in 2026.

The Yield Advantage of PFFA

Preferred equity occupies a hybrid position in the capital structure, offering characteristics of both debt and equity. For investors, this translates into a stable income stream with the potential for capital appreciation. PFFA, which focuses on U.S. preferred stocks, exemplifies this duality. As of January 2026, the fund's trailing dividend yield stood at 9.41%, significantly outpacing the yields of most traditional fixed-income instruments. This high yield is underpinned by the fund's consistent monthly dividend of $0.17 per share, a feature observed throughout 2025.

Moreover, PFFA's active management strategy enhances its yield potential. The fund employs leverage (typically 20–30% of its net assets) to amplify returns, a tactic that has historically proven effective in environments where interest rates are stable or rising. In Q3 2025, PFFA delivered a 7.97% return on a net asset value (NAV) basis, outperforming its benchmark, the S&P U.S. Preferred Stock Index, which returned 3.97%. This outperformance underscores the fund's ability to capitalize on market inefficiencies and security selection, a critical factor in an era where passive strategies often fall short.

Diversification in a Fragmented Market

Diversification remains a cornerstone of resilient portfolio construction, yet traditional assets like stocks and bonds have exhibited heightened correlation in recent years. A report by Morgan Stanley notes that the historically stable relationship between these asset classes has eroded, creating a need for alternatives with distinct risk-return profiles. Preferred equity, and by extension PFFA, fills this gap.

Preferred stocks typically exhibit low correlation with both equities and bonds. For instance, gold-a classic diversifier- has demonstrated resilience during periods of macroeconomic stress, but its income generation is limited. In contrast, PFFA offers both yield and diversification. Its portfolio includes preferred shares from noncyclical, high-quality issuers like Apollo Global Management and KKR & Co, designed to mitigate sector-specific risks while maintaining exposure to income-generating assets.

Furthermore, the fund's focus on U.S. companies with market capitalizations exceeding $100 million ensures a degree of credit quality that enhances its risk-adjusted returns. This aligns with the findings of Cohen and Steers, which highlight that preferred securities from regulated industries with stable cash flows tend to outperform other fixed-income assets. By blending active management with rigorous credit analysis, PFFA positions itself as a versatile tool for diversification.

Navigating Risks and Challenges

While PFFA's advantages are compelling, investors must remain cognizant of its risks. Preferred equity is sensitive to interest rate fluctuations, particularly for fixed-rate issues. As Advisors Capital notes, fixed-rate preferreds carry significant interest rate and credit risk, especially when yields are only marginally higher than those of intermediate corporate bonds. However, PFFA's active management approach allows it to adjust its portfolio in response to shifting market conditions, mitigating some of these risks.

Additionally, the fund's expense ratio of 2.48% is higher than the category average, reflecting the costs associated with active management and leverage. While this may deter some investors, the fund's consistent outperformance and yield advantages often justify the premium. For income-driven portfolios prioritizing returns over cost efficiency, PFFA's value proposition remains robust.

Conclusion

As 2026 unfolds, the search for income and diversification will only intensify. PFFA, with its high yield, active management, and low correlation to traditional assets, offers a strategic solution. By leveraging the unique characteristics of preferred equity, the fund not only enhances income generation but also fortifies portfolios against macroeconomic headwinds. For investors seeking to navigate a complex market environment, PFFA represents a well-considered addition to a diversified, income-focused strategy.