PFFA
PFFA
The Virtus InfraCap U.S. Preferred Stock ETF (PFFA) is an actively managed ETF launched in May 2018, sub-advised by Infrastructure Capital Advisors (ICA), led by CIO Jay Hatfield. The fund seeks current income as its primary objective (capital appreciation secondary) by investing in preferred securities issued by U.S. companies with market capitalizations over $100 million.
Key differentiator from passive preferred ETFs (PFF, PGX): PFFA uses 20-30% leverage on a revolving credit facility to enhance income generation, resulting in a yield approximately 3-4% higher than unlevered peers. This leverage is both the fund's main attraction and its primary risk factor.
| Characteristic | Detail |
|---|---|
| AUM | $2.26 billion |
| Holdings | 197 preferred securities (bank, insurance, REIT, utility, BDC preferreds) |
| Top Holdings | Banc of California 7.75% (2.58%), Energy Transfer 9.25% (2.56%), TDS 6.0% (2.40%), First Citizens 6.625% (2.35%), KKR 6.25% (2.30%) |
| Leverage | ~20-30% (revolving credit facility) |
| Management Style | Active — security selection based on relative yield, credit quality, call risk |
| Distribution | Monthly | $0.1725/share | $2.07/yr annualized | 9.55% yield |
| 30-Day SEC Yield | 9.14% (net income earned; slightly below distribution rate) |
| Expense Ratio | 2.11% (reflects leverage costs + active management fee) |
Rate sensitivity: Preferred securities are quasi-fixed-income instruments — their prices are inversely correlated with interest rates. PFFA's leverage amplifies this sensitivity. When rates fell in late 2024, PFFA rallied from $19 to $22. If the Fed cuts 2-3 times in 2026, PFFA could approach $23-24. If rates stay elevated or rise, PFFA could test $19-20.
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | — | — | — | — | — |
| EBITDA ($M) | — | — | — | — | — |
| Operating Income ($M) | — | — | — | — | — |
| Net Income ($M) | — | — | — | — | — |
| EPS (diluted) | — | — | — | — | — |
| Free Cash Flow ($M) | — | — | — | — | — |
| Annual DPS | $1.920 | $1.950 | $1.980 | $2.010 | $2.050 |
| Total Debt ($M) | — | — | — | — | — |
| Rev YoY Growth | — | — | — | — | — |
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.35% | 10-yr US Treasury yield |
| Beta (β) | 0.690 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 9.50% | Ke = Rf + β × ERP |
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $2.070 | $1.890 | $1.89 |
| Year 2 | Stage 1 | $2.070 | $1.726 | $3.62 |
| Year 3 | Stage 1 | $2.070 | $1.577 | $5.19 |
| Year 4 | Stage 1 | $2.070 | $1.440 | $6.63 |
| Year 5 | Stage 1 | $2.070 | $1.315 | $7.95 |
| Year 6 | Stage 2 | $2.070 | $1.201 | $9.15 |
| Year 7 | Stage 2 | $2.070 | $1.097 | $10.25 |
| Year 8 | Stage 2 | $2.070 | $1.002 | $11.25 |
| Year 9 | Stage 2 | $2.070 | $0.915 | $12.16 |
| Year 10 | Stage 2 | $2.070 | $0.835 | $13.00 |
| Terminal | — | TV=$21.79 | PV(TV)=$8.79 (40% of IV) |
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $2.091 | $1.909 | $1.91 |
| Year 2 | Stage 1 | $2.112 | $1.761 | $3.67 |
| Year 3 | Stage 1 | $2.133 | $1.624 | $5.29 |
| Year 4 | Stage 1 | $2.154 | $1.498 | $6.79 |
| Year 5 | Stage 1 | $2.176 | $1.382 | $8.18 |
| Year 6 | Stage 2 | $2.186 | $1.268 | $9.44 |
| Year 7 | Stage 2 | $2.197 | $1.164 | $10.61 |
| Year 8 | Stage 2 | $2.208 | $1.068 | $11.68 |
| Year 9 | Stage 2 | $2.219 | $0.981 | $12.66 |
| Year 10 | Stage 2 | $2.231 | $0.900 | $13.56 |
| Terminal | — | TV=$24.91 | PV(TV)=$10.05 (43% of IV) |
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $2.122 | $1.938 | $1.94 |
| Year 2 | Stage 1 | $2.175 | $1.814 | $3.75 |
| Year 3 | Stage 1 | $2.229 | $1.698 | $5.45 |
| Year 4 | Stage 1 | $2.285 | $1.589 | $7.04 |
| Year 5 | Stage 1 | $2.342 | $1.488 | $8.53 |
| Year 6 | Stage 2 | $2.377 | $1.379 | $9.91 |
| Year 7 | Stage 2 | $2.413 | $1.278 | $11.18 |
| Year 8 | Stage 2 | $2.449 | $1.185 | $12.37 |
| Year 9 | Stage 2 | $2.486 | $1.098 | $13.47 |
| Year 10 | Stage 2 | $2.523 | $1.018 | $14.48 |
| Terminal | — | TV=$29.98 | PV(TV)=$12.10 (46% of IV) |
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 7.5% | $33 | $35 | $37 | $40 | $43 |
| 8.0% | $31 | $32 | $34 | $36 | $38 |
| 8.5% | $28 | $30 | $31 | $33 | $35 |
| 9.0% | $27 | $28 | $29 | $30 | $32 |
| 9.5% | $25 | $26 | $27 | $28 | $29 |
| 10.0% | $24 | $24 | $25 | $26 | $27 |
| 10.5% | $22 | $23 | $24 | $24 | $25 |
| 11.0% | $21 | $22 | $22 | $23 | $24 |
| 11.5% | $20 | $21 | $21 | $22 | $22 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
| Fund | Yield | Leverage | Expense Ratio | AUM | 52-Wk Range |
|---|---|---|---|---|---|
| PFFA (Current) | 9.55% | ~25% | 2.11% | $2.26B | $19.20–$22.50 |
| PFF (iShares Pref) | 5.50% | None | 0.46% | $14.8B | $32–$36 |
| PGX (Invesco Pref) | 5.70% | None | 0.52% | $4.0B | $13–$15 |
| PFFD (Global X Pref) | 6.80% | None | 0.23% | $2.5B | $19–$21 |
| PSK (SPDR SR Pref) | 6.10% | None | 0.45% | $0.5B | $40–$43 |
| Metric | Value |
|---|---|
| Annual DPS | $2.070 |
| Current Yield | 9.55% |
| Consecutive Growth Years | 7 |
| 1-yr DPS CAGR | +1.5% |
| 3-yr DPS CAGR | +1.6% |
| 5-yr DPS CAGR | +1.5% |
| 10-yr DPS CAGR | — |
| Payout Ratio (DPS/EPS) | 99.9% ⚠️ |
| FCF Payout Ratio | 99.9% ⚠️ |
| Sustainability Verdict | ✅ Safe — Rate Sensitive |
Bull case: The Federal Reserve delivers 2-3 rate cuts in 2026 (market is pricing 2 cuts). Each 25bp cut improves PFFA's borrowing costs on its leverage facility (~$565M outstanding) by ~$1.4M/yr, and simultaneously causes preferred security prices to appreciate (preferred prices inversely correlated with rates). In a rate-cutting environment, PFFA: (1) sees NAV appreciate, (2) potentially raises its monthly distribution, and (3) attracts income-seeking investors, narrowing any discount to fair value. Bull IV: $26.58. This is a meaningful total return opportunity.
Bear case: The Fed stays on hold or hikes further due to persistent inflation. Borrowing costs on the leverage facility increase, squeezing the fund's net yield. At elevated rates, preferred securities (which compete with bonds) see price pressure. The fund could cut its distribution (as it did during COVID-2020 market stress). Market price could retrace to the 52-week low of $19.20. Bear IV: $21.79. At current price ($21.41), the Bear case is already almost fully priced in — there's limited downside from here.
Key assumptions — Base case: Distribution grows at 1%/yr (matching historical CAGR), Ke=9.5% (reflecting current rate environment), terminal growth 0.5%. Base IV $23.61 — implies ~10% upside from current price. The stock is modestly undervalued.
Position view: Joseph holds 46,524 shares at $21.36 cost ($2,319 unrealized gain, virtually breakeven) plus Najee's 6,906 shares at $21.73. Combined 53,430 shares generating $110,600/yr in monthly income at 9.55% yield. This is the largest income position in the portfolio and represents ~10% of a $10M portfolio — concentrated but intentional for income generation.
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$20 | Begin position |
| Tier 2 — Add | ≤$20 | Add on weakness |
| Tier 3 — Full | ≤$19 | Full allocation |
| Sell Alert | ≥$24 | Above fair value — consider trimming |
Hold. The income is the thesis. Do not let rate anxiety cause you to sell.
- Base IV: $23.61 | Current price: $21.41 → 10.3% upside to fair value
- 9.55% current yield is exceptional for a well-diversified preferred portfolio
- Combined position (53,430 shares) generates $110,600/yr in monthly income
- Position is approximately at cost — no tax consequence to current holding
- Add opportunity: below $20.50 (approaches Bear IV, excellent income entry)
- Below $19.20 (52-week low): Strong Buy — add aggressively (10.9%+ yield)
- Trim opportunity: above $24.50 (near Bull IV; take some profit on rate optimism)
- Distribution sustainability: ✅ Safe — no cuts expected unless major credit event
- Watch: Federal Reserve rate decisions, leverage facility cost changes, credit spreads in bank/REIT preferreds
PFFA generates $9,217/month in income for the family office. Don't overthink it. The income machine is working. Rate cuts are a bonus on top of an already attractive yield. Hold and collect.
| Metric | Value |
|---|---|
| Shares Held | 46,523.71 |
| Average Cost Basis | $21.36 |
| Current Market Value | $996,073 |
| Unrealized P&L | $+2,326 (+0.2%) |
| Annual Dividend Income | $96,304/yr |
| Yield on Cost | 9.69% |
| vs Target Position (~$200K) | $996,073 vs $200,000 (498% of target) |