PGX - PFF: Assessing The Outlook Versus Floating Rate VRP

2024-07-25 10:00:00 ET

Summary

• As interest rates, along with SOFR, are expected to decline, I've been reconsidering my holding of VRP, a variable rate preferred shares ETF.
• The iShares Preferred and Income Securities ETF is the largest of its kind, and holds a more traditional portfolio of preferred stock.
• PFF, along with other preferred share ETFs, have had a good 9 months, posting share price gains in addition to their dividend income.
• Since I expect the yield curve to become upward sloping as the FOMC conducts Fed Funds Rate cuts, I don't immediately see more capital appreciation of PFF.

Readers who have been following my work will know that I hold a substantial position in the Invesco Variable Rate Preferred ETF ( VRP ). I started purchasing this ETF back in early 2022 when I was worried that interest rate increases were on their way. Investors familiar with fixed income investments like bonds and preferred shares will understand that the economic value of fixed income securities drops when interest rates (technically yields) are rising. Therefore, by my reasoning, a floating/variable rate preferred stock fund was likely going to protect my capital from such rate increases....

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