PFFA - PFFA: Decent Yield But With Leverage Risks

2024-05-07 06:15:02 ET

Summary

• Virtus InfraCap U.S. Preferred Stock ETF offers a high yield of around 9.6%, but there are concerns about its suitability for income.
• PFFA utilizes leverage to enhance returns, which can create permanent capital loss that no longer yields.
• Management seems to spread across too many issuers with little discernment, making their use of leverage more questionable.
• With an expense ratio of 2.5% creating additional drag on returns, something has to change before PFFA becomes an attractive Buy.

Many income investors like preferred equity funds because they offer higher yields than bonds, enjoy the tax treatment of dividends over interest, or also provide an extra layer of security over common stocks. This means their yields typically range from 5% to 10%, dependent on holdings and, of course, interest rates....

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