- Many income investors are looking toward higher-risk funds to boost returns in the low-rate environment, causing potential risk miscalculations.
- PFFA is an increasingly popular actively managed levered preferred equity ETF with a higher expense ratio of ~1.5% and a dividend yield of ~8% today.
- Investors should not mistake PFFA for a low-risk fund as it has a high beta of ~1.5 and is about twice as volatile as a non-levered preferred equity fund.
- A closer look at PFFA's holdings shows that it carries very high exposure to mortgage REITs which may carry high bankruptcy risk as the Federal Reserve ends Q.E.
- If PFFA is an ideal "buy low sell high" investment, now may be a good time to sell since its upside potential appears limited as rates are unlikely to decline further.
For further details see:
PFFA: Leverage, Preferred Stocks, And Rising Rates Do Not Mix