Virtus InfraCap U.S. Preferred Stock ETF (PFFA): Outperforming Active ETFs Amidst High Fees
Active Exchange-Traded Funds (ETFs) have long been a subject of debate in the investment community. Critics argue that their high fees make it difficult for them to justify their added value compared to passive ETFs. However, one active ETF that has been turning heads is the Virtus InfraCap U.S. Preferred Stock ETF (PFFA), with an Assets Under Management (AUM) of $1.50 billion.
The Allure of Preferred Stocks
Investing in preferred stocks offers a unique blend of features that make them an attractive option for yield-seeking investors. Currently, preferred stocks yield around 9%, providing strong returns that surpass those of many other fixed-income investments. However, they also come with the added risk of unpredictable capital fluctuations due to volatile interest rate expectations.
Managing Risk with an Active Approach
Despite the inherent risks, PFFA’s active management approach has proven to be effective in managing depreciation risk and Yield to Call (YTC), two critical factors for preferred stock investors. By actively selecting and managing its portfolio, PFFA is able to mitigate some of the volatility that comes with preferred stocks.
Performance Speaks for Itself
The performance of PFFA underscores the benefits of an active approach to preferred stock investing. According to Morningstar, as of August 2021, PFFA has outperformed its benchmark, the ICE BofAML US Preferred Securities Index, by over 2% in the past year. This outperformance can be attributed to the fund manager’s ability to selectively choose preferred stocks that offer attractive yields while mitigating risk.
Impact on Individual Investors
For individual investors seeking attractive yields in a volatile market, PFFA could be an intriguing option. Its active management approach aims to provide more stable returns than passive preferred stock ETFs or individual preferred stocks, while still offering the potential for strong yields. However, it’s essential to keep in mind that preferred stocks carry inherent risks and that past performance does not guarantee future results.
Global Implications
The success of active ETFs like PFFA could have far-reaching implications for the investment industry as a whole. If more investors come to appreciate the value of active management in ETFs, it could lead to increased competition among active ETF providers and potentially lower fees for investors. Additionally, it could result in a shift away from passive index funds and towards more actively managed investment vehicles.
Conclusion
While high fees have long been a barrier to entry for active ETFs, the Virtus InfraCap U.S. Preferred Stock ETF (PFFA) demonstrates that an active approach can yield impressive results. With a strong focus on managing risk and a proven track record of outperforming its benchmark, PFFA is a compelling option for yield-seeking investors looking to navigate the volatile world of preferred stocks. However, it’s essential to remember that past performance does not guarantee future results, and all investments carry risk. As the investment landscape continues to evolve, the success of PFFA could pave the way for a new generation of actively managed ETFs.
- Active ETFs often face criticism for high fees
- Virtus InfraCap U.S. Preferred Stock ETF (PFFA) has an AUM of $1.50B and a 2.52% annual expense ratio
- Preferred stocks offer strong returns but come with unpredictable capital fluctuations
- PFFA’s active management approach has proven effective in managing depreciation risk and Yield to Call (YTC)
- PFFA has outperformed its benchmark in the past year
- Active ETFs could lead to increased competition among active ETF providers and potentially lower fees for investors
