Trap!? PFFA’s 9.6 Percent Preferred Yield Hides Up to 33 Percent Borrowed Leverage Most Income Investors Never See

2 days ago 11

Omor Ibne Ehsan

Mon, May 25, 2026 astatine 7:30 AM CDT 5 min read

Quick Read

Virtus InfraCap U.S. Preferred Stock ETF (PFFA) offers a 9.67% organisation output by leveraging up to 25% of nett assets astatine SOFR-plus rates to amplify returns, versus iShares Preferred and Income Securities ETF (PFF) astatine 5.6% unleveraged and Invesco Preferred ETF (PGX) with akin mechanics, but PFFA’s 2.11% disbursal ratio reflects the outgo of borrowed money. In March 2020, PFFA mislaid implicit 52% successful weeks and chopped its monthly organisation 21%, portion PFF lone fell 17%.
When recognition spreads widen oregon forced deleveraging occurs, leverage amplifies losses connected some the preferred enslaved yields and financing costs simultaneously, making PFFA suitable lone arsenic a 3-5% income allocation successful tax-advantaged accounts for investors who judge equity-like drawdowns.
The expert who called NVIDIA successful 2010 conscionable named his apical 10 stocks and VIRTUS INFRACAP U.S. PREFERRED STOCK ETF wasn't 1 of them. Get them present FREE.

The header fig connected Virtus InfraCap U.S. Preferred Stock ETF (NYSEARCA:PFFA) is simply a organisation output astatine 9.67%, which looks generous against the unleveraged iShares Preferred and Income Securities ETF (NASDAQ:PFF) astatine 5.6%. The machinery that produces PFFA's other output is borrowed money.

The expert who called NVIDIA successful 2010 conscionable named his apical 10 stocks and VIRTUS INFRACAP U.S. PREFERRED STOCK ETF wasn't 1 of them. Get them present FREE.

The money tin leverage up to 33.3% of full assets nether the Investment Company Act, and it typically carries 15% to 25% of nett assets successful borrowings to bargain much preferreds than your superior unsocial would fund. That is the full pitch, and astir retirees who bargain PFFA for the monthly cheque are yet to afloat recognize what this implicates.

You should recognize the instrumentality motor earlier investing

Preferred shares are hybrid securities that wage a fixed coupon and beryllium betwixt bonds and communal banal successful the superior structure. Most issuers are banks and insurers, which means the assemblage trades similar high-grade recognition successful bully upwind and similar equity successful bad.

Infrastructure Capital Advisors, PFFA's manager, buys a handbasket of these, past borrows astatine a short-term complaint tied to SOFR positive a dispersed and uses the proceeds to bargain inactive much of them. The transportation works arsenic agelong arsenic the output connected the preferreds exceeds the financing cost. When recognition spreads widen, some sides of that commercialized determination against the money astatine once.

That is wherefore PFFA's disbursal ratio sits adjacent 2.11% with financing costs included, compared with astir 0.45% for PFF and a akin fig for Invesco Preferred ETF (NYSEARCA:PGX). You are paying much to get more. It costs wealth to borrow, and progressive ETFs besides person to wage their teams.

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