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Exploring the Rise of Preferred Stocks in Today’s Market

In the wake of evolving financial landscapes, an increasing number of investors are turning their attention to preferred stocks. These investment vehicles present a unique risk profile that positions them between the relative stability of bonds and the volatility of common stocks.

Jay Hatfield, the Founder and CEO of Infrastructure Capital Advisors, is at the forefront of this trend. He oversees the Virtus InfraCap U.S. Preferred Stock ETF (PFFA), leading both investment strategies and the company’s growth initiatives.

Speaking on CNBC’s “ETF Edge,” Hatfield emphasized the favorable performance of preferred stocks and high-yield bonds, particularly in robust stock market environments and during recovery phases following monetary policy tightening. “High yield bonds and preferred stocks… tend to do better than other fixed income categories when the stock market is strong, and when we’re coming out of a tightening cycle like we are now,” he noted.

Reflecting these insights, Hatfield’s ETF has shown remarkable resilience, recording a gain of 10% in 2024 and an impressive 23% increase over the past year. This growth is indicative of a wider investor appetite for assets that can offer higher returns amid a fluctuating market.

As of September 30, FactSet data indicates that the ETF’s top positions include Regions Financial, SLM Corporation, and Energy Transfer LP, all of which have experienced gains of approximately 18% or more this year. Such performance underscores the strategic selection process employed by Hatfield and his team, who focus on identifying stocks that are undervalued in relation to their inherent risks and returns.

Hatfield elaborated on his investment strategy, remarking, “Most of the top holdings are in what we call asset intensive businesses.” This approach suggests a calculated methodology aimed at tapping into stocks that not only promise attractive yields but also possess the potential for significant long-term growth.

However, it is worth noting that despite the successes observed this past year, the Virtus InfraCap U.S. Preferred Stock ETF has faced challenges since its launch in May 2018, currently reflecting a decrease of nearly 9%. This juxtaposition highlights the inherent risks associated with preferred stocks, which, while offering a middle ground in risk-reward balance, still expose investors to potential market downturns.

The Outlook for Preferred Stocks

As market conditions evolve, the place of preferred stocks within investment portfolios continues to be a topic of discussion among financial analysts and investors alike. The dual nature of preferred stocks—offering better yields than bonds while still less volatile than common shares—makes them an attractive option in uncertain economic times.

Moving forward, investors will likely keep a close eye on the strategies employed by firms like Infrastructure Capital Advisors, particularly those that specialize in the intricacies of asset valuation in the preferred stock market. The interplay between interest rates, inflation, and corporate performance will undoubtedly dictate the pace at which preferred stocks can be effectively leveraged for returns in the coming years.

Conclusion

In conclusion, while the current performance of preferred stocks indicates a bright path for investors, caution is warranted given the sector’s historical volatility. As highlighted by experts, a thorough understanding of market dynamics and asset fundamentals is key to capitalizing on these investment opportunities.

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