Fed rate cuts should favor preferred stocks, says fund manager Virtus

A financial firm is trying to capitalize on preferred stocks – which carry more risk than bonds but are not as risky as common stocks.

Infrastructure Capital Advisors founder and CEO Jay Hatfield manages Virtus InfraCap US Preferred Stock ETF (PFFA). He leads the company’s investments and business development.

“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, as we are now,” he told CNBC’s “ETF Edge” this week. .

Hatfield’s ETF is up 10% in 2024 and nearly 23% over the past year.

The top three holdings of its ETF are Financial Regions, SLM Corporationand Energy Transfer LP as of Sept. 30, according to FactSet. All three stocks are up about 18% or more this year.

Hatfield’s team selects names it believes are wrong relative to their risk and return, he said. “Most of the top holdings are in what we call asset-intensive businesses,” Hatfield said.

Since its inception in May 2018, the Virtus InfraCap US Preferred Stock ETF is down nearly 9%.