InfraCap REIT Preferred ETF

PFFR

Market cap $104M

I built a preferred stock portfolio starting in 2022 in anticipation of falling inflation and interest rates, which has delivered strong double-digit returns. With fiscal and monetary policy now more aligned, I expect inflation to return to the Fed's 2% target and falling interest rates creating further upside for preferred stocks and ETFs. Preferred stocks RITM.PR.D, ABR.PR.F, CIM.PR.C, and ETFs PFFA, PFFR, and PFXF should benefit from declining rates over the next year.

U.S. equity markets notched another series of record highs this week, surging into the weekend after surprisingly dovish commentary from Federal Reserve Chair Powell, who hinted at imminent rate cuts. Powell used his final Jackson Hole speech as Fed Chair to deliver a clear policy pivot, an unexpected reversal after months of insistence that tariff-related inflation warranted a hawkish framework. Markets were equally relieved by the policy-focused nature of Powell's speech amid speculation that the address may be used instead as a potential defiant sermon on central bank independence.

The idea behind the InfraCap REIT Preferred ETF is simple: gain exposure to real estate-linked cash flows, but with a higher yield than what you typically get from common shares of (REITs). Coupon rates on the fund's top holdings are generally in the 5% to 7.5% range, significantly higher than the dividend yields offered by most REIT common shares. What sets PFFR apart is not just the headline yield, but how the portfolio is constructed. The investment team employs a rules-based strategy that screens out preferreds with unfavorable structural characteristics.

U.S. equity markets fell sharply this week, while benchmark interest rates retreated to three-month lows, after revised employment data showed that job growth was far weaker than initially reported. The BLS payrolls report showed softer-than-expected hiring in July and the steepest two-month downward revisions to jobs growth since 2020, raising concern that the Fed may be "behind the curve." The downward revisions came days after Fed Chair Powell used it as the primary evidence for "solid" labor markets, which justified the FOMC's decision to keep rates in "restrictive" territory.

Preferreds are hybrid securities. They could provide much of the yield investors want from real estate, with lower beta and more predictable pricing behavior. For allocators looking to stay in the real asset space without taking on the full risk of common stock, REIT preferreds may offer a better balance. The key insight is that PFFR offers a 30-day SEC yield of 7.81% (as of June 30, 2025) and pays monthly dividends.

CEO and CIO of Infrastructure Capital Advisors, Jay Hatfield, on being bullish all year, now more neutral on the markets. Bearish on Tesla due to high valuation and core business pressures, but bullish on Amazon and Broadcom for their reasonable valuations and growth prospects.

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As of March 31, 2025, PFFR's portfolio showed a thoughtfully diversified mix across sectors and credit tiers, designed to optimize yield while mitigating risk. The top five holdings included preferred shares from well-known names like DigitalBridge, UMH Properties, Digital Realty, and Hudson Pacific. Within the property REIT sleeve, holdings were spread across diversified operators (17.66%), data centers (12.72%), office REITs (12.04%), and niche segments like storage, hotels, and healthcare.

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