The Preferred Stock Trade Most Allocators Are Still Sleepwalking Past
Live today at 2:00 PM ET with Jay Hatfield, CEO of Infrastructure Capital — 40 minutes, live Q&A, 1 CFP CE credit approved
Register free — Wednesday, July 1 at 2:00 PM ET
Preferred stocks are one of the more misunderstood corners of the income market. They sit between common equity and fixed income, they can offer higher yields than either, they pay dividends that are often tax-advantaged, and they carry a senior claim relative to common stock. On paper, that combination should have made preferreds the darling of every income allocator through the rate-cycle reset.
Instead, most passive preferred exposure has been quietly bleeding for years — and a lot of allocators still cannot articulate exactly why.
Today at 2:00 PM ET, Jay Hatfield, the CEO and Chief Investment Officer of Infrastructure Capital Advisors, joins me for 40 minutes to walk through the active case for the asset class. The full session is approved for 1 CFP CE credit, and Jay is taking live questions the whole way through.
Why the passive version of this trade is broken
Roughly 62 percent of the U.S. preferred market sits in financials. That is not a rounding error — that is the market. If you own a passive preferred index, you own a concentrated bet on U.S. bank capital stacks. When Q1 2023 regional bank stress hit, that concentration was not a theoretical risk. It was the whole story.
Passive funds also have a call-risk problem that almost nobody talks about. A meaningful slice of the preferred market trades above par on callable securities. When you buy a callable preferred above par, your yield-to-call can go negative — the issuer has every incentive to call the security back at par the moment the coupon becomes uneconomic, and the index does not care. It owns what it owns. You inherit the negative yield-to-call whether you understand it or not.
And then there is the structural piece. Preferreds come in three main flavors — fixed-rate, fixed-to-floating, and floating-rate — and they behave very differently as the rate environment shifts. A passive index blends them. An active manager decides which flavor to own for the regime you are actually in.
What Jay does differently
Jay is running PFFA, the Virtus InfraCap U.S. Preferred Stock ETF. He has been doing this work for a long time — he founded Infrastructure Capital, co-founded NGL Energy Partners (NYSE: NGL), ran fixed income research at Zimmer Lucas, led the Global Utility investment banking practice at CIBC, and was a principal in Global Power and Utilities banking at Morgan Stanley before that. Wharton MBA. He knows this capital stack from every seat.
Four things Jay will walk through today:
Active sector rotation. When financials own 62 percent of the market and regional banks start cracking, an active manager can rotate. A passive fund cannot. Jay will use Q1 2023 as the case study.
Credit screening at the security level. Every preferred is not created equal. Coupon structure, call features, issuer capital position, sector — an active PM chooses which ones to own and which ones to skip. Screening out the negative-yield-to-call trap is table stakes.
Modest non-resetting leverage. PFFA uses a measured amount of leverage that does not reset with rates. In the right structural setup, that leverage is additive rather than punitive. Jay will explain when it works and when it does not.
New-issue participation. The preferred new-issue calendar is where the most interesting yield opportunities show up — and passive funds by definition cannot participate. Jay’s team can.
Who this is for
If you are a financial advisor, an RIA, an allocator, or a serious individual investor who has been staring at your fixed income sleeve wondering where the actual yield is hiding — this session is for you. Preferreds are not the answer to every question. But for the right allocation slot, in the right hands, they may be doing real work that a bond index cannot do.
The webinar is 40 minutes end-to-end with live Q&A. Jay will answer as many questions as we can get through before his 3:30 PM ET Fox appearance. If you cannot make it live, register anyway — the replay goes to every registrant.
Register free — Wednesday, July 1 at 2:00 PM ET
CFP CE Credit: Approved for 1 hour CFP Board CE. Knowledge Topic: Investment Planning. Level: Intermediate.
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Speakers
Jay Hatfield, CEO and Chief Investment Officer, Infrastructure Capital Advisors. Founder and lead PM at ICA. Co-founded NGL Energy Partners (NYSE: NGL). Prior: PM at SAC Capital; MD and Head of Fixed Income Research at Zimmer Lucas; led Global Utility IB at CIBC; Principal in Global Power and Utilities IB at Morgan Stanley. Wharton MBA with distinction; BS UC Davis.
Host: Michael A. Gayed, CFA. Founder of Lead-Lag Media and publisher of The Lead-Lag Report.
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Disclosures
Infrastructure Capital Advisors, LLC is an SEC-registered investment adviser. The PFFA ETF (Virtus InfraCap U.S. Preferred Stock ETF) is distributed by VP Distributors, LLC, a wholly owned subsidiary of Virtus Partners, Inc. Carefully consider the investment objectives, risks, charges and expenses of the fund before investing. To obtain a prospectus containing this and other important information, please visit https://www.infracapfunds.com/potential-benefits-of-pffa or call 1-888-383-0553. Read the prospectus carefully before investing.
Past performance is not indicative of future results. This webinar is for educational purposes only and is not investment advice, an offer, or a solicitation to buy or sell any security.