Advantages of Actively Managed Preferred Stock ETFs

Instructions

This article explores the benefits of actively managed preferred stock exchange-traded funds (ETFs) over their passively managed counterparts. It highlights how the inherent complexities and specific quirks of the preferred securities market often expose the shortcomings of traditional index-based investment strategies. The piece delves into the methodologies employed by active ETFs, such as strategic screening, dynamic adjustments to market conditions, and diversification, which collectively aim to enhance income generation and outperform passive alternatives.

Unlock Superior Returns: The Active Edge in Preferred Stock Investing

The Limitations of Passive Preferred Stock ETF Strategies

Traditional preferred stock exchange-traded funds often adhere to a passive management style. Yet, the distinct characteristics of the preferred securities market can swiftly reveal the inherent weaknesses of investment approaches tied purely to market indices. Factors such as provisions for negative yield-to-call, structures that allow for early redemption, and an imbalance in sector representation within these indices can pose significant challenges for passive funds.

PFFA's Strategic Approach to Preferred Stock Selection

In contrast to merely mirroring the broader market, the PFFA actively managed fund meticulously evaluates preferred stock offerings. This involves a rigorous process of excluding any positions that exhibit negative yield-to-call. Furthermore, PFFA dynamically manages its exposure to both fixed and floating rate securities, adapting to prevailing market conditions. A key aspect of its strategy is also to ensure a diverse portfolio, extending beyond a heavy concentration in the financial sector to mitigate risks and capture broader opportunities.

Leverage and Diversification for Enhanced Income Generation

To amplify its capacity for income generation, PFFA typically employs a moderate degree of leverage, usually ranging between 20% and 30%. This strategic use of leverage is coupled with the implementation of active income-generating strategies across a broad and varied collection of high-yielding preferred stocks. This dual approach aims to maximize returns while maintaining a diversified risk profile.

Outperforming Passive Alternatives with a Higher SEC Yield

As reported on September 30, 2025, PFFA showcased a 30-day SEC yield of 9.31%. This performance metric underscores its favorable standing when compared to passively managed preferred stock funds. The higher yield is a testament to the effectiveness of its active management strategies in navigating the complexities of the preferred securities market and delivering superior income potential to investors.

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