ETF Watch: New InfraCap ETF Debuts

Today another InfraCap-branded ETF is launching on the NYSE Arca. The InfraCap REIT Preferred ETF (PFFR) comes with an expense ratio of 0.45%.

The fund is advised by Virtus and subadvised by Infrastructure Capital Advisors, the same arrangement with the $235 million InfraCap MLP ETF (AMZA), which was among the best-performing equity ETFs of 2016. However, unlike the actively managed AMZA, PFFR tracks an index.

According to Jay Hatfield, co-founder and president of InfraCap, investors should not a expect a repeat of AMZA’s record because MLP performance had been depressed by low oil prices and the space had been off its highs. Preferred securities, while down, are not similarly depressed.

“We think real estate is an attractive asset class and has done well over time. And if you’re a creditor of a company, which you are when you’re in senior-to-common investments, it’s good if it has assets, so if there’s a problem they can sell assets,” Hatfield said.

Fixed-Income Alternative
He adds that preferred securities represent a much-lower-risk, conservative investment because they are senior to common stock. REITs are also less sensitive to things like commodity prices.

Hatfield notes that the fund is really for income investors who want an alternative to fixed income. PFFR has a yield net of expenses of roughly 6.3%—that’s better than the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and even the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), which has a yield of 5.22%.

PFFR’s index targets REIT-preferred securities that have at least $75 million, average 250,000 shares traded over a six-month period, and have a yield-to-call of at least 3%. The index includes all the securities that meet its criteria, which translated into an index of 31 securities from 26 issuers as of Sept. 30, 2016, the prospectus said.   

The prospectus also notes that the index committee can use qualitative judgments regarding the index’s composition.

“[PFFR is] a way to not take a lot of credit risk—you are taking interest-rate risk—yet get a high yield. It’s a good alternative, we believe, to an investment-grade bond fund or Treasurys,” Hatfield said, adding that a lot of investors don’t have preferred securities included in their portfolios.

Contact Heather Bell at [email protected].