During the final quarter of 2025, the Virtus InfraCap U.S. Preferred Stock ETF (PFFA) demonstrated a notable outperformance against its benchmark, the S&P U.S. Preferred Stock Index. The fund achieved a 1.20% return on net asset value, significantly exceeding the benchmark's 0.29%. This favorable outcome was largely driven by the fund's strategic asset allocation, particularly its reduced exposure to insurance preferred stocks and increased investment in Real Estate Investment Trusts (REITs). Despite a broader trend where preferred stocks lagged behind the overall equity market, PFFA maintained a consistent monthly dividend distribution of $0.17 per share, underscoring its income-generating appeal. The equity market experienced a robust rally towards the end of the year, fueled by positive macroeconomic indicators and strong corporate earnings.

The investment landscape in the fourth quarter of 2025 presented a nuanced picture. While the broader equity market enjoyed a significant rally, propelled by encouraging economic data and corporate financial results, preferred stocks generally found themselves lagging behind. This divergence highlighted the importance of selective positioning within the fixed income sector. For PFFA, its tactical decision to underweight insurance-related preferred stocks proved to be a critical factor in its superior performance. Many large issuers within the insurance sector reported subdued earnings, which negatively impacted their preferred stock valuations. Conversely, PFFA's overweight allocation to REITs, a sector that navigated the quarter more successfully, further bolstered its returns.

Looking ahead, the market anticipates a continued decline in inflation, with projections suggesting a return to the 2% target by the close of 2026. This outlook is expected to pave the way for three rate cuts by the Federal Reserve, along with a projected 10-year Treasury yield of 3.75%. Such an environment is generally considered beneficial for preferred stocks, as lower interest rates tend to enhance their appeal by increasing the present value of future dividend payments. PFFA, with its current 30-day SEC yield of 9.13% and a strategic leverage of 20.16% designed to maximize income, is well-positioned to capitalize on these anticipated market conditions and continue supporting its attractive monthly dividend of $0.17 per share.

The Virtus InfraCap U.S. Preferred Stock ETF's strong showing in the fourth quarter of 2025, marked by a 1.20% return on net asset value, showcases the effectiveness of its investment strategy. This performance, significantly outpacing the S&P U.S. Preferred Stock Index, demonstrates the fund's ability to navigate challenging market conditions. Its disciplined approach to portfolio construction, particularly the strategic underweighting of underperforming sectors and the emphasis on income generation through consistent monthly dividends, reinforces its value proposition for investors seeking stable returns in the preferred stock market.