Virtus' money manager believes that Fed rate reduction will favor preferred stocks. A financial business is attempting to capitalize on preferred stocks, which have higher risks than bonds but are less dangerous than regular stocks.
 |
| Fed Rate Reduction Should Benefit Favored Stocks |
Fed Rate Cut Should Benefit Favored Stocks
Jay Hatfield, founder and CEO of Infrastructure Capital Advisors, manages the Virtus InfraCap U.S. Preferred Stock ETF (PFFA). He oversees the company's investments and business development.
"High yield bonds and preferred stocks… tend to do better than other fixed income categories when the stock market is strong, and when we're coming out of a tightening cycle like we are now," he appeared on CNBC's "ETF Edge" this past week.
Hatfield's ETF is up 10% for 2024 and nearly 23% in the last year.
As of September 30, his ETF's top three holdings were Regions Financial, SLM Corporation, and Energy Transfer LP, according to FactSet. All three equities are up at least 18% this year.
According to Hatfield, his team identifies names that are mispriced in relation to their risk and yield. "Most of the top holdings are in what we call asset intensive businesses," according to Hatfield.
Since its launch in May 2018, the Virtus InfraCap U.S. Preferred Stock ETF is down nearly 9%.
What is the Fed rate cut in 2024?
At the September 2024 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) cut interest rates by 50 basis points, relaxing monetary policy for the first time in four years as progress on the Fed's dual mandate was made. This reduces the interest rate target to a range of 4.75%-5%.
What is a fed rate cut?
When the Fed lowers interest rates, it reduces the fed funds target rate. This is the interest rate that banks charge each other for lending money overnight to meet the federal reserve requirement. This is significant because a variety of other interest rates use the target rate as a benchmark.
Will interest rates be in 2024?
In fourth-quarter 2024 forecasts, Fannie Mae analysts and the Mortgage Bankers Association predict 30-year rates of 6.2 percent, while the National Association of Realtors predicts 6.7 percent. In the news: Will Fed cutbacks end the housing market's roller coaster?