The VanEck Preferred Securities ex Financials ETF (PFXF) presents a compelling investment case, particularly when looking ahead to 2026. A significant portion of its portfolio is allocated to long-duration securities, making it sensitive to changes in long-term interest rates. Combined with a projected acceleration in U.S. economic growth, PFXF could offer an attractive risk-reward profile, despite some nuances in its yield metrics and broader market risks.
PFXF's strategic allocation to long-term maturities, specifically 30 years or more, positions it to potentially benefit from a decline in U.S. 30-year Treasury yields. This scenario is increasingly plausible as the Federal Reserve nears the completion of its policy normalization cycle. The anticipated economic environment in 2026, characterized by stronger U.S. GDP growth, should also help mitigate credit risks for the ETF's non-investment grade holdings. While past dividend payments have influenced its trailing yield, the underlying fundamentals suggest a bullish outlook for PFXF, provided that long-term rates remain stable or decline and the U.S. economy avoids a significant downturn.
Long-Term Horizon and Potential Yield Benefits
The VanEck Preferred Securities ex Financials ETF (PFXF) strategically allocates a substantial 67.3% of its portfolio to securities with maturities extending 30 years or beyond. This long-duration positioning indicates that the ETF's performance is closely tied to the trajectory of long-term interest rates. If U.S. 30-year Treasury yields experience a decline, PFXF is poised to benefit significantly, potentially delivering enhanced returns to investors. Such a decline in yields is a plausible outcome for 2026, especially as the Federal Reserve's cycle of policy adjustments, including interest rate normalization, is expected to conclude.
The long-term nature of these holdings means that PFXF is highly sensitive to interest rate fluctuations. A decrease in long-term rates typically translates to an increase in the market value of existing bonds, thereby boosting the ETF's net asset value. This is a critical factor for investors considering fixed-income exposure, as it allows them to capitalize on anticipated shifts in monetary policy. Furthermore, the broader economic landscape plays a vital role. Projections for U.S. GDP growth in 2026 suggest an acceleration, which generally fosters a stable or improving credit environment. This positive economic backdrop helps to manage and potentially reduce the credit risk associated with non-investment grade securities held within PFXF, enhancing the overall attractiveness of the ETF during this period. Therefore, PFXF's long-term focus and sensitivity to interest rates, coupled with favorable economic forecasts, present a strong case for its potential performance in the coming years.
Risk Mitigation and Forward-Looking Outlook
Despite the optimistic outlook, it is crucial to acknowledge the inherent risks associated with PFXF. The primary concerns revolve around potential increases in long-term interest rates and a downturn in the U.S. economy. An unexpected rise in rates could negatively impact the value of PFXF's long-duration holdings, leading to capital depreciation. Similarly, a significant economic contraction could elevate credit risks, particularly for the non-investment grade preferred securities in the portfolio, potentially affecting their principal value and income generation.
However, the current assessment leans bullish, as these risks are considered manageable within the projected economic framework. While PFXF's SEC yield is presently lower than its trailing dividend yield—a difference largely attributable to a substantial dividend payout in late 2024—this discrepancy does not detract from the fund's fundamental appeal. The SEC yield, which offers a more standardized measure of a fund's income potential, still reflects a competitive return. Investors should focus on the forward-looking potential, considering the anticipated easing of monetary policy and robust economic growth. The ETF's composition, favoring non-financial preferred securities, also provides a degree of diversification and potentially reduced exposure to some sector-specific risks. Therefore, despite the identified risks, the overall market conditions and the strategic positioning of PFXF suggest a positive trajectory for investors willing to navigate these factors.