Preferred Income Quarterly Report | July 2026

Preferred Income ETF Manager Review

Market in review

For the second end, the S&P U.S. Preferred Stock Index returned +2.40%. US Investment grade, municipal, and high yield bonds returned +0.67%, +2.50%, and +2.47%, respectively. US and Global equity markets performed well after recovering from selling off at the onset of the war in Iran. Under the current market environment, we believe advisors and investors can benefit from allocating to preferred stocks that are still trading at discounts and offer high yields. Interest rates are likely to continue to decline in 2027, and active managers may opportunistically harvest gains, manage risk, and tilt the portfolio to benefit.[1]

Performance

The fund seeks to offer investors high income and capital appreciation. New issuance was strong, with multiple deals occurring during the quarter. The Fund continued to take advantage of rebalancing strategies, arbitrage opportunities, as well as shorter-term pricing inefficiencies.

Industry overweights and underweight

Our view is that the yield and credit profiles of select non-bank sectors remain attractive to hold through this market cycle. The Fund maintained its overweight to real estate investment trusts (REITs) and Utilities compared to leading preferred income indices and competitor funds. We believe that real estate and certain non-bank financial services sectors have better risk-adjusted total return opportunities.

Macro Outlook

We are increasing our S&P 500 Index target to 9,000 due to continued strength in AI-related company earnings. S&P 500 2027 earnings estimates have risen +14% since we established our 8,000 year-end 2026 target in December, and we are using the same 23x fair value multiple that we used in our original target[2]. In our opinion, we are not experiencing a stock price bubble at present, but rather an earnings estimate surge, as the AI boom dramatically increases long-term earnings estimates.

In the US, June CPI printed negative, coming in at -0.4% with core coming flat vs. expectations of 0.2%. The headline inflation drop was driven by a -9.5% plunge in energy prices. The decline in core services included a drop in shelter to 0.1% as the deeply flawed imputed shelter component finally started to reflect declines in market rents. Infrastructure Capital’s Real-time market inflation, CPI-R, is +1.1% Y/Y and we project PCE- R will be +2.5% year over year. The decline in shelter inflation is critical since it is likely to persist as a 6-month delayed average and is further lagged by utilising renewing rates.[3]

We disagree with the Fed’s current outlook which calls for rate increases.[4]  Rate increases act to slow the interest rate sensitive sectors of the economy, such as real estate and homebuilding. The Fed’s tight monetary policy has already caused the interest sensitive sectors of the economy to enter recession with negative Y/Y growth.[5]  Higher inflation has been caused by high energy prices and to a lesser extent higher medical insurance cost.  Higher interest rates have absolutely no effect on energy prices or medical care costs. We believe higher inflation expectations are actually deflationary as higher interest rates further slow the economy and businesses and consumers in the US have almost no market power to raise prices based on their expectations.[6] Historically, inflation has been exclusively caused by excessive monetary growth and oil prices. The money supply (monetary base) is down almost 6% YoY.[7] The expected decline in inflation supports our view that the 10-year declines to 3.75% and the S&P 500 Index hits 8,000 by the end of the year.

PFFI Report July

Source: The economic outlook and observations discussed here are the result of research conducted by the Infrastructure Capital Advisors. These observations have been prepared using sources of information generally believed to be reliable; however, their accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice. Data obtained from Bloomberg as of 30.062026. Additional sources available upon request. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

[1] Source: Infrastructure Capital Advisors, Bloomberg. Data as of 30.06.2026

[2] https://www.rothschildandco.com/en/newsroom/insights/2026/02/wm-strategy-blog-buoyant-earnings-expectations/

[3] Source: Infrastructure Capital Advisors, Bloomberg. Data as of 30.06.2026

[4] https://uk.finance.yahoo.com/news/fed-logan-calls-rate-hike-174809129.html

[5] https://fred.stlouisfed.org/series/A011RO1Q156NBEA

[6] Source: Infrastructure Capital Advisors

[7] https://fred.stlouisfed.org/series/BOGMBASE#

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