Jay Hatfield: S&P 9,000, CPI Negative, Three Rate Cuts (PFFA, AMZA, QVOL) | Lead-Lag Live

Preferred stock ETFs, MLPs, and monthly income investing take center stage in this Lead-Lag Live conversation. Michael A. Gayed, CFA, portfolio manager of the ATAC Rotation Fund and publisher of the Lead-Lag Report, sits down with Jay D. Hatfield, CEO and CIO of Infrastructure Capital Advisors (InfraCap) and portfolio manager of the InfraCap ETF suite, for a wide-ranging discussion on income investing, credit conditions, energy infrastructure, and the small-cap opportunity heading into the back half of 2026.

What we cover:

• Why PFFA (Virtus InfraCap U.S. Preferred Stock ETF) sits at the center of a high yield preferred stock ETF strategy, and how PFFA compares against passive preferred baskets and PFFR.
• AMZA (InfraCap MLP ETF) and where Jay sees midstream MLPs versus Alerian MLP ETF peers in a MLP ETF landscape reshaped by pipeline consolidation.
• ICAP (InfraCap Equity Income Fund ETF) as an income vehicle for advisors comparing monthly dividend ETF options and best monthly income ETF candidates.
• BNDS and SCAP for investment-grade credit and small cap value ETF exposure with active management.
• Where credit spreads, rate expectations, and preferred securities set up for H2 2026 and 2027.
• The small cap ETF and small cap value ETF opportunity Jay sees as index concentration peaks.

InfraCap ETFs discussed: PFFA, AMZA, ICAP, PFFR, BNDS, SCAP.

Guest: Jay D. Hatfield, CEO and CIO, Infrastructure Capital Advisors. Host: Michael A. Gayed, CFA, Lead-Lag Report and ATAC Rotation Fund.

For institutional and advisor inquiries on Infrastructure Capital's ETF suite, contact Craig Starr at Quasar Distributors LLC, 212-763-8336, Craig.Starr@icmllc.com. More at www.infracapfunds.com.

Subscribe to Lead-Lag Live for weekly conversations with the fund managers, economists, and strategists shaping asset allocation for financial advisors.

Disclosures: This conversation is for informational and educational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy any security. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Consider a fund's investment objectives, risks, charges, and expenses carefully before investing. Prospectuses are available at www.infracapfunds.com.

 Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.

Transcript

Cabin Setup And Quick Banter

SPEAKER_01 0:02

Nobody's lining up to give you like kudos, so you might as well be like Trump. You just like claim you get you should get the Nobel Peace Prize, even if it's not the office.

SPEAKER_00 0:13

Hey folks, we're live. We're just doing some bantering real quick. Uh doing a new platform. Uh hopefully this goes off well. Looks like pretty solid from what I can see on X here. Uh so this will be uh another Lee Light Live episode. As you can tell, folks, this is not a virtual background for me. I am uh live in Maine in a cabin. I was on CBC World two days ago, and I joked that I'm here just in case the reverse carry trade takes place from Japan. I'm hiding out uh so I can be somewhat off the grid, even though we're still streaming here. Uh if any of you are uh watching this on LinkedIn on X, I'm gonna look for your comments to post. Uh feel free to uh engage, um ring up and ask questions like uh we are doing a webinar, Jay and I, at 2 Eastern. Uh, you'll see that through some in posts and uh collateral I'm putting out to promote it, talking about preferred. Preferred, I think I'm actually in a kind of an interesting tweet spot here. Uh but that webinar is coming up at two. So whether you're an advisor or an individual, I think it's worth attending. Uh check out that registration link. And uh this conversation is gonna be, as always, an edited podcast on only three platforms. Uh thankfully, now I've got uh another AI agent that's gonna edit this almost instantaneously and put it out pretty quickly. Um I I I got literally four hours of sleep last night, Jay. I was up until 3 a.m. I got up at 7:15. Uh so I'm gonna do my best to be a solid host, but thankfully people aren't here for me ever. We're here for you. So with that said, my name is Michael Guy, and I'm the publisher of the Lead Lag Award, founder of Lead Lag Media NES. Apparently, I'm gonna be cutting some wood uh here in Maine. Uh joining me is Mr. Jay Hatfield. So uh we were talking about what we should talk about to start with, and he said we should start with oil. Uh

Oil Drops After Shipping Reopens

SPEAKER_00 1:46

let's talk about oil. What's going on with oil?

SPEAKER_02 1:49

Well, we had the view since the war started that after the war, and we had the view also that the stream would reopen. We weren't certain how it would reopen by force. And apparently uh article in the Wall Street Journal confirmed that they did have a plan to open it by force, thwarted by the Saudis or by negotiation, which is how it ended up. So we were correct, it took longer than we had expected, but I don't think anybody could predict things like the Saudis banning, you know, our use of their of their facilities. So uh we it did reopen as we'd expected. That's why we stuck with our 8,000 target with a contingency to move to nine on the SP. But the the core of our view that oil would drop below 70 after the war reopened, or after the street reopened and the war ended, is that OPEC would go to maximum production. They normally hold back on production about 29 million barrels. They all need the money. Trump administration wants them to pump. The Iranians now can sell their oil freely. And that's what you're seeing unfold. We have a 60 target on oil. It's at 68 right now. I think the most commentators on television are, in our not humble opinion, horrible. And they were mostly, I think 80% at least, staying fire for longer. I'm not certain of this. I suspect that's because they were hoping that would happen, because it would be good politically for Democrats and bad for Trump, which is probably 80% of the of the country, at least the elites in the country, want that to happen. But I'm not certain. Maybe they're just super bad oil analysts. But um, you do see that a lot is just biased research. We are extreme moderates, so we don't do that. Um, but you're gonna see that oil, it's already falling too straight. The Iranians are moving a ton of oil, still good flow through the southern part, which is controlled by the Americans. And so you're seeing this daily collapse in oil. Retail gasoline

CPI Tailwinds And S&P Targets

SPEAKER_02 4:20

prices are lagging because the spreads are really high. So we're forecasting CPI is negative, slightly at negative 0.2 this month, but also negative the next month. We haven't quantified that because we don't know exactly what's gonna happen. You know, the month's not over, obviously. But all tailwinds for inflation, plus you're gonna get gradual roll down in shelter. Maybe Warsh's committee's passports will finally reform that horrible calculation. Um, worse softened up the 2% target to kind of two and a half, two to two and a half. So we're actually think we're gonna have three rate cuts over the next year, not about one increase. It's come off from us ridiculous two increases, but one increase price in the market. And I would use my guide to or your guide to cuts the 10-year. So 10-year right now is around 440. And I would subtract 100 base points off that. That's 340. So that implies one cut because we're about 360 on the um on the Fed funds. So um look at the 10 year, it's more efficient market than Fed Fund futures. Uh I have no idea who trades, we trade Fed fund features, but we're long them. So not a very good market for predicting what the Fed's gonna do. It's about as good as the dot lots. But the 10-year always trailed the increase in Fed funds and now still is. So 100 over Fed funds is where terminal Fed funds where the 10-year trades. So we think we'll get one rate cut at least, but more likely three over the next 12 months. And that's gonna support our 9,000 target because you need low rates to have a 23 multiple. And journalists who are not the very good forecasters, they're almost as bad as a lot of the people they interview. I've kind of made fun of my our 9,000 target. But I think what's really gonna happen is after we have the normal summer power rally, we'll be pretty close or exceed almost all of Wall Street's targets, which are bunched around here to 8,000. And I'd also last point I'd make is if you just take 23 times, 27 earnings, you you would have started out at 8,000, you would have gone to 9,000 like we have. But if you marked it to market, which we're not doing yet, you go to 9,200. So another way to say it is we're no our stretch multiple 23 is down to about 22 and a half, simply because 27 earnings are rising. So this is not a market you want to be out of. And it's really all kind of tracks back to the oil story and the opening of the street.

SPEAKER_00 7:26

Everyone's always uh focused on interest rate cuts or hikes.

Fed Balance Sheet Versus Rate Cuts

SPEAKER_00 7:31

Um, but what about the balance sheet? It seems to me that Warsh, you know, if he's gonna do anything, probably would focus more on the QT side of the problem.

SPEAKER_02 7:39

That is the most misunderstood issue on the planet. I think there's maybe five people that understand it. Uh so even Mirin doesn't seem to understand it. The balance sheet is not independent of Fed funds. For Fed funds to drop, the Fed has to increase the balance sheet. The reason the balance sheet is much higher than it was during the great financial crisis is that they now, the Fed now pays interest on reserves. So they used to be, and this is one of those statistics you have to really emphasize the number of zeros. In the banking system, there used to be eight billion dollars of reserves. This is pre-financial crisis. And so was that the absolute minimum? That was the required reserves to have the balance sheets the banks did. And now we're at over 3 trillion. So I don't know exactly, I can't do that multiple in my head exactly what that is, but it sounds like a thousand times. Well, I guess 600 times. But that's why the balance sheet's big. You know, this is I used to be a CPA, it's not complicated. Go look at the anybody who's thinks they're investor should go look at the Fed's balance sheet. H dot four.1 Fed, you can get it on Bloomberg if you have Bloomberg. But assets have decal liabilities. So if you have a huge amount of liabilities because all these banks are putting in reserves, then unless you're an idiot, you have assets, so you can earn on the difference between the two. So shrinking the balance sheet without eliminating or reducing interest on Fed funds, deposits at the Fed, in other words, is not going to happen. It's just not possible. Unless you want to raise rates a lot, which obviously Warsh does not want to do. And by the way, the data does not support that, because the idiots who put out those dot plots, and they are maybe not idiots, they're incompetent, incompetent, and use horrible, horrible forecasting models. Though that's not happening. That's ridiculous. It's not happening. We're not having any rate increases because oil's down. The only reason inflation is higher is oil's up. Two leading indicators of inflation are oil and the money supply. So the Fed is not tightening. Uh, there's no balance sheet impact. Simply, they're tight because Fed funds are too high by 75 basis points to maybe 1%. And so ignore everything you hear, including from former Fed governors, definitely from Judy Shelton, is like a gold bug nut. Most people have no idea what's going on. I studied it for 47 years since I was an undergrad at UC Davis, um, studying under a monetary economist. So the only people probably understand it are the people who manage the repo at the New York Fed.

SPEAKER_01 10:39

That's a non-consensus call for sure. In fact, no non-consensus, almost no one understands what I just said.

SPEAKER_00 10:46

Uh like I always say on X if you understand this. That's always the tagline. Um, but but okay, so so so I'm with you on

Gold And Commodity Momentum Trades

SPEAKER_00 10:54

that. And by the way, I will say that I think the the message of commodities would suggest that you're probably right about recuts. It's not just oil, like gold, silver, a lot of things that we're gonna do.

SPEAKER_02 11:01

Right. Yeah, that was that's to be, I was just texting the client, and we do love talking to our clients. That I was actually surprised that gold was lagging so much. I think it kind of got smashed in. That's a a technical financial term, smashed in with all the other commodities like oil, but it should do well when the dollar is weak and rates are coming down, which are a little bit, should do well. It's doing well today, but it kind of had this hiccup. I think you know, lithium, a whole bunch of other commodities were doing badly. So um, but it should do better if if the dollar's weak. And if we have three rate cuts, a dollar should be weak. But anyway, a little bit of an anomalous post-war it should have done better than it did. Now it's doing okay today, at least.

SPEAKER_00 11:47

Yeah, I mean, look at fairness. I mean I I argued that coming coming off of the 2023 level, gold was almost the beneficiary of scared capital because treasuries were not the sponge like it used to be. And then at some point, gold became a momentum trade, not a not a fear trade.

SPEAKER_02 12:01

It kind of became the new Bitcoin and got ahead of itself, and then the war occurred, and then the opposite of what was happening. So the dollar got strong, rates are rising, that's terrible for gold. So that all made sense. But then after the war ended, it kind of just pickuped and sort of kept going down. Maybe because you look at it, most this is another reason why these people who are calling for higher oil for longer, like even if we didn't do any numbers, and we always rely on the numbers, but you know, we AMZA is our MLP fund, had that for 12 years. We do global supply and demand. I co-founded an energy company. If you ever trade oil, you know, like momentum is the biggest factor. And the beauty, so if you think the street reopens and oil goes higher or stays the same, that's ridiculous. Once the downward momentum starts, it's going lower. So all commodities trade with momentum. So unless you break the downward momentum, it's not gonna rally. So I think maybe that's what was going on with gold too. People just all the CTAs, all the you know, commodity futures trading were just like, oh, it's in a downtrend. Let's keep trading it in a downtrend until it you know materially pops. That might be the answer too. Very hard to determine. I get called by gold, you know, journalists who have to write about gold, and I'm always like, you know, God bless you, I don't know exactly what gold's getting waste in.

SPEAKER_00 13:31

So energy

How To Own Energy Now

SPEAKER_00 13:32

went from, you know, like first to worst, right? I think from a or almost worse on from a sector performance perspective perspective. You know, assuming that oil keeps on doing what's doing, um, I mean, does it stay that way? I mean, and and where are the uptrend using the energy stock side?

SPEAKER_02 13:46

You know, um, we were kind of pressured, I won't mention the network to give um energy picks. And I was kind of like, okay, I'll give you energy picks, but I wouldn't be in energy. Um, but if you're gonna do be in energy, like a lot of our clients, like AMCA has done spectacularly well this year. And I just said, well, those companies are cheap, they have great yields, and they've been hated for many years. So yeah, they'll come off a little when the war ends and energy declines, but they'll be pretty stable and they'll they have low betas, so they're continuing to be kind of like fixed income. So I wouldn't do any energy unless you're getting um a big yield. You can do the majors and rate-covered calls because it's not going to infinity. You know, refining, as I I think I briefly mentioned, is in this secular bull market because a lot of capacity has been destroyed in Russia, some in the Middle East. So you could be in refiners, they have pretty good dividends. But I think there's better. We recommended financials like three years, three weeks ago, not years, three weeks ago, and years, I guess we recommended Goldman Sachs three years ago. But those have been working. So I'd rather be in other sectors. But you know, for people who own either individual MLPs or like AMCA, hold it, but don't hold it because you were trying to beat the SP. Hold it because you're trying to beat bonds or your CDs or uh and you want to hedge, like because energy goes up when tech's down. Sometimes it does nothing when tech's up. So it's just a good 0.5 beta bond-like alternative.

QVol And Smarter Covered Calls

SPEAKER_00 15:39

So um I was saying before we went live, congrats on the launch of QVolk, which is getting some really good traction and attention. Your newest ETF. Uh I feel like we should touch on that uh because it's definitely a uh a unique spin on where a lot of people want uh exposure.

SPEAKER_02 15:56

Well, you know, it's always great to launch new ETFs because you learn remedial things that you should have known before. But it seems like so we coined this term dogs of the DAC. So dogs of the Nasdaq. Because I think almost no one, even though it's the easiest information in the world to determine, realizes there's like 30 to 40 companies in the Nasdaq 100 that are not that are either we way overvalued like Tesla or just stocks that you don't want in your Nasdaq fund. So we excluded Walmart. That stocks getting annihilated now. And we've said this publicly on a number of uh channels. Um, that like, why is Walmart traded 45 times earnings and and grows at 10? And why does Amazon traded 20 times earnings and grow at 20%? Well, the answer is because that was just completely stupid. And Walmart's off like 30 bucks from that, but it's in the NASDAQ 100. We don't own it, we don't own Costco, we don't own um you know Kraft Heinz and Mondeleys. You know, it's not that we would never own them, but we don't see they're overvalued and they're not growth stocks. So why do you have them? And that's allowed us to outperform the NASDAQ quite significantly by do you do your own research about 2%. And I'm talking the Qs, not other call writing funds. And so pretty easy to outvalue by excluding overvalued companies using PE to growth ratios, so GARP type at a reasonable price type um um metrics. And just being in things out of things you don't want to be in, like Warner Brothers Discovery is actually like a merger arb trade right now in the NASDAQ. Uh so um we added value that way, and then we write individual calls very short term, which is a phenomenal business. What's a horrible business? And even if you don't buy any of these um index funds like QYLD, horrible, horrible strategy. They write at the money index calls. So that's kind of like you know, betting against France to beat Sweden, and then adding that to your stock portfolio. Like the NASDAQ is gonna go higher. So you don't want to write index calls. So what we do is we curate it, we look at companies like we have a little bit of Apple, we're underrated, we bought more when it got collapsed when they raised prices. But we're happy to rate calls on that all day long out four or five weeks up above 300. And like we're happy to sell it at 300. We just bought some at 2270. So that's a great strategy because when it gets called away, you're like, oh, good, I took profits, not, you know, I made this separate bet, you know, Fran, whatever, you know, parlay on the NFL uh game. Like you don't want two separate bets. You want to be able to deliver stock into calls. So we I we're our objective is to beat the cues, not just beat these terrible index call writing funds, but to beat the cues on a total return basis after our dividends. So far, so good. We haven't been able to do that. But we are stacked a depth in our favor, avoid the dogs of the deck, you know, have the right weightings. We were overweight Marvell. We took that off, but we were overweight Marvell for a while, and then write thoughtful calls at places where there's resistance from a technical perspective, where we have a game, maybe a huge game, and um, you know, address it on an ongoing basis so you have exposure to the market. You don't want to run less than market exposures as that because you're gonna underperform. So so far, so good on Cube all.

Preferred Income And Webinar Invite

SPEAKER_00 19:58

I mentioned that we're doing a uh CE credit approved webinar at 2 Eastern in about an hour and a half, talking about preferreds. Uh, maybe let's tease the uh the sexiness of preferreds, why people should actually tune into that webinar. Are preferred sex me? I don't know.

SPEAKER_02 20:11

Well, they're risk-adjusted basis. And so, you know, it's the PFFA's like 60% of my IRA. It keeps going down because when you have income and buy our other ETFs, it goes down. We never sell it, but so it has a 0.4 beta, mention AMZ.5 cute ball, by the way, it's gonna have a beta well above the markets, like about 1.2, 1.3. Um, so if you care about risk-adjusted returns, so like maybe you're retired, you don't want to worry about, you know, is the market overvalued, is it a bubble? We don't think it is, but don't want to worry about that. One consistent income, then it's spectacular because PFFA's done 8% over eight years, beta's about 0.4. So that implies like a 20% total return. So it can't be spectacular. I'm taking dividends from PFFA and buying cue because last I checked, my IRA doesn't risk adjust my returns. It just gives it to me on an absolute basis. And I don't have to have the cash. Um, a lot of my the my friends who I help them manage their portfolios, they have enough cash to cover most of their expenses, but then they are in gross stocks and other things like Q-Balls. So you get some income, but you also get great total return. So for people are wanting stability, things like preferred BNDS is only 0.2 beta. Um, great returns beating the index by about 3%, which is like ridiculously good. So a great alternative for more risk-averse investors, but want good long-term returns like eight over the last eight years, pretty spectacular to annualized, so it's like 72 or something like that. Because it's been terrible for fixed income over the last eight years, and PFFA is the number one performing fixed income fund, so not just preferred spot high-yield bonds. So for more conservative investors, it's great. If you want to take more risk, Q ball is great. That's I'm trying to put more risk in my IRA because I have enough income to cover most of my expenses.

SPEAKER_00 22:25

Uh never in my career have I ever said or equated uh risk adjusted returns to uh sexy. Uh so it works for me.

SPEAKER_02 22:34

It's an important distinction. Not everybody cares. And so you don't care by the people, and if you do, um then PFFA on a risk adjusted basis, pretty spectacular.

Final Thoughts And Sign Off

SPEAKER_00 22:48

Pretty pretty spectacular and sexy. We get rid of watching this live. Uh again, you'll uh if anyone wants to attend the uh CE Credit approved webinar coming up at 2 Eastern, uh, you'll see that link on my pinned ex post shortly. Uh special thanks to Jay boys. I know he's busy, and we got another uh peer it's coming up soon. So thank everybody for watching, and we'll see you hopefully on the webinar. Uh thank you, Jay. Appreciate it. Thanks, Michael. Cheers, everybody.