Infrastructure Capital Advisors Launches SCAP ETF to Address Yield Challenges Amid Potential Fed Rate Cuts

Earlier this year, investors pushed out the likelihood of the Federal Reserve cutting the benchmark interest rate in June, with pensiveness centered on payroll data and inflation. However, with inflation fears escalating, the narrative regarding a more dovish Fed policy has heightened, and more traders now anticipate the first round of rate cuts could occur beginning in June. This dynamic presents challenges for investors, as falling interest rates compress the spread that riskier bonds offer over safer alternatives, making it difficult to find attractive income without excessive risk.

Financial services provider Infrastructure Capital Advisors aims to fill this opportunity zone with its exchange-traded fund called the InfraCap Small Cap Income ETF. Thanks to targeted, high-income strategies within the small-capitalization equities segment, SCAP focuses on a balanced approach for investors navigating complex waters. Due to the underlying productivity enhancement of innovations such as artificial intelligence, technology specialists have dominated the equities market, but the blistering performance has sparked a yield dilemma. Presently, the benchmark S&P 500 features a dividend yield of just 1.27%, largely a consequence of math where higher equity values combined with static payouts lead to declining yields.

In prior cycles, BBB investment-grade corporate yield represented the sweet spot for income-seeking investors, but currently this yield comes in at 5.41%, which in context now appears inadequate. Amid a corrective spell for many tech firms along with rising fears of a recession, many market participants simply want more for their risk capital. This difficult juncture is where the SCAP ETF steps into the picture. An actively managed fund, the SCAP is spearheaded by Infrastructure Capital founder, CEO and portfolio manager Jay D. Hatfield, who commands a broad perspective on the U.S. financial markets, leveraging years of experience as an investment banker and research director.

Perhaps one of the most conspicuous ironies is that large-scale events such as the Fed implementing a dovish monetary policy may spark the biggest impact on the smallest enterprises. Historically, small caps have outperformed larger businesses during early rate-cut cycles, particularly when policymakers attempt to engineer a so-called soft landing. Rate cuts reduce financing costs and help stimulate growth, but diminutive businesses often rely more heavily on debt for growth, making the impact of reduced borrowing costs more positively felt by less financially robust entities. Furthermore, small caps tend to have higher sensitivity to the domestic economy and are less exposed to global trade tensions.

In an effort to effectively negotiate the current tricky waters, some investors may want more than just a basket of securities, which is one core reason why the SCAP ETF is relevant. As an actively managed fund, the SCAP offers more flexibility than passive ETFs, with portfolio managers actively guiding underlying holdings to adjust to dynamic conditions in real time. The SCAP doesn't merely follow a benchmark index but aims to front-run narratives, positioning clients to extract income while simultaneously seeking capital appreciation. According to the fund's https://infracapetfs.com, at least 80% of the SCAP's net assets are allocated across a diversified portfolio of small-cap securities, with the 30-day SEC yield standing at 6.98% at the time of writing.

Beyond active management and income potential, the SCAP enjoys a reputational tailwind by association with Infrastructure Capital's flagship funds such as the Virtus InfraCap US Preferred Stock ETF, an actively managed ETF that delivers elevated yields through exposure to preferred stocks of U.S. companies. In a market awash with contradictions including soaring valuations, shrinking yields and mounting macro uncertainty, it's becoming increasingly difficult to find investments that offer both income and resilience. By going deep into small-cap territory with a deliberate income-first strategy, the Small Cap Income ETF attempts to carve out a more balanced pathway forward, providing a framework that adapts to dynamic conditions rather than merely reacting.