By Michael Kirkpatrick, Managing Director, Senior Portfolio Manager, Seix Investment Advisors LLC
High yield fundamentals have shown remarkable resilience. Leverage ratios remain stable. Interest coverage remains more than sufficient, and while high yield bond default rates are expected to pick up from historical lows, they are largely concentrated in energy. Further, the sharp rise in fallen angels through 6/30/20 spells considerable potential opportunities for nimble managers that can spot relative values and manage risk.
The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities. Forward-looking statements are necessarily speculative in nature. It can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes.
A rising star is a bond that has been upgraded either to investment grade or to a higher rating within the speculative spectrum. A fallen angel is a bond that was previously investment grade (> BBB- / Baa3) but has since been reduced to speculative grade (< BB+ / Ba1).
The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures fixed rate non-investment grade debt securities of U.S. corporations, calculated on a total return basis.
The Bloomberg Barclays U.S. Corporate Investment Grade Bond Index measures performance of investment grade corporate bond funds. The index is calculated on a total return basis.
The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis.
The Bloomberg Barclays U.S. Intermediate Government/Credit Bond Index measures U.S. investment grade government and corporate debt securities with an average maturity of four
to five years. The index is calculated on a total return basis.
Bloomberg Barclays U.S. Government Bond Index is comprised of the US Treasury and US Agency Indices. The index includes US dollar denominated, fixed-rate, nominal US Treasuries and US agency debentures (securities issued by US government owned or government sponsored entities, and debt explicitly guaranteed by the US government).
The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested.
The Russell 2000® Index is a market capitalization-weighted index of the 2,000 smallest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The
index is calculated on a total return basis with dividends reinvested.
The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and are not available for direct investment.
IMPORTANT RISK CONSIDERATIONS
Fundamental Risk of Investing: There can be no assurance that the fund will achieve its investment objectives. An investment in the shares of the fund is subject to the risk of loss of principal; shares may decrease in value. Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities. Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk. High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities. Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund. Market Volatility: Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended. Prospectus: For additional information on risks, please see the fund’s prospectus.
Please consider a Fund’s investment objectives, risks, charges, and expenses carefully before investing. For this and other information about any Virtus Fund, contact your financial representative, call 800-243-4361, or visit virtus.com for a prospectus or summary prospectus. Read it carefully before investing.
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Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value.