The Merger Fund® Interactive Chart
See how The Merger Fund® can diversify traditional stock and bond portfolios in an interactive way.
March 2024 - M&A Gains Momentum
- Merger and acquisition (M&A) activity continued to gain momentum in March, despite the challenges of 2023.
- One of the key drivers of this upward trend has been the return of mega-cap deals ($10 billion+).
- The importance of mega-cap deals cannot be underestimated, as they historically signify a return to health for the M&A market.
- We are witnessing a strong recovery in both the technology and industrial sectors, with a significant uptick in $1 billion-plus deals. North America alone accounted for over 40% of these transactions.
- The energy sector had a robust first quarter, with $5+ billion in activity—its second-highest level ever.
- Overall, M&A activity has shown remarkable resilience and growth. These positive trends bode well for the future of the market and for our investments in this space.
Spreads
We are currently monitoring approximately 140 transactions worldwide, with a median annualized spread of about 14% as of the end of March. Both The Merger Fund® and the Virtus Westchester Event-Driven Fund hold arbitrage investments with weighted median annualized spreads exceeding this figure, at 16% and 18%, respectively. As a reminder, the funds' net performance will typically be lower than the gross spreads, which would be net of trading and hedging costs, as well as the occasional terminated transaction.
We view the current environment as a compelling opportunity. Wider spreads, both in terms of notional value and as compared to the cost of capital and the risk-free rate, may offer the potential for higher returns with improved risk-adjusted performance.
Merger Arbitrage Index Returns Generally Improved with Higher Rates Distribution of 12-month merger & acquisition (M&A) returns in different risk-free rate regimes.
| M&A Average Annual Return | 0-0.5% | 0.5-1% | 1.0-1.5% | 1.5-2% | 2-2.5% | 2.5-3% | 3-3.5% | 3.5-4% | 4-4.5% | 4.5-5% | 5-5.5% | 5.5-6% | 6-6.5% | 6.5-7% |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average 12-Month Risk Free Rate | 3.06 | 8.19 | 2.26 | 7.63 | 4.66 | 3.86 | 10.60 | 4.46 | 7.78 | 9.97 | 10.85 | 9.70 | 0.00 | 1.10 |
Source: Virtus Performance & Analytics, Morningstar, Federal Reserve Economic Data. Analysis period runs from 12/31/1989-12/31/2023. Merger arbitrage returns are represented by an average of the returns to the Morningstar U.S. Fund Event Driven Category. The risk-free rate is represented by the 90-Day Treasury Bill yield.
March 2024 Performance Review
The Merger Fund® (MERIX): +0.65%
See our new 4-star Morningstar review
- Seven deals were completed, and capital was redeployed into seven new situations. There were no broken transactions. As of the end of March, we held 60 positions and were approximately 94% invested.
- Top contributors: JSR Corp/Japan Investment Corp; Karuna Therapeutics, Inc./Bristol Meyers Squibb Co.; Pioneer Natural Resources/Exxon Mobil Corp; Westrock Co./Smurfit Kappa Group PLC; and Hess Corp./Chevron Corp.
- Top detractors: United States Steel Corp./Nippon Steel Corp; Macro Portfolio Hedge; Capri Holdings, Ltd./Tapestry, Inc.; Amedisys Inc./UnitedHealth Group, Inc.; and Catalent, Inc./Novo Holdings A/S.
Virtus Westchester Event Driven Fund (WCEIX): +0.84%
- Eight deals were completed during the month, with capital redeployed into seven new situations. There were no broken transactions. As of the end of March, the Fund held 66 positions and was approximately 113% invested.
- Top contributors: JSR Corp/Japan Investment Corp; Pioneer Natural Resources/Exxon Mobil Corp; Karuna Therapeutics, Inc./Bristol Meyers Squibb Co.; Westrock Co./Smurfit Kappa Group PLC; and Hess Corp./Chevron Corp.
- Top detractors: United States Steel Corp./Nippon Steel Corp; Capri Holdings, Ltd./Tapestry, Inc.; Macro Portfolio Hedge; Amedisys Inc./UnitedHealth Group, Inc.; and Vale S.A.
Virtus Westchester Credit Event Fund (WCFIX): 0.72%
- Three deals were completed during the month, with capital redeployed into two new transactions. There were no broken transactions. The Fund held 40 transactions and was 99% invested at the end of the month.
- Top contributors: Closed-End Funds; Splunk, Inc./Cisco Systems, Inc.; Mauser Packaging Solutions Holding Co.; Carriage Services, Inc; and Capri Holdings, Ltd./Tapestry, Inc.
- Top detractors: Allen Media LLC; Catalent, Inc./Novo Holdings A/S; La Finac Atalian SA; Altaba/Alibaba; and NuStar Energy LP/Sunoco LP.
The Virtus Westchester Credit Event Fund (WCFIX) primarily invests in short-duration, catalyst-driven fixed-income opportunities, as well as discounted closed-end funds, liquidating instruments, and other rate-of-return type trades.
What sets WCFIX apart from traditional bond funds is its potential to provide downside protection and mitigate interest rate volatility. This differentiated strategy allows investors to potentially earn higher returns without incurring the credit risk associated with high-yield bonds, or the duration risk commonly found in long-maturity fixed income.
Whether used as a stand-alone investment or as a complement to our more conservative equity-oriented vehicles, WCFIX may be well-suited for investors seeking higher-yielding alternatives while minimizing credit and duration risks.
Performance and Risk/Reward Updates
Risk Metrics:
(as of
)
| 3 Year | MERIX | WCEIX | WCFIX | S&P 500® Index | Bloomberg U.S. Aggregate Bond Index | Morningstar U.S. Fund Event Driven Category |
|---|---|---|---|---|---|---|
| Total Return | 1.74 | 0.98 | 2.65 | 11.49 | -2.46 | 1.11 |
| Standard Deviation | 3.00 | 4.76 | 4.01 | 17.60 | 7.24 | 5.00 |
| Alpha (vs. S&P 500®) | -1.41 | -3.31 | -1.74 | 0.00 | -7.83 | -2.97 |
| Sharpe Ratio | -0.40 | -0.41 | -0.08 | 0.47 | -0.73 | -0.31 |
| Sortino Ratio | -0.49 | -0.52 | -0.10 | 0.72 | -0.93 | -0.36 |
| Beta (vs. S&P 500®) | 0.03 | 0.15 | 0.16 | 1.00 | 0.28 | 0.13 |
| Correlation | 0.16 | 0.58 | 0.73 | 1.00 | 0.69 | 0.42 |
| Beta (vs. Agg) | 0.03 | 0.24 | 0.28 | 1.68 | 1.00 | 0.19 |
| Correlation (vs. Agg) | 0.06 | 0.36 | 0.53 | 0.69 | 1.00 | 0.24 |
(as of
)
| 5 Year | MERIX | WCEIX | WCFIX | S&P 500® Index | Bloomberg U.S. Aggregate Bond Index | Morningstar U.S. Fund Event Driven Category |
|---|---|---|---|---|---|---|
| Total Return | 3.07 | 3.62 | 7.19 | 15.05 | 0.36 | 3.89 |
| Standard Deviation | 3.03 | 7.75 | 10.62 | 18.37 | 6.14 | 6.91 |
| Alpha (vs. S&P 500®) | -0.10 | -2.22 | 0.78 | 0.00 | -3.76 | -1.18 |
| Sharpe Ratio | 0.29 | 0.19 | 0.46 | 0.69 | -0.29 | 0.28 |
| Sortino Ratio | 0.40 | 0.25 | 0.67 | 1.07 | -0.39 | 0.46 |
| Beta (vs. S&P 500®) | 0.08 | 0.29 | 0.34 | 1.00 | 0.16 | 0.23 |
| Correlation | 0.46 | 0.68 | 0.58 | 1.00 | 0.48 | 0.57 |
| Beta (vs. Agg) | 0.07 | 0.30 | 0.40 | 1.44 | 1.00 | 0.26 |
| Correlation (vs. Agg) | 0.14 | 0.23 | 0.23 | 0.48 | 1.00 | 0.22 |
(as of
)
| 10 Year | MERIX | WCEIX | WCFIX | S&P 500® Index | Bloomberg U.S. Aggregate Bond Index | Morningstar U.S. Fund Event Driven Category |
|---|---|---|---|---|---|---|
| Total Return | 3.16 | 3.50 | NA | 12.96 | 1.54 | 2.94 |
| Standard Deviation | 2.99 | 6.17 | NA | 15.16 | 4.78 | 6.30 |
| Alpha (vs. S&P 500®) | 0.65 | -1.12 | NA | 0.00 | -1.15 | -1.19 |
| Sharpe Ratio | 0.55 | 0.32 | NA | 0.75 | 0.01 | 0.25 |
| Sortino Ratio | 0.82 | 0.44 | NA | 1.17 | 0.02 | 0.36 |
| Beta (vs. S&P 500®) | 0.09 | 0.28 | NA | 1.00 | 0.11 | 0.24 |
| Correlation | 0.44 | 0.68 | NA | 1.00 | 0.35 | 0.56 |
| Beta (vs. Agg) | 0.05 | 0.23 | NA | 1.12 | 1.00 | 0.20 |
| Correlation (vs. Agg) | 0.08 | 0.18 | NA | 0.35 | 1.00 | 0.16 |
Performance (%):
(as of )| Product / Market Indices | Ticker | MTD | YTD | 1 Year | 2 Year | 3 Year | 5 Year | 10 Year |
|---|---|---|---|---|---|---|---|---|
| Westchester Event-Driven | WCEIX* | 0.84 | 0.75 | 5.63 | 1.92 | 0.98 | 3.62 | 3.50 |
| Westchester Credit Event | WCFIX* | 0.72 | 1.82 | 8.25 | 3.90 | 2.65 | 7.19 | NA |
| The Merger Fund® | MERIX* | 0.65 | 0.59 | 5.00 | 2.93 | 1.74 | 3.07 | 3.16 |
| S&P 500® Index | 3.22 | 10.56 | 29.88 | 9.47 | 11.49 | 15.05 | 12.96 | |
| Bloomberg Barclays U.S. Aggregate Bond Index | 0.92 | -0.78 | 1.70 | -1.60 | -2.46 | 0.36 | 1.54 |
* MERIX inception date is 8/1/13 (The Merger Fund® A Shares inception date is 1/31/89), WCEIX inception date is 1/2/14, WCFIX inception date is 10/29/17.
Performance data quoted represents past results. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, so your shares, when redeemed, may be worth more or less than their original cost.
Class I shares have no sales charges and are not available to all investors. Other share classes have sales charges. The Merger Fund® - The fund class gross expense ratio is 1.36%. The net expense ratio is 1.25%, which reflects a contractual expense reimbursement in effect through 04/30/2024. This ratio reflects the direct and indirect expenses paid by the Fund. The net expense ratio minus dividend and interest expense on short sales and indirect expenses incurred by the underlying funds in which the Fund invests is 1.17%. Virtus Westchester Credit Event Fund - The fund class gross expense ratio is 1.53%. The net expense ratio is 1.48%, which reflects a contractual expense reimbursement in effect through 04/30/2025. This ratio reflects the direct and indirect expenses paid by the Fund. The net expense ratio minus dividend and interest expense on short sales and indirect expenses incurred by the underlying funds in which the Fund invests is 1.45%. Virtus Westchester Event-Driven Fund - The fund class gross expense ratio is 1.70%. The net expense ratio is 1.57%, which reflects a contractual expense reimbursement in effect through 04/30/2025. This ratio reflects the direct and indirect expenses paid by the Fund. The net expense ratio minus dividend and interest expense on short sales and indirect expenses incurred by the underlying funds in which the Fund invests is 1.45%.
All investments carry a certain degree of risk, including possible loss of principal.
IMPORTANT RISK CONSIDERATIONS
The Merger® Fund: 3, 8, 12, 4, 9, 1, 2, 5, 13, 11, 7, 10; Virtus Westchester Event-Driven Fund: 3, 8, 4, 12, 9, 1, 2, 5, 7, 10; Virtus Westchester Credit Event Fund:3, 8, 1, 12, 9, 2, 5, 6, 4, 7, 10.
- Credit & Interest: Debt instruments are subject to various risks, including credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt instruments may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
- Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
- Fundamental Risk of Investing: There can be no assurance that the portfolio will achieve its investment objectives. An investment in the portfolio is subject to the risk of loss of principal; shares may decrease in value.
- Foreign Investing: Investing in foreign securities subjects the portfolio to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and market risk.
- Hedging: The portfolio’s hedging strategy will be subject to the portfolio’s investment adviser’s ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged.
- Lower-rated Securities: Instruments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.
- Market Volatility: The value of the securities in the portfolio may go up or down in response to the prospects of individual companies and/or general economic conditions. Local, regional, or global events such as war or military conflict, terrorism, pandemic, or recession could impact the portfolio, including hampering the ability of the portfolio's manager(s) to invest its assets as intended.
- Merger-arbitrage & Event-driven: Merger-arbitrage and event-driven investing involve the risk that the adviser’s evaluation of the outcome of a proposed event, whether it be a merger, reorganization, regulatory issue, or other event, will prove incorrect and that the fund’s return on the investment may be negative.
- Portfolio Turnover: The portfolio’s principal investment strategies may result in a consistently high portfolio turnover rate. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when the portfolio is held in a taxable account.
- Prospectus: For additional information on risks, please see the fund’s prospectus.
- Sector Focused Investing: Events negatively affecting a particular industry or market sector in which the portfolio focuses its investments may cause the value of the portfolio to decrease.
- Short Sales: The portfolio may engage in short sales and may incur a loss if the price of a borrowed security increases before the date on which the portfolio replaces the security.
- Technology Concentration: Because the portfolio is presently heavily weighted in the technology sector, it will be impacted by that sector’s performance more than a portfolio with broader sector diversification.
GLOSSARY
Alpha: A risk-adjusted measure of an investment’s excess return relative to a benchmark. Beta: A quantitative measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Correlation: A measure that determines the degree to which two variables’ movements are associated. The correlation coefficient will vary from -1 to +1. A -1 indicates perfect negative correlation and +1 indicates perfect positive correlation. Long Position: Refers to the purchase of a security with the expectation that it will rise in value. Deal Spreads: The difference between what the buyer (acquirer) is offering in terms of price for the seller’s (target) stock, typically at a premium to the market price, the result of some risk of the transaction being delayed or terminated. Long Position: Refers to the purchase of a security with the expectation that it will rise in value. Maximum Drawdown: The peak-to-trough decline during a specific record period of an investment, fund, or commodity. A drawdown is usually quoted as the percentage between the peak and the trough. Sharpe Ratio: A risk-adjusted measure calculated using standard deviation and excess return to determine reward per unit of risk. Short Position: Refers to the sale of a borrowed security with the intention of buying it back later at a lower price. Standard Deviation: Measures variability of returns around the average return for an investment portfolio. Higher standard deviation suggests greater risk.
INDEX DEFINITIONS
The Bloomberg U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The Morningstar U.S. Fund Event Driven Category Average contains strategies that attempt to profit when security prices change in response to certain corporate actions, such as bankruptcies, mergers and acquisitions, emergence from bankruptcy, shifts in corporate strategy, and other atypical events. Activist shareholder and distressed investment strategies also fall into this category. These portfolios typically focus on equity securities but can invest across the capital structure. The category average is calculated on a total return basis with dividends reinvested. The category average is unmanaged and is not available for direct investment. The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. Indexes are calculated on a total return basis. Indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and are not available for direct investment.
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.
Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value.
Distributed by VP Distributors, LLC member FINRA and subsidiary of Virtus Investment Partners, Inc.