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Mutual Fund Fixed Income Multi-Sector

Newfleet Core Plus Bond

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Ticker
SAVAX
CUSIP
92828R107
POP
$ (as of )
Inception
07/01/1998
Total Assets by Class
$27,228,976.83 (as of 09/28/2022)
Total Assets by Fund
$113,137,238.93 (as of 09/28/2022)
Morningstar Category
Intermediate Core-Plus Bond

Portfolio Overview

Investment Overview

The Fund seeks to generate total return from both current income and capital appreciation by investing primarily in higher-quality intermediate-term debt securities across 14 global bond sectors. A disciplined, time-tested investment process and rigorous risk management approach aim to capitalize on opportunities across undervalued areas of the fixed income markets.

Management Team

Investment Partner

Newfleet Asset Management

Newfleet Asset Management leverages the knowledge and skill of a team of investment professionals with expertise in every sector of the bond market, including evolving, specialized, and out-of-favor sectors. The team employs active sector rotation and disciplined risk management to portfolio construction.

Newfleet Asset Management is a division of Virtus Fixed Income Advisers, LLC ("VFIA"), an SEC registered investment adviser.


Learn more about Newfleet Asset Management

Investment Professionals

David Albrycht, CFA

David L. Albrycht, CFA

President and Chief Investment Officer

Industry start date: 1985
Start date as fund Portfolio Manager: 2012

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Stephen Hooker

Stephen H. Hooker, CFA

Managing Director and Portfolio Manager

Industry start date: 1993
Start date as fund Portfolio Manager: 2017

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Key Features

Broad Fixed Income Exposure

Highly diversified, duration-neutral core plus bond allocation, primarily focused on higher-quality, more liquid securities

Relative Value Focus

Top-down analysis weighs relative attractiveness of 14 global bond sectors, evaluating fundamentals, yields, spreads, and supply/demand dynamics

Extensive Fundamental Research

Security selection driven by bottom-up analysis of individual bond quality, credit risk, valuation, company management, structure, and technical elements

Portfolio Characteristics

Characteristics4

(as of 06/30/2022)
Effective Duration (years) 5.89

Top Holdings (% Fund)

(as of 06/30/2022)
Security
United States Treasury Note/Bond, 3.0000% 08/15/2048
3.00
 3.00%
United States Treasury Note/Bond, 0.1250% 03/31/2023
1.96
 1.96%
United States Treasury Note/Bond, 1.6250% 05/15/2031
1.68
 1.68%
United States Treasury Note/Bond, 2.2500% 02/15/2052
1.54
 1.54%
United States Treasury Note/Bond, 2.3750% 02/15/2042
1.34
 1.34%
Metropolitan Transportation Authority, 5.0000% 11/15/2045
1.18
 1.18%
United States Treasury Note/Bond, 1.5000% 02/15/2030
1.15
 1.15%
United States Treasury Note/Bond, 1.8750% 02/15/2051
1.02
 1.02%
New York State Environmental Facilities Corp, 5.0000% 06/15/2051
1.01
 1.01%
United States Treasury Note/Bond, 1.8750% 02/15/2032
0.98
 0.98%

Holdings are subject to change.

Sector Allocation (% Fund)

(as of 06/30/2022)
Corporate - High Quality
23.67
 23.67%
Non-Agency Residential MBS
21.45
 21.45%
Treasury
19.04
 19.04%
Asset Backed Securities
11.94
 11.94%
Corporate - High Yield
5.80
 5.80%
Bank Loans
4.87
 4.87%
Non-Agency Commercial MBS
3.85
 3.85%
Municipals
3.10
 3.10%
Cash
2.88
 2.88%
Emerging Market - High Yield
1.14
 1.14%
Taxable Municipals
0.99
 0.99%
Yankee - High Quality
0.89
 0.89%
Mortgage Backed Securities
0.38
 0.38%

Performance & Risk

Growth of $10,000 Investment

From to
This chart assumes an initial investment of $10,000 made on for Class ddd shares including any applicable sales charges. Performance assumes reinvestment of dividends and capital gain distributions.

Performance

As of
As of

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.

Sales Charge and Expenses

Yields / Distributions1

(as of )
30-day SEC Yield
30-day SEC Yield (unsubsidized)
Distribution Rate (at NAV)
Income Distributions Current Month
Income Distributions YTD

Distribution History2

(as of )
Ex-Date
Income
STCG
LTCG
Reinvest NAV

Risk Statistics3

(as of )
Fund Index
R2
Beta
Alpha
Std Dev

Risk Considerations

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.
ABS/MBS: Changes in interest rates can cause both extension and prepayment risks for asset- and mortgage-backed securities. These securities are also subject to risks associated with the non-repayment of underlying collateral, including losses to the portfolio.
High Yield Fixed Income Securities: There is a greater risk of issuer default, less liquidity, and increased price volatility related to high yield securities than investment grade securities.
Bank Loans: Bank loans may be unsecured or not fully collateralized, may be subject to restrictions on resale, may be less liquid and may trade infrequently on the secondary market. Bank loans settle on a delayed basis; thus, sale proceeds may not be available to meet redemptions for a substantial period of time after the sale of the loan.
Foreign & Emerging Markets: Investing in foreign securities, especially in emerging markets, subjects the portfolio to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and market risk.
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. Price changes may be short- or long-term. Local, regional, or global events such as war (e.g., Russia's invasion of Ukraine), acts of terrorism, the spread of infectious illness (e.g., COVID-19 pandemic) 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's manager(s) to invest the portfolio's assets as intended.
Prospectus: For additional information on risks, please see the fund's prospectus.

Commentary

2Q22

Market Review

Global central banks intensified their fight with inflation during the quarter, signaling they will remain vigilant until inflation objectives are met. This backdrop clouded the outlook for global and regional economic growth, resulting in negative total returns for most assets. The pandemic remains a global issue, with China’s zero-COVID policy continuing to delay the normalization of supply chains. Meanwhile, the war between Russia and Ukraine is an ongoing economic shock to food and energy prices. These unresolved issues make economic forecasting and modeling a challenge and will likely contribute to a volatile investing environment for the next several quarters.

The Federal Reserve (Fed) and other major central banks shifted to a more hawkish tone in response to elevated inflation metrics. The Fed raised its main policy rate 125 basis points (bps) and indicated its resolve to restore price stability while relying on economic data to form future policy action. The Fed has also begun to shrink its $8.9 trillion-dollar balance sheet in what we expect to be a largely passive exercise. As the European Central Bank (ECB) is also poised to signal interest rate increases and its own balance sheet run-off, it will have to manage the complex task of preventing financial fragmentation among its member countries. The Bank of Japan is still a relative dove given local economic conditions, but it remains to be seen how much yen weakness will be tolerated, given the policy divergences. Global central banking has a complicated task ahead.

Financial markets have priced in significant changes to the economic and earnings landscape during the quarter, as shown by total returns. The U.S. Treasury curve shifted higher: the 5-year Treasury yield jumped up 58 bps, the 10-year Treasury yield went up by 68 bps, and the 30-year Treasury yield moved 74 bps higher. Most spread sectors underperformed U.S. Treasuries with the shifting economic conditions.

Despite the quarter’s volatility, we see value being restored across most of the fixed income sectors in which we invest. It is our expectation that supply chains will heal over time and the Fed will be successful in returning inflation to acceptable levels. We continue to watch the economic data to inform our views on the possibility of recession. Our base case is still that any contraction would be mild, but recession risks have risen.

As the markets digest global developments, we continue to believe active sector and issuer selection is critical to take advantage of market volatility as it arises. Our approach to fixed income – the approach we have implemented for over three decades – enables us to scan the bond market for the most attractive investment opportunities and is ideally suited for the current environment.

How the Fund Performed

The Fund (Class I) returned -5.54% in the second quarter versus the Bloomberg U.S. Aggregate Bond Index return of -4.69%.

Allocation to the asset-backed securities (ABS) sector had a positive impact on performance. The sector benefited from demand for shorter duration assets, and strength in the U.S. consumer. Securitized product continued to soften from a credit spread perspective, primarily driven by inflation and global macro concerns. Due to the fundamental backdrop, we remain positive on the U.S. consumer, though recent sentiment is showing signs of weakness. Inflation continues to chip away at purchasing power short-term, but real wage growth is a positive, particularly for the lower quintile consumer.

Allocation to the high yield bank loan sector also had a positive impact on performance. Loans held in relatively well as shorter-duration asset classes generally outperformed in the face of persistently high inflation, increasing hawkish rhetoric from the Fed, and rising U.S. Treasury yields. After 17 months of inflows, demand for the asset class turned negative, driven by elevated growth concerns. The net forward calendar remains manageable. The Fund’s allocation to the non-agency residential mortgage-backed securities (RMBS) sector over agency mortgage-backed securities (MBS) had a positive impact on performance. We continue to see the tailwinds of limited supply and judiciously offered mortgage credit, and, unlike agency MBS, non-agency RMBS offers direct exposure to real estate and mortgage credit. However, record-setting housing values and sharply higher mortgage rates bring about future affordability questions. An underweight to emerging markets (EM) also helped performance.

An underweight to U.S Treasuries detracted from performance. Allocation to the corporate high yield sector also had a negative impact on performance. Factors that have plagued the high yield market for the last few months persist: the war in Ukraine rages on, supply chain disruptions continue, and U.S. Treasury yields rose as the market tried to handicap the levers the Federal Open Market Committee will pull to quell inflation. Though ongoing headwinds from supply chains, labor inflation, and slowing growth resulted in margin erosion, fundamentals within the sector, while weakening, are still holding strong. Despite another quarter of outflows, a muted primary market coupled with few fallen angels created a supply shortfall.

Current Fund Strategy

Reduced exposure to high yield bank loans, corporate high yield, and Yankee high-quality securities. Increased exposure to U.S. Treasuries, municipal bonds, and corporate high-quality securities. In addition to changes to the Fund’s sector allocation during the quarter, we continue to optimize positioning within sectors based on our view of the best relative value.

EM Debt and Non-U.S. Exposure: We made a further reduction to the EM allocation in the Fund. Volatility in global markets, rising inflation in EM countries, and tighter monetary policies helped shape our decision. The Fed’s rate hikes further rattled markets and raised fears about a recession. Given the macro backdrop, we began exiting higher beta positions. We continued to look for relative value swaps within curves or between sovereigns and quasi sovereigns. We maintain our preference for hard currency debt and have no local currency exposure. Investment grade (IG) Corporates: Total returns were worse than -7% for the second consecutive quarter in 2022, bringing total returns near -15% in one of the worst stretches on record for the market. Companies started to deploy excess cash in the second quarter to repurchase beaten-up shares, but fortunately this shareholder-friendly activity has been more prevalent for the highest ratings tiers, while riskier IG credits have been more conservative. We are overweight commodity sectors and financials, as we believe they are best positioned for a higher-rate environment. We are positioned with an overweight to the BBB segment of the market and favor taking part in the new issue market as its concessions remain at extreme levels. Corporate High Yield: While credit fundamentals have been improving, these metrics have likely peaked, with margins already showing deterioration in the first quarter. The technical picture is still negative as retail funds continue to see significant outflows, though this has been offset by muted issuance volumes. We reduced both absolute exposure to and risk within high yield because spreads are not yet at recessionary levels, which are typically north of 800 bps. Trades during the quarter trimmed risk to the U.S. consumer, Europe, and individual issuers. Purchases were focused on high-quality energy and metals firms where we still have a favorable outlook, despite an overall more negative macro view. Securitized: All securitized sectors saw negative returns as the market reacted to the Fed’s tightening, though yield opportunities that we have not seen in years will be an upside going into the second half of 2022. Most securitized products we invest in are being scrutinized using the Great Financial Crisis as a measure, and our thesis continues to be driven by good fundamentals, including low unemployment (3.6%), strong consumer excess savings, and real wage growth. Mortgage delinquencies are at historical lows, with limited to no affordable products compared to the market in the last housing crisis. With mortgage rates higher, we expect a significant drop in activity leading to less supply for the back half of the year, which should allow credit spreads to respond favorably. As a result, our portfolios have an overweight to the sector.

Outlook

Our multi-sector relative value approach enables us to take advantage of opportunities when events that trigger volatility, such as inflation worries or the Russian invasion of Ukraine, affect valuations. In the current environment, we believe some of the best total return and yield opportunities can be found in spread sectors. However, given the increased risk of a recession, we have reduced some exposure to spread sectors that would typically be more negatively impacted, such as corporate high yield and bank loans. Credit selection and positioning remain key. Specific sectors that demonstrate the best relative value for us include:

  • Out-of-index/off-the-run ABS
  • Non-agency RMBS
  • BBB-rated corporate investment grade

The Fund maintains its higher-quality focus and short duration to limit both spread and interest rate volatility. As always, we aim to stay diversified, maintain granular positions, and emphasize liquid investments.

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.

Related Literature

Marketing Materials

Virtus Newfleet Core Plus Bond Fund Fact Sheet - A
Virtus Newfleet Core Plus Bond Fund Fact Sheet - I
Virtus Newfleet Core Plus Bond Fund Fact Sheet - R6
Virtus Newfleet Core Plus Bond Fund Enhanced Fact Sheet
Newfleet Monthly Sector Review
Braving the New World of Bonds
Morningstar - Quarterly Ratings
Newfleet Fixed Income Fund Capabilities
Newfleet Market Review & Outlook
Newfleet 2022 Fixed Income Market Outlook

Distributions

Mutual Fund Distributions

Financial Materials

Virtus Opportunities Trust Statutory Prospectus
Virtus Newfleet Core Plus Bond Summary Prospectus
Virtus Opportunities Trust SAI
Virtus Opportunities Trust Annual Report
Virtus Opportunities Trust Semiannual Report

Holdings

Virtus Newfleet Core Plus Bond Fund - Monthly Update
Virtus Newfleet Core Plus Bond Holdings Quarterly
Virtus Newfleet Core Plus Bond Fund Top Holdings
Virtus Newfleet Core Plus Bond Fund Holdings Fiscal Q1
Virtus Newfleet Core Plus Bond Fund Holdings Fiscal Q3

Investors should carefully consider the investment objectives, risks, charges and expenses of any Virtus Mutual Fund before investing. The prospectus and summary prospectus contains this and other information about the fund. Please contact your financial representative, call 1-800-243-4361 to obtain a current prospectus and/or summary prospectus. You should read the prospectus and/or summary prospectus carefully before you invest or send money.

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.

Average annual total return is the annual compound return for the indicated period. It reflects the change in share price and the reinvestment of all dividends and capital gains. NAV returns do not include the effect of any applicable sales charges. POP and w/CDSC returns include the effect of maximum applicable sales charges.

Returns for periods of less than one year are cumulative total returns.

1 Yields/Distributions: 30-day SEC Yield is a standardized yield calculated according to a formula set by the SEC, and is subject to change. 30-day SEC Yield (unsubsidized) is the 30-day SEC Yield without the effect of applicable expense waivers. Distribution Rate is calculated by (a) annualizing the latest income distribution for fixed income funds or funds less than 1 year old, or (b) summing all income distributions over the preceding 12 months for all other funds, and dividing by the NAV on the last business date of the period, unless otherwise indicated. The Distribution Rate may be comprised of ordinary income, net realized capital gains and returns of capital.

2 Distribution History: Distributions are represented on a cash basis and may be reclassified at year end for tax purposes. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes. STCG: Short Term Capital Gain, LTCG: Long Term Capital Gain

3 Risk Statistics: R2 is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. Beta is a quantitative measure of the volatility of a given portfolio to the overall market. Alpha is a risk adjusted measure of an investment's excess return relative to a benchmark. A positive Alpha indicates that the investment produced a return greater than expected for the risk (as measured by Beta) taken. Standard Deviation measures variability of returns around the average return for an investment fund. Higher standard deviation suggests greater risk. Risk Statistics are calculated using 36 monthly returns.

4 Characteristics: For Equity Funds: Avg. Weighted Market Cap (bn): The sum of each security's weight within the fund (or index) multiplied by the security's market capitalization. Trailing P/E Ex-Negative Earnings: Per-share stock price divided by the latest 12-months Earnings per Share; Price/Cash Flow: Per-share stock price divided by the per-share operating cash flow; Price/Book: Per-share stock price divided by the latest 12-month per-share Book Value; 3-Year EPS Growth Rate: Average of earnings per share growth for latest 3-year period. The 3-Year EPS Growth Rate is not a forecast of the fund's performance.

4 Characteristics: For Fixed Income Funds: Effective Duration represents the interest rate sensitivity of a fixed income fund. For example, if a fund's effective duration is five years, a 1% increase in interest rates would result in a 5% decline in the fund's price. Similarly, a 1% decline in interest rates would result in a 5% gain in the fund's price.

Morningstar Disclosures:
The Morningstar Rating for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Ratings do not take into account the effects of sales charges and loads.

© Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.