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NFJ Small-Cap Value

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Ticker
PCVAX
CUSIP
92837Q108
POP
$ (as of )
Inception
01/20/1997
Total Assets by Class
$218,421,771.22 (as of 09/23/2022)
Total Assets by Fund
$372,540,961.31 (as of 09/23/2022)
Morningstar Category
Small Value

Portfolio Overview

Investment Overview

The Fund seeks capital growth and income by investing in small-capitalization companies at the intersection of value, quality, and shareholder yield. NFJ seeks to invest in companies diversified across industries with superior competitive positions and consistent financials, employing a time-tested process that capitalizes on low market expectations and strong prospects.

Management Team

Investment Partner

NFJ Investment Group, LLC

NFJ Investment Group (NFJ) is a global value equity manager with a rich heritage and deep roots in Dallas, Texas, dating to 1989. NFJ is unwavering in its commitment to investing at the intersection of value, quality, and shareholder yield, seeking to identify companies with low market expectations and the strongest prospects for returning capital to shareholders.


Learn more about NFJ Investment Group, LLC

Investment Professionals

Magnuson, Paul

Paul A. Magnuson

Managing Director, Senior Portfolio Manager/Analyst

Industry start date: 1985
Start date as fund Portfolio Manager: 1995

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Mowrey, John

John R. Mowrey, CFA

Executive Managing Director, Chief Investment Officer, Senior Portfolio Manager/Analyst

Industry start date: 2007
Start date as fund Portfolio Manager: 2013

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Reed, Jeff

Jeff N. Reed, CFA

Managing Director, Senior Portfolio Manager/Analyst

Industry start date: 2004
Start date as fund Portfolio Manager: 2018

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Reilly, Garth

J. Garth Reilly

Managing Director, Senior Portfolio Manager/Analyst

Industry start date: 2005
Start date as fund Portfolio Manager: 2020

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Key Features

Innovative Approach to Value

The investment team uses big data and data analytics to uncover differentiated insights into valuations quickly and efficiently

Focus on Fundamentals

A disciplined, fundamental research process helps identify companies with attractive quality characteristics, shareholder yield, and consistent financials

Decades of Value Investing Experience

NFJ's boutique structure and flat organization has fostered an entrepreneurial mindset and collaborative culture since 1989

Portfolio Characteristics

Characteristics4

(as of 06/30/2022)
Average Weighted Market Cap (billions) $3.83
Median Market Cap (billions) $3.24
Trailing P/E Ex-Negative Earnings 12.90
Price-to-Cash Flow 12.60
Price-to-Book Value 1.99
3-Year EPS Growth Rate 14.10

Top Holdings (% Fund)

(as of 06/30/2022)
Security
Community Bank System, Inc.
1.37
 1.37%
Werner Enterprises, Inc.
1.23
 1.23%
Fox Factory Holding Corp.
1.20
 1.20%
First Interstate BancSystem, Inc. Class A
1.18
 1.18%
Malibu Boats, Inc. Class A
1.17
 1.17%
YETI Holdings, Inc.
1.16
 1.16%
M.D.C. Holdings, Inc.
1.16
 1.16%
WD-40 Company
1.16
 1.16%
Stepan Company
1.16
 1.16%
Winnebago Industries, Inc.
1.15
 1.15%

Holdings are subject to change.

Sector Allocation (% Equity)

(as of 06/30/2022)
Financials
31.36
 31.36%
Industrials
19.32
 19.32%
Consumer Discretionary
14.61
 14.61%
Information Technology
11.99
 11.99%
Materials
5.23
 5.23%
Health Care
4.92
 4.92%
Real Estate
4.61
 4.61%
Consumer Staples
2.82
 2.82%
Communication Services
1.99
 1.99%
Energy
1.93
 1.93%
Utilities
1.22
 1.22%

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

Risk Statistics3

(as of )
Fund Index
R2
Beta
Alpha
Std Dev

Risk Considerations

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.
Issuer Risk: The portfolio will be affected by factors specific to the issuers of securities and other instruments in which the portfolio invests, including actual or perceived changes in the financial condition or business prospects of such issuers.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Prospectus: For additional information on risks, please see the fund's prospectus.

Commentary

2Q22

Market Review

U.S. equities entered bear market territory in the second quarter as the market posted its worst first half since 1970. The Federal Reserve (Fed) enacted its biggest hikes in nearly 30 years with hopes of reining in blistering inflation. Value and quality stocks generally led against this volatile backdrop. In the Russell 2000® Value Index, more defensive sectors like consumer staples and utilities, as well as financials and energy, held up on the downside. Conversely, more cyclical areas of the market, including communication services, consumer discretionary, and technology, slumped double digits amid recession fears.

Fund Performance

The Virtus NFJ Small-Cap Value Fund returned -11.52% (Class I) in the quarter, compared to the Russell 2000 Value Index, which returned -15.28%. Strong stock selection drove relative outperformance while sector allocations modestly detracted from returns.

Delek Logistics Partners and HF Sinclair were the largest contributors to performance over the quarter.

  • Pipeline company Delek Logistics Partners recently announced the acquisition of 3Bear Energy, which provides crude, gas, and water gathering/processing services and will diversify Delek’s business mix. The company reported solid Q1 results, and management increased the quarterly dividend by 0.5%.
  • HF Sinclair reported stronger-than-expected quarterly results as refiners continued to benefit from the post-COVID rebound in fuel demand. Also, management reinstated the dividend and announced the resumption of share repurchases with the goal of returning $1 billion-plus of cash to shareholders over the next 12 months.
  • Additional top contributors included WD-40, Agree Realty, and First Interstate BancSystem.

Glatfelter and YETI Holdings were the largest detractors from performance over the quarter.

  • Glatfelter is working to offset rising input costs and impacts from Russia’s invasion into Ukraine via dynamic cost pass-through pricing, production efficiencies, and aggressive cost management. The paper and paper products company has strong underlying fundamentals with a history of growing revenue and cash flows, and recent weakness offered an attractive entry point.
  • Though YETI Holdings reported solid Q1 results, investors seemed wary of demand strength for outdoor and recreation products given the challenging economic environment.
  • Additional bottom contributors included MKS Instruments, SMART Global Holdings, and Diodes.

Portfolio Changes

Notable portfolio changes during the quarter included the purchase of Glatfelter (mentioned above) and Columbia Banking System, as well as the sale of ONE Gas and ManTech International.

  • Columbia Banking System beat Q1 core EPS estimates and posted record loan production and net interest margin (NIM) expansion. Further, the regional bank’s pending merger with Umpqua Holdings is expected to close mid-2022 and cost saving synergies are on target. The team took advantage of a favorable entry point to initiate a position in the name.
  • The team exited a position in gas distributor ONE Gas after valuations rose to less favorable levels.
  • We sold our shares of ManTech International after private equity firm Carlyle Group announced an agreement to buy the information technology services company for $96/share, which represents a 32% premium to the stock price from February 2nd.

Outlook

Concerns for rising recession odds and when it may strike have topped investors’ wall of worries, particularly given the Fed’s poor track record of engineering soft landings (11 of the past 14 rate-hike cycles resulted in recession). That said, with the job market still tight and monetary policy still relatively loose, recession appears more likely in 2023 as opposed to 2022. Interestingly, with stocks down 20% or more year to date, much of a potential future downturn may be priced in—making equities’ risk-reward profile begin to appear more favorable.

Looking ahead, we continue to monitor inflationary pressures and earnings estimates as both have the potential to impact investors’ future returns. Though we are proponents of remaining fully invested, rather than attempting to time the market, we believe there are biases within the market that investors can opportunistically take advantage of. First, with volatility likely to increase, quality becomes increasingly important. Second, rising inflation highlights the importance of income and income growth. We believe companies with a history of paying and raising dividends, particularly businesses that can generate significant free cash flow, will be critical to rewarding shareholders. In our view, NFJ strategies, which emphasize attractive valuations and quality characteristics, as well as market-exceeding dividend growth, should be well positioned in such an environment.

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 NFJ Small-Cap Value Fund Fact Sheet - INST
Virtus NFJ Small-Cap Value Fund Fact Sheet - R6
Virtus NFJ Small-Cap Value Fund Fact Sheet - A
Virtus NFJ Mutual Fund Presentation
As Value Stages a Comeback, Emphasize Quality

Financial Materials

Virtus Investment Trust Statutory Prospectus
Virtus NFJ Small-Cap Value Fund Summary Prospectus
Virtus Investment Trust SAI
Virtus Investment Trust Annual Report
Virtus Investment Trust Semiannual Report

Holdings

Virtus NFJ Small-Cap Value Fund Holdings Monthly
Virtus NFJ Small-Cap Value Fund Top Holdings
Virtus NFJ Small-Cap Value Fund Holdings Fiscal Q1
Virtus NFJ Small-Cap Value 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.