Virtus Seix Core Bond Fund
Virtus Seix Core Bond Fund
Investment Overview
The Fund seeks to maximize long-term total return through a combination of income and capital appreciation by investing in a diversified bond portfolio of corporate bonds, asset-backed securities, mortgage-backed securities, U.S. Treasuries, and U.S. government agency debentures. Seix's bottom-up focused, top-down aware investment approach seeks to provide superior risk-adjusted returns over a full market cycle, as well as competitive absolute and relative returns over shorter horizons.
Investment Partner
Seix Investment Advisors
Seix Investment Advisors is an investment management boutique focused exclusively on managing fixed income securities since 1992. Seix seeks to generate competitive absolute and relative risk-adjusted returns over the full market cycle through a bottom-up focused, top-down aware process. Seix employs multi-dimensional approaches based on strict portfolio construction methodology, sell disciplines and trading strategies with prudent risk management as a cornerstone.
Seix Investment Advisors is a division of Virtus Fixed Income Advisers, LLC ("VFIA"), an SEC registered investment adviser.
Learn more about Seix Investment Advisors
Investment Professionals
Perry Troisi
Managing Director, Head of Investment Grade, Senior Portfolio Manager
Industry start date: 1986
Start date as fund Portfolio Manager: 2004
Michael Rieger
Managing Director, Senior Portfolio Manager
Industry start date: 1986
Start date as fund Portfolio Manager: 2007
Carlos Catoya
Portfolio Manager, Head of Investment Grade Credit Research
Industry start date: 1987
Start date as fund Portfolio Manager: 2015
Jonathan Yozzo
Portfolio Manager, Head of Investment Grade Corporate Bond Trading
Industry start date: 1991
Start date as fund Portfolio Manager: 2015
Key Features
Broad Fixed Income Exposure
Seeks to provide income, quality, diversification, and liquidity in order to serve as an anchor of a diversified portfolio
Prudent Risk Management
Strives to generate superior long-term risk-adjusted returns, which often entails risk reduction over the short term
Extensive Fundamental Research
Combines top-down and bottom-up analysis to exploit inefficiencies in multiple sectors of the global fixed income marketplace
Characteristics4
(as of 03/31/2023)| Effective Duration (years) | 6.28 |
Top Holdings (% Fund)
| Security | |
|---|---|
| United States Treasury Note/Bond, 4.0000% 11/15/2052 | |
| United States Treasury Note/Bond, 3.5000% 02/15/2033 | |
| United States Treasury Note/Bond, 0.2500% 09/30/2025 | |
| United States Treasury Inflation Indexed Bonds, 1.1250% 01/15/2033 | |
| United States Treasury Note/Bond, 0.3750% 07/15/2024 | |
| United States Treasury Note/Bond, 2.7500% 07/31/2027 | |
| United States Treasury Note/Bond, 0.1250% 12/15/2023 | |
| Freddie Mac Pool, 5.0000% | |
| United States Treasury Note/Bond, 0.5000% 03/31/2025 | |
| Fannie Mae Pool, 3.5000% |
Holdings are subject to change.
Sector Allocation (% Fund)
| U.S. Treasury | |
| Residential MBS | |
| Corporate | |
| Asset Backed | |
| Commercial MBS | |
| Cash & Equivalents |
Growth of $10,000 Investment
From toPerformance
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
Marketing Materials
Financial Materials
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.
1Q23
Market Review
The first quarter of 2023 had enough drama for a full year. While it delivered positive total returns again for the investment grade bond market, that outcome was still unlikely as late as the first week of March, where banking sector stress prompted a massive rally in the Treasury market that drove rates considerably lower.
Interest rates declined over the full quarter, as the wrenching March shift to lower rates overpowered the shift to higher rates (and a more extreme inverted yield curve) that the market endured through the end of February. Recall how rates moved over the quarter:
January saw rates decline modestly, with the curve flattening (into a deeper inversion). Fears of imminent recession persisted, as Institute for Supply Management survey data (manufacturing and services) slipped into contractionary territory while retail sales and industrial production data also came in below consensus expectations. Longer-term Treasury yields declined in anticipation of an economic slowdown.
In contrast, February saw rates reverse and rise considerably, again with the curve flattening (and deeper inversion). This was largely the result of a return to stronger data releases, with the February 3 employment report showing another 500,000+ payroll gains that quickly revised the macro backdrop. Recession fears dissipated, and the market narrative pivoted to anticipating either a soft landing or no landing at all, implying that the economy’s resilience would keep a recession at bay. Shortly thereafter, another higher-than-expected inflation report reinforced the expectations that the Federal Reserve (Fed) would continue to hike rates, and the terminal rate would probably exceed the 5.125% level the Federal Open Market Committee (FOMC) offered in their December “dot plot.”
Entering March, the yield curve inversion peaked at -108 bps on March 8 and the 2-year Treasury closed at 5.07%. This coincided with Chair Jerome Powell’s Capitol Hill testimony, where he intimated that the Fed’s terminal value for the tightening cycle was likely higher than estimated in December (higher than 5.125%). Shortly thereafter, the market pivoted again. Only days after Powell’s testimony, two regional banks collapsed, heightening fear that the historic tightening cycle underway since March 2022 had finally begun to break things.
Silicon Valley Bank and Signature Bank came under FDIC control, Silvergate Bank went into a voluntary liquidation, and all three highlighted the stress bank balance sheets were under after 450 bps of rate hikes (through end of February). Market participants immediately braced for additional banking sector damage. Regional banks in particular were under intense scrutiny while the large money center banks were seen in a marginally better light.
Amidst the volatility of March, the FOMC still raised the target rate by 25 bps (the second 25 bps rate hike of the quarter), highlighting their ability to manage the price stability mandate via the interest rate target tool and the financial stability issues highlighted by the recent bank failures through their macro prudential tools (in this latest instance, the Bank Term Funding Program, or BTFP). The latest hike brought the target rate range to 4.75% - 5.00%. The March “dots” implied no change from the December estimate for the terminal rate at 5.125% - implying only one more rate hike.
The banking sector stress clearly changed the FOMC’s calculus, given Powell’s early-March statement that the terminal rate was likely going to be higher than the December estimate. Powell stated at the March press conference that the tighter credit conditions that would result from the reginal banking stress were equivalent to at least one rate hike, and possibly more.
Performance
In an environment of increased market volatility and yield curve gyrations, the Virtus Seix Core Bond Fund (I-shares) returned +3.32%, outperforming the Bloomberg US Aggregate Bond Index benchmark return of +2.96%. The Fund’s allocations to the corporate and securitized sleeves were the primary and secondary contributors to relative performance, respectively. Yield curve positioning and the Treasury Inflation-Protected Securities allocation were modest detractors from relative performance, while the continued avoidance of any allocation to the traditional Government-related sector was neither a contributor nor a detractor.
Strategy
The Fund’s overall allocations to the primary spread sectors shifted little over the past quarter and continued to reflect a more cautious approach to the credit sector. The Fund’s weighting to the Investment Grade Corporate sector was unchanged at 0.7X the Index on a percentage of Duration Contribution (DC) basis. Overall, the Fund’s allocation to the securitized sector (residential mortgage-backed securities, asset-backed securities, commercial mortgage-backed securities) was modestly reduced, as the US Treasury allocation (nominals) increased slightly. The Treasury Inflation-Protected Securities allocation was unchanged.
Outlook
Uncertainty is on the rise as the March volatility and banking sector stress factor into the market’s expectation for the path of the economy, monetary policy, and consequent asset class performance. Expectations for the final rate hike change daily, but odds for it to occur at the May meeting remain near 50% as Q2 gets underway. Despite the Fed’s guidance that rates need to remain very restrictive for some time – higher for longer – the market has returned to pricing in rate cuts in 2023. Since the initial shock of the early March bank failures, expectations have oscillated from two to four rate cuts by the end of the calendar year. The market has pivoted to pricing in rate cuts in 2023 many times over the past year.
Data dependency remains the primary overriding theme the Fed attaches to any forward-looking policy guidance – and they remain steadfast that the updated dots are only the current opinions of all FOMC members – not a formal forecast or explicit forward guidance.
Treasury rates have moved lower to start the new year and as a result benchmark yields across the investment grade market have followed suit:
Spread changes over the quarter for the primary investment grade sectors were somewhat subdued given the much higher uncertainty the market was facing entering Q2.
The economic slowdown that has been underway is expected to persist in 2023.