Seix Core Bond
Seix Core Bond
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 LLC
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.
Learn more about Seix Investment Advisors LLC
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 03/31/2022)| Effective Duration (years) | 6.52 |
Top Holdings (% Fund)
| Security | |
|---|---|
| United States Treasury Note/Bond, 1.3750% 06/30/2023 | |
| United States Treasury Note/Bond, 1.8750% 02/15/2032 | |
| United States Treasury Note/Bond, 1.8750% 11/15/2051 | |
| United States Treasury Note/Bond, 0.2500% 09/30/2025 | |
| United States Treasury Note/Bond, 1.8750% 02/28/2027 | |
| United States Treasury Note/Bond, 0.3750% 07/15/2024 | |
| Citibank Credit Card Issuance Trust, 1.1570% 05/14/2029 | |
| United States Treasury Note/Bond, 0.1250% 12/15/2023 | |
| United States Treasury Note/Bond, 0.8750% 06/30/2026 | |
| Fannie Mae Pool, 3.5000% |
Holdings are subject to change.
Sector Allocation (% Fund)
| U.S. Treasury | |
| Corporate | |
| Residential MBS | |
| Commercial MBS | |
| Asset Backed | |
| 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
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 total dollar market value of all of a company’s outstanding shares. 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.
1Q22
Market Review
Unlike the previous few quarters, “muted” is not the operative word regarding returns in the first quarter of 2022, particularly when talking about total returns. Let’s start with those dismal metrics for total return (price appreciation/depreciation plus income). The Bloomberg U.S. Aggregate Bond Index (“Agg”) was -5.93% on the quarter, the third worst calendar quarter since the inception of the index (1976). The Bloomberg U.S. Treasury Index was -5.58% for the quarter, which clocked in as the WORST quarter ever since inception (1973). The Bloomberg U.S. Corporate Investment Grade Bond Index was -7.69% for the quarter, compliments of its longer duration relative to the aforementioned benchmarks.
With even higher inflation in early 2022 and the Federal Reserve’s (Fed) reaction to lean in an even more hawkish direction early on, the bond market was left with little support. Rates began to rise right out of the gate in early January and never slowed. The front end of the Treasury yield curve bore the brunt of the move given the extensive re-pricing of forthcoming Fed tightening. In short, the year started with about three Fed rate hikes priced in, and by the end of the quarter we already had the first 25 bps rate hike and there were about eight more hikes priced in for the balance of the year. Consequently, the two-year U.S. Treasury yield rose by 160 basis points (bps) to end Q1 at 2.34%, and the five-year Treasury rose by 120 bps to end Q1 at 2.46%. The longer end of the Treasury yield curve suffered as well, just not the same magnitude. The 10-year Treasury yield rose 83 bps to end Q1 at 2.34%, while the 30-year Treasury yield rose by 55 bps to end Q1 at 2.45%.
When short-term interest rates move up faster than the longer end of the yield curve, the yield curve flattens, which is what we experienced in the quarter, as the 2-year to 10-year relationship flattened by 78 bps. It’s this flat/inverted 2s/10s curve (formally inverted for a few days in early April before re-steepening again) that speaks to the potential for a Fed “policy error” many see forthcoming, where the Fed tightens into a slowdown and accidentally causes a recession. The debate over causation versus correlation obviously persists as it relates to the curve, but clearly market pricing is discounting a substantial slowdown. Even the Eurodollar curve is consistent with this message, as it prices a Fed target rate peak in/around Q2/Q3 2023 before rate CUTS are anticipated in early 2024, seemingly in response to the economic slowdown. As for the Fed, it still believes in curve relationships that include the money market in the front end. Given the three-month to 10-year curve proxy was at 185 bps at the end of the quarter, the Fed is not concerned with any message from the curve about an excessive slowdown or recession. Given the pace of tightening the market anticipates in 2022, that three-month to 10-year curve is going to flatten with a vengeance, so the slowdown/recession fear is a theme that will persist going forward. Just for the record, the “policy error” by the Fed was made in 2021, when it chose to maintain emergency monetary policy settings while the economy was growing at a 5.7% rate for the full year.
Performance
The Virtus Seix Core Bond Fund returns reflected the sharp increase in interest rates during the quarter with a return of -5.79%, modestly outperforming the Bloomberg U.S. Aggregate Bond Index return of -5.93%. The securitized allocation was the primary contributor to relative performance, as the Fund’s residential mortgage-backed securities (RMBS) selection and underweight to the broad RMBS sector were contributors. Secondarily, the Fund’s yield curve and duration positioning were modest contributors. Partially offsetting these contributors, the asset-backed (ABS) and commercial mortgage-backed security (CMBS) sub-sectors modestly detracted from relative performance. The corporate allocation was neither a material contributor nor a detractor from relative performance in 1Q22.
Strategy
For 1Q22, the Fund’s overall allocations to the primary spread sectors were relatively unchanged from the prior quarter-end. On a percentage of Duration Contribution (DC) basis, the Fund’s allocation to the corporate sector remained neutral when compared to the index weighting at 1.0x. The Fund’s allocation to the RMBS sector was up slightly to 0.7%x (DC) versus 0.5x (DC) last quarter-end; the CMBS allocation ticked down slightly to 2.5x (DC) the index; the ABS weighting in Market Value (MV) terms was modestly higher at 5.4% versus 4.6% last quarter. The Fund’s allocation to the Treasury sector remained at a slight overweight at 1.2x the index (DC), the same as 4Q21.
Outlook
Coming into the year, the primary focus was on the pivot of massive fiscal and monetary tailwinds into headwinds. The drawdown of fiscal stimulus was well known as various programs rolled off without any extension. The monetary policy pivot was still being thought of in the context of the post-financial crisis standards that emphasized a measured and gradual approach to tightening policy. By the end of the first quarter, markets were adapting to turbocharged monetary policy tightening whereby markets are preparing for up to 250 bps of tightening in addition to balance sheet reduction (also called “QT”) as early as May. At the start of the year, QT was a 2023 concern at the earliest. Even Fed speakers have taken to referencing the 1994 tightening cycle as a historical analog for the current cycle. Starting in February of 1994, the Fed raised rates by 300 bps over 13 months, taking the target rate from 3% to 6%. That comparison was essentially unthinkable even three months ago.
Fed Chair Jerome Powell and the Federal Open Market Committee have said that robust labor market strength has reached an unhealthy level and that price stability must be restored. Clearly, the committee is willing to sacrifice growth for price stability at this point in the cycle, which is why we can get at an inversion with essentially no pushback from the policymakers. Suffice it to say, the war in Ukraine will likely fuel even higher inflation in certain sectors. The damage done to the Ukraine crops and their fertilizer production can't be undone in short order.
With these additional inflation pressures, it's hard to envision a scenario in which the Fed gets any window of opportunity to slow the pace of rate hikes this year, and therein lies major downside risk to global growth, especially with so much uncertainty regarding the sanctions on Russia and whether they could get lifted anytime soon. On the contrary, additional sanctions are still being contemplated, further complicating the growth and inflation outlook. Add to this the ongoing challenges to the global supply chain from a zero tolerance COVID policy in China where major provinces get locked down to fight any uptick in COVID cases. While the outlook for 2022 was hardly all that clear back in December, the view forward has turned exceptionally foggy given the developments that transpired over the first quarter. Returns will likely remain challenged, and caution is probably the appropriate approach in the short term for risk takers.