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 12/30/2022)| Effective Duration (years) | 6.12 |
Top Holdings (% Fund)
| Security | |
|---|---|
| United States Treasury Note/Bond, 3.0000% 08/15/2052 | |
| United States Treasury Note/Bond, 4.1250% 11/15/2032 | |
| United States Treasury Inflation Indexed Bonds, 0.1250% 01/15/2032 | |
| United States Treasury Note/Bond, 0.3750% 07/15/2024 | |
| United States Treasury Note/Bond, 0.2500% 09/30/2025 | |
| United States Treasury Note/Bond, 0.1250% 12/15/2023 | |
| Freddie Mac Pool, 5.0000% | |
| Freddie Mac Pool, 5.0000% | |
| Fannie Mae Pool, 3.5000% | |
| United States Treasury Note/Bond, 0.5000% 03/31/2025 |
Holdings are subject to change.
Sector Allocation (% Fund)
| Residential MBS | |
| U.S. Treasury | |
| Corporate | |
| 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 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.
4Q22
Market Review
After three consecutive quarters of successively higher interest rates, the fourth quarter delivered the first positive total return for the investment grade bond market in 2022. The overall change in interest rates was muted as recapped below:
The belly of the curve – as represented by the five-year Treasury – saw a modest decline in yields over Q4, but for the full year longer-term Treasuries (10s/30s) saw yields rise by less than the short and intermediate term yields (2s/5s), according to Bloomberg, leaving the curve inverted for nearly all of the second half of the year.
The Treasury curve (using 2s/10s) inverted further over the quarter to end the year at -55 bps, although the intra-quarter inversion reached -84 bps in early December – levels not seen since the early 1980s.
The Bloomberg U.S. Aggregate Bond Index (“Agg”) generated a +1.87% total return in Q4, its best quarterly total return since a similar performance in Q2 2021.
Despite the Q4 reprieve, the Agg suffered a -13.01% total return for the year, the worst 12 months by a wide margin since the inception of the index in 1976. The intra-year drawdown bottomed on 10/24/22 at -16.82%. The Bloomberg US EQ:FI 60:40 Index (stocks/bonds) ended 2022 with a -16.86% total return. The intra-year drawdown bottomed on 10/14/22 at -21.39%.
The quarter began with solid risk asset performance in October following a dismal September performance, even though interest rates were still rising. October saw an 8.1% gain for the S&P 500® following September’s -9.2% drawdown.
Corporate credit sectors generated positive excess returns in October, with a considerable outperformance from high yield credit vs. investment grade credit.
Another stronger CPI update released on October 13th kept the pressure on the Federal Open Market Committee (FOMC) and solidified the fourth consecutive 75-bps rate hike on November 1.
Despite the inflation data, higher stocks and tighter spreads overpowered higher rates such that financial conditions (as represented by the Goldman Sachs Financial Conditions Index, or GSFCI) “loosened” by 27 bps in October.
November saw another strong performance from stocks and an even better performance from the spread sectors of the IG market.
November’s performance driver was the downside surprise in the CPI update released on November 10th – the headline rate was below the consensus expectation, and the core CPI saw the slowest advance in over a year.
This fueled a rally in both risk assets (S&P 500 +5.6%) as well as Treasuries (lower rates) with investors anticipating the FOMC would now slow the pace of rate hikes in December.
Despite another downside surprise in the CPI update released on December 13, in addition to the FOMC’s downshift to a 50-bps hike on December 14, the momentum behind risk assets and Treasuries finally ran out of steam.
Stocks gave back the November gain with a -5.8% decline in December. Interest rates reverted to moving higher again and excess returns for the IG spread sectors were only marginally positive by the end of the month. Higher rates and lower stocks helped tighten the GSFCI by 35 bps in December.
Performance
While generating a positive return, the Virtus Seix Core Bond Fund return of +1.20% lagged the Agg benchmark return of 1.87%. The Fund’s underweight to the corporate sector versus the Agg was the primary detractor from relative performance. Additionally, the securitized allocation was a net detractor from relative performance, primarily through the commercial mortgage-backed securities (CMBS) allocation. Over the quarter, the Fund’s residential mortgage-backed securities (RMBS) allocation had a solid performance and was a positive contributor. The Fund’s yield curve positioning and continued avoidance of any allocation to the traditional Government-related sector were both slight detractors, while the Treasury inflation-protected securities (TIPS) allocation was a modest positive contributor.
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, with a weighting of 0.7X the Index on a percentage of Duration Contribution (DC) basis. The Fund maintained its modest overweight to the RMBS sector and remained overweight to US Treasury (nominals) and TIPS sectors.
Outlook