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 12/31/2021)| Effective Duration (years) | 6.69 |
Top Holdings (% Fund)
| Security | |
|---|---|
| United States Treasury Note/Bond, 1.3750% 06/30/2023 | |
| United States Treasury Note/Bond, 1.3750% 11/15/2031 | |
| United States Treasury Note/Bond, 2.0000% 08/15/2051 | |
| United States Treasury Note/Bond, 1.7500% 05/31/2022 | |
| United States Treasury Note/Bond, 0.2500% 09/30/2025 | |
| United States Treasury Note/Bond, 0.8750% 06/30/2026 | |
| United States Treasury Note/Bond, 0.5000% 03/31/2025 | |
| Citibank Credit Card Issuance Trust, 0.8786% 05/14/2029 | |
| United States Treasury Note/Bond, 0.1250% 12/15/2023 | |
| Fannie Mae Pool, 3.0000% |
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
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 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.
4Q21
Market Review
The fourth quarter of 2021 was another quarter of relatively muted returns, both in total and excess return terms. Clearly the markets have grown accustomed to having the Federal Reserve (Fed) at the center of the investment universe, but Q4 really felt like it was all about the Fed. With the inflation data continuing to surprise on the upside over the second half of 2021, the Fed had no choice but to move on from the “transitory” characterization that it had relied on during the early part of the year. With the central bank finally becoming more focused on inflation than the employment component of its dual mandate, the Treasury market reacted accordingly. Recalibrating to a more “hawkish” Fed, the front end of the yield curve moved up considerably – the 2-year rose 46 basis points (bps) to 0.73%, and the 5-year rose 30 bps to 1.26%, while longer rates held their own with the 10-year up only 2 bps to 1.51% and the 30-year declining 14 bps to 1.90%.
The Fed’s pivot started at its early November Federal Open Market Committee meeting when it followed through with the “taper” announcement, finally signaling its intent to scale back its asset purchases, with an initial reduction pace that would see a conclusion to its quantitative easing program by mid-June. The pivot took a more hawkish turn at the December FOMC meeting, when the pace of the “taper” plan was doubled, thereby committing to end purchases by mid-March instead of mid-June. Additionally, the quarterly update of the “dot chart” now included expectations for three rate hikes in 2022, three rate hikes in 2023, and two hikes in 2024. This was a dramatic shift when you juxtapose those six projected hikes through 2023 with the March 2021 “dot chart” that saw no rate hikes!
Total returns in Q4 were impacted by the Treasury yield curve shift. The shorter duration sectors, like most of the securitized space, had modestly negative total returns, while sectors that included the longer end of the curve, like corporates or Treasuries, saw modestly positive total returns. Excess returns were uniformly negative across the investment grade (IG) spread sectors, but not aggressively so. The more notable thing was that for corporates, it was the second consecutive quarter of modestly negative excess returns, after having produced consistently positive excess return since the lockdown roiled markets in Q1 2020. There was little differentiation by quality across IG credit as well. Non-investment grade credit (high yield) has managed to maintain that momentum since early 2020, and Q4 saw another outperformance from high yield. Emerging market debt was not as fortunate, as the sector recorded its second consecutive underperformance in excess return terms as well. Given the gains over the first half of the year, most IG sectors have generated decent excess returns year-to-date; the exception was the residential mortgage-backed securities sector (RMBS), which generated negative excess return for the full year (for the third time in the last four years vs. only one in the last four years for IG corporates).
Performance
The Virtus Seix Core Bond Fund’s I-shares generated a return of -0.07%, versus the Bloomberg Aggregate Index return of 0.01%, in a quarter when absolute and excess returns were very modest. The corporate credit sleeve was the primary contributor to excess return in Q4, with small gains attributed to security selection. The securitized sleeve was the primary detractor from excess return in Q4, as security selection within this sector was a drag on performance due to our avoidance of certain Fed coupons, which performed better than expected even with the Fed “taper” finally arriving. Yield curve positioning was a modest positive contributor to relative performance in Q4, while our avoidance of the traditional government-related sector offered no material influence on excess return in the quarter.
Strategy
For 4Q21, the Fund’s 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 also unchanged at 0.5x (DC); the commercial mortgage-backed securities allocation ticked up slightly to 2.6x (DC) the index; the asset-backed securities weighting in Market Value (MV) terms was modestly higher at 4.6% versus 4.0% last quarter. The Fund’s allocation to the Treasury sector remained at a slight overweight at 1.2x the Index (DC), the same as 3Q21.
Outlook
As huge fiscal and monetary support rolls off in 2022, exceptionally strong tailwinds are morphing into headwinds. Currently, tracking models project Q4 GDP finishing as high as 6-7%; if accurate, that would bring 2021’s overall growth rate to just over 5.5%. The current consensus expects a slowdown to around 4% for 2022, which remains well above the post-financial crisis average of 2.3%. Given lower odds of any large fiscal support this year, particularly considering the recent rejection of “Build Back Better” legislation, 4% GDP growth seems aggressive. Given some of the more recent Fed rhetoric and the increasing likelihood of a more rapid withdrawal of monetary policy support, the path to another year of well above-trend growth will be fraught with obstacles, to say the least. Add to that the ongoing challenges from additional COVID variant flare-ups and the consequent labor shortages and supply chain disruptions, assuming something lower than that 4% consensus becomes easier.
Clearly the Fed is trying to engineer a soft landing for the economy. It wants to contain inflation, but it doesn’t want to go too far and cause a recession. We would argue that it’s also attempting a second soft landing—for risk assets, that is. The Fed wants to tighten financial conditions, but not in a way that precipitates a disorderly correction in risk assets. By virtue of its actions that have persisted since the financial crisis (some argue for even longer), the Fed has become the guardian of the stock market. Will the Fed’s tolerance for lower stock prices be different now than in the past?
Given this backdrop, fund returns for 2022 will be driven more by security selection in the corporate credit sector rather than any broad overweight, hence our neutral weighting vs. the benchmark. A focus on companies and sectors that stand to benefit from the ongoing re-opening of the economy, even at a more measured pace, should also help to drive excess returns in 2022. In the securitized sector, we have been and remain underweight RMBS, where pricing is likely to adjust aggressively this year, with the Fed moving to the sidelines and a lot of net supply having to be picked up by other buyers. It’s going to take much wider spreads to entice investors to add exposure to the RMBS sector.