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Mutual Fund Fixed Income Investment Grade

Virtus Seix Core Bond Fund

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Ticker
STGIX
CUSIP
92837F102
POP
$ (as of )
Inception
06/11/1992
Total Assets by Class
$5,707,948.12 (as of 11/27/2023)
Total Assets by Fund
$56,250,485.66 (as of 11/27/2023)
Morningstar Category
Intermediate Core Bond

Portfolio Overview

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.

Management Team

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

Perry Troisi

Managing Director, Head of Investment Grade, Senior Portfolio Manager

Industry start date: 1986
Start date as fund Portfolio Manager: 2004

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Michael Rieger

Michael Rieger

Managing Director, Senior Portfolio Manager

Industry start date: 1986
Start date as fund Portfolio Manager: 2007

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Carlos Catoya

Carlos Catoya

Portfolio Manager, Head of Investment Grade Credit Research

Industry start date: 1987
Start date as fund Portfolio Manager: 2015

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John Yozzo

Jonathan Yozzo

Portfolio Manager, Head of Investment Grade Corporate Bond Trading

Industry start date: 1991
Start date as fund Portfolio Manager: 2015

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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

Portfolio Characteristics

Characteristics4

(as of 09/29/2023)
Effective Duration (years) 6.1

Top Holdings (% Fund)

(as of 09/29/2023)
Security
UNITED STATES TREASURY NOTE/BOND - WHEN ISSUED
9.67
 9.67%
United States Treasury Note/Bond, 3.6250% 05/15/2053
8.99
 8.99%
UNITED STATES TREASURY NOTE/BOND - WHEN ISSUED
6.99
 6.99%
United States Treasury Note/Bond, 2.7500% 07/31/2027
5.66
 5.66%
United States Treasury Note/Bond, 0.2500% 09/30/2025
5.51
 5.51%
United States Treasury Note/Bond, 3.6250% 05/31/2028
2.00
 2.00%
United States Treasury Note/Bond, 0.5000% 03/31/2025
1.87
 1.87%
Freddie Mac Pool, 5.0000%
1.76
 1.76%
Freddie Mac Pool, 6.0000%
1.69
 1.69%
Fannie Mae Pool, 3.5000%
1.03
 1.03%

Holdings are subject to change.

Sector Allocation (% Fund)

(as of 09/29/2023)
U.S. Treasury
41.86
 41.86%
Residential MBS
32.79
 32.79%
Corporate
17.06
 17.06%
Asset Backed
4.04
 4.04%
Commercial MBS
2.96
 2.96%
Cash & Equivalents
1.29
 1.29%

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

Yields / Distributions1

(as of )
30-day SEC Yield
30-day SEC Yield (unsubsidized)
Distribution Rate (at NAV)
Income Distributions Current Month
Income Distributions YTD

Distribution History2

(as of )
Ex-Date
Income
STCG
LTCG
Reinvest NAV

Risk Statistics3

(as of )
Fund Index
R2
Beta
Alpha
Std Dev

Risk Considerations

Credit & Interest: Debt instruments are subject to various risks, including credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt instruments may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
Foreign Investing: Investing in foreign securities subjects the portfolio to additional risks such as increased volatility; currency fluctuations; less liquidity; less publicly available information about the foreign investment; and political, regulatory, economic, and market risk.
ABS/MBS: Changes in interest rates can cause both extension and prepayment risks for asset- and mortgage-backed securities. These securities are also subject to risks associated with the non-repayment of underlying collateral, including losses to the portfolio.
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. Local, regional, or global events such as war or military conflict, terrorism, pandemic, or recession could impact the portfolio, including hampering the ability of the portfolio's manager(s) to invest its assets as intended.
Prospectus: For additional information on risks, please see the fund's prospectus.

Commentary

3Q23

Market Review

2023 was eagerly billed as the year of the bond after enduring the historically bad year that was 2022. The Bloomberg Aggregate Bond Index (Agg) suffered a -13% total return last year and given the consensus expectation for an economic slowdown and inevitable pivot from the Federal Reserve (Fed)’s current tightening cycle, the bond market was expected to deliver a more compelling positive total return in 2023. Given that the Agg started the year with a 4.68% yield, the anticipated Fed pivot would add capital appreciation to that income, such that even modestly lower yields could ultimately deliver a total return in excess of 7% this year. What could go wrong?

  • Q1 delivered a nearly 3% total return for the Agg, as rates declined moderately amidst the fear of recession, which became an even higher probability after the regional bank crisis flared in March.
  • Q2 offered no follow-through, as economic resilience and the fading effects of the banking crisis saw rates move higher once again. The Agg only suffered -0.84% as the sell-off in rates was a “bear flattener,” where the front end of the yield curve underperformed while longer rates only rose by a modest amount.
  • Q3 shattered all hopes of the early 2023 dreams for better total return from the Agg, as rates continued to move higher, but this time selling off in a steepening fashion, where the long end of the yield curve underperformed, driving long-term Treasury rates to levels not seen since before the global financial crisis (GFC).
  • The underperformance of the long end – where greater interest rate sensitivity resides – led to very disappointing total returns across the investment grade bond market.
  • Treasury rates moved as follows over the quarter:
  06/30/23 09/29/23 Q3
2 year 4.90 5.05 +0.15
5 year 4.16 4.61 +0.45
10 year 3.84 4.57 +0.73
30 year 3.86 4.70 +0.84
Source: Bloomberg
  • This shift to higher Treasury yields drove the Agg’s total returns to -3.23% for the quarter, dragging the year-to-date return to -1.21%.
  • The long period of low rates after the GFC left the investment grade bond market unattractive and offering what many characterized as “return-free risk.” At the end of the third quarter, the Agg offered a 5.39% yield, a level last seen in late 2008, and a return to the “old normal” after a decade-plus of talking about the “new normal.”

Strategy

The Fund’s overall weightings to the primary spread sectors remained broadly unchanged over the past quarter and continue to reflect a cautious approach to the credit sector. The Fund maintained an underweight to the investment grade corporate sector relative to the benchmark on a duration contribution-basis (DC). Additionally, the Fund had an overweight to the U.S. Treasury sector relative to the index (DC). Within the securitized sectors, the Fund maintained a modest overweight to the residential mortgage-backed securities (RMBS) (DC) and asset-backed securities (ABS) (market value-basis) sectors but was underweight to the commercial mortgage-backed securities (CMBS) sector (relative to the index).

Performance

The quarter saw another shift higher in interest rates along with a shift to a steeper, or less inverted, yield curve. Consequently, returns were once again negative across much of the fixed income spectrum, as the Virtus Seix Core Bond Fund (Class I shares) declined 3.43%, slightly below the Bloomberg Aggregate Bond Index return of -3.23%. Positive contributors to return from RMBS, ABS, and corporate security selection were offset by modest detractors from asset allocation (credit underweight), yield curve positioning, and the RMBS overweight. 

Outlook

As the tightening cycle reaches its conclusion, higher for longer has become the emphasis for policymakers and market participants alike. The inflation backdrop has seen continued incremental improvement since the spring, and many point to the three-month annualized core PCE (personal consumption expenditures) deflator hitting 2.16% through August as proof that the Fed is indeed slaying the inflation dragon. While encouraging, the evidence will need to be sustained for much longer than a single three-month interval. Caution is warranted given the very different macro backdrop today versus the more benign inflation backdrop that persisted in the post-GFC period. The inflation backdrop was shifting structurally before the pandemic, and these shifts were accelerated by the COVID-19 experience. Broadly, the economy is confronting an end of cheap labor, cheap capital, cheap goods, and cheap energy. These changes are all happening at their own pace, but collectively they represent formidable headwinds that will challenge the expectation of returning to the pre-2020 backdrop that saw core inflation struggle to meet the 2% price stability target set by the Fed.    

Recession or not, economic growth over the next few quarters is primed to slow down as a result of the tighter monetary conditions set by the Fed and most other central banks globally. The backdrop of late has also been challenged by various labor strikes, the UAW being the most prominent, a resumption of student loan payments after a prolonged suspension tied to the pandemic, mortgage rates around 7.5%, and significant dysfunction in Washington that threatens to shut down the government in the middle of Q4. Globally, the EU region has seen essentially little to no growth over the last three quarters, and the eagerly anticipated 2023 reopening in China, the world’s second largest economy, has dramatically underwhelmed most analysts.

Most sectors and companies will have to navigate this more challenged macroeconomic backdrop with more leverage, higher refinancing costs, and the aforementioned inflation backdrop that could prevent central banks from shifting to an easing stance as quickly as markets have become accustomed to since the GFC.

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 Seix Core Bond Fund Fact Sheet - R6
Virtus Seix Core Bond Fund Fact Sheet - A
Virtus Seix Core Bond Fund Fact Sheet - I
Virtus Core and Core Plus Bond Funds Flyer
Inside ESG Investing at Seix
Seix Market Review and Outlook - Investment Grade

Distributions

Mutual Fund Distributions

Financial Materials

Virtus Asset Trust Statutory Prospectus
Virtus Seix Core Bond Fund Summary Prospectus
Virtus Asset Trust SAI
Virtus Asset Trust Annual Report - Fixed Income
Virtus Asset Trust Semi-Annual Report - Fixed Income

Holdings

Virtus Seix Core Bond Fund Monthly Holdings
Virtus Seix Core Bond Fund Top Holdings
Virtus Seix Core Bond Fund Holdings Fiscal Q1
Virtus Seix Core Bond Fund Holdings Fiscal Q3

Section 19(a) Notices

Section 19(a) Notice for Ex-Date June 30, 2022

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.

© 2023 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.