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Mutual Fund Fixed Income Investment Grade

Virtus Seix High Grade Municipal Bond Fund

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Ticker
SFLTX
CUSIP
92837F631
POP
$ (as of )
Inception
01/18/1994
Total Assets by Class
$4,012,674.15 (as of 02/27/2024)
Total Assets by Fund
$34,930,780.09 (as of 02/27/2024)
Morningstar Category
Muni National Long

Portfolio Overview

Investment Overview

The Fund seeks to maximize total return through current income that is exempt from federal income taxes, combined with capital appreciation consistent with capital preservation, by investing in investment grade municipal securities. A dynamic, multifaceted investment process balances emphasis across four facets: duration management, yield curve positioning, sector rotation, and security selection.

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

Dusty Self

Dusty Self

Managing Director, Head of Tax-Exempt, and Senior Portfolio Manager

Industry start date: 1992
Start date as fund Portfolio Manager: 2018

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Phil Hooks

Phillip Hooks, CFA

Director, Portfolio Manager, and Municipal Credit Research Analyst

Industry start date: 2005
Start date as fund Portfolio Manager: 2024

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Key Features

Tax-Exempt Income

Strives to generate income free from federal income taxes

Attractive Total Return Potential

Market inefficiencies may create buying and selling opportunities that facilitate meaningful return potential

Extensive Fundamental Research

Bottom-up security selection evaluates factors such as fundamental credit analysis, security structural features, and potential price volatility

Portfolio Characteristics

Characteristics4

(as of 12/29/2023)
Effective Duration (years) 6.83

Top Holdings (% Fund)

(as of 12/29/2023)
Security
Energy Northwest, 5.0000% 07/01/2034
5.48
 5.48%
Klein Independent School District, 4.0000% 08/01/2046
5.42
 5.42%
Pennsylvania Economic Development Financing Authority, 5.5000% 06/30/2040
4.38
 4.38%
Pennsylvania Economic Development Financing Authority, 4.0000% 05/15/2042
4.09
 4.09%
Maryland Stadium Authority, 5.0000% 03/01/2036
3.15
 3.15%
City of New York NY, 5.5000% 05/01/2044
3.10
 3.10%
City of Jacksonville FL, 5.0000% 10/01/2026
3.08
 3.08%
Pennsylvania Turnpike Commission, 5.0000% 12/01/2040
3.03
 3.03%
Idaho Housing & Finance Association, 5.2500% 08/15/2048
3.02
 3.02%
New Jersey Economic Development Authority, 5.2500% 11/01/2042
3.00
 3.00%

Holdings are subject to change.

Sector Allocation (% Fund)

(as of 12/29/2023)
Transportation
22.92
 22.92%
Local General Obligation
15.83
 15.83%
Special Tax
14.12
 14.12%
Lease
11.83
 11.83%
Water & Sewer
11.05
 11.05%
Hospital
9.77
 9.77%
Power
5.59
 5.59%
State General Obligation
3.87
 3.87%
IDR/PCR
2.87
 2.87%
Cash & Equivalents
1.18
 1.18%
Education
0.97
 0.97%

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

The Index shown represents the Fund's performance index, which may differ from the Fund's regulatory index included in the Fund's Prospectus.

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.
Municipal Market: Events negatively impacting a municipality, municipal security, or the municipal bond market in general, may cause the portfolio to decrease in value.
State & AMT Tax: A portion of income may be subject to some state and/or local taxes and, for certain investors, a portion may be subject to the federal alternative minimum tax.
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

4Q23

Market Review

The fourth quarter saw a significant move lower in rates across fixed income markets as fears of runaway inflation faded and data was supportive of a soft landing scenario. Following the large move lower in rates, municipals finished with a strong positive return for the quarter and dramatically outperformed Treasuries. With this move, municipal/treasury ratios were markedly lower making munis less attractive versus Treasuries on a historic basis.

The broad market index, as represented by the Bloomberg Municipal Bond Index, returned 7.89% for the quarter, bringing the year-to-date return to 6.40%. Total return performance for the quarter was strongly correlated with duration with the long end performing the best, returning 11.61%, while the one-year return was the weakest at 2.32%.

The strong performance was seen across the board with the Bloomberg Municipal GO Bond Index up 7.79% for the quarter and the Bloomberg Municipal Revenue Bond Index up 8.15%. Broadly, local general obligation (GO) bonds outperformed state GOs. The best performing subsectors of the revenue index included hospitals, housing, leasing, and special tax, while the worst performing subsectors were industry development revenue (IDR)/pollution control revenue (PCR) and electric. Notably, even the lowest performing revenue sectors returned more than 6.8% for the quarter.

Yields were significantly lower by the end of the quarter, declining more in the short end and resulting in a steeper yield curve. The slope of the 2-year to 30-year tax-exempt curve steepened to 90 basis points (bps) from 69 bps. The 2-year yield decreased by 113 bps, the 5-year by 113 bps, the 10-year by 117 bps, and the 30-year by 92 bps. The municipal 2-year to 10-year curve inversion persists with no indication of a reversal. It reached a wide of -26 bps in late December and a tight of -6 bps in mid-October but settled at -24 bps by year end.

Issuance ended the year at $364 billon—some 2% less than last year. Monthly issuance for October, November, and December was up on a year-over-year basis. In October, volume rose by 42% year-over-year to $39 billion, in November volume rose by 29% to $35 billion, and in December volume rose by 36% to $23 billion.

For the quarter, investors largely remained on the sidelines and fund flows have remained negative. For the year, mutual funds saw $28.5 billion in outflows, according to Lipper. It is interesting to note that more than $12.4 billion came into municipal ETFs during the year.

Reversing the trend for the prior three quarters, credit spreads began to widen during the fourth quarter. The yield differential between the Bloomberg BBB Municipal Index and the Bloomberg AAA Municipal Index went from 104 bps at the end of September to 126 bps at the end of December. The spread between high yield (HY) muni and high grade (HG) muni was wider as well, with the differential between HY and HG indices at 235 bps, up from 189 bps at the end of September.

Performance/positioning

The Fund (Class I shares) underperformed the Bloomberg Municipal Bond Index by 82 bps partially attributed to security selection and an overweight to higher rated bonds.

Compared to the Bloomberg Municipal Bond Index, the Fund is overweight cash, the 10-year, 15-year, and 20-year areas, and the Long Bond. The Fund is underweight all other maturity buckets.

Duration was lengthened over the quarter. The Fund continues to favor revenue bonds over general obligation bonds. The Fund is overweight leasing, transportation, and water/sewer sectors, and underweight education, IDR, and state general obligation sectors.

Outlook

The municipal bond sector remains well positioned as we head into 2024. Credit quality remains high, and yields remain above their five-year average levels. Municipal bonds provide investors with important diversification given their low correlation with other asset classes. Additionally, they are highly defensive in the case of a recession and should maintain high credit quality given the current strong positioning of many credits. With these benefits in mind, we believe investors should maintain an allocation to the sector.

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 High Grade Municipal Bond Fund Fact Sheet
Inside ESG Investing at Seix
Seix Market Review and Outlook - Investment Grade

Financial Materials

Virtus Asset Trust Statutory Prospectus
Virtus Seix High Grade Municipal 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 High Grade Municipal Bond Fund Monthly Holdings
Virtus Seix High Grade Municipal Bond Fund Top Holdings
Virtus Seix High Grade Municipal Bond Fund Holdings Fiscal Q1
Virtus Seix High Grade Municipal 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.

© year 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.