The Virtus Equity and Convertible Income Fund (NIE) offers investors the perfect blend of stable current income, capital preservation, and growth, explains Todd Shaver, editor of the industry leading advisory service, Bull Market Report.
It's hard to believe that there can be a fund that provides such a concoction. Yet, this nearly two-decades-old fund has an extensive track record of delivering outsized value and returns for investors across various market, macroeconomic, and geopolitical conditions.
The fund’s MO involves investing in convertible bonds of high-growth companies, which offer investors stable interest income alongside massive upside potential. It holds onto high-growth tech stocks, like Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), and Nvidia Corp. (NVDA), among others, and augments the yield by selling covered calls on the equity holdings, essentially offering investors the best of both worlds.
With the Fed’s hawkish stance ending mid-last year, the fund posted a stellar rally like its fixed-income peers, given its exposure to convertible debt holdings. However, unlike its peers, this rally hasn’t fizzled out despite rate cuts becoming less likely. This is because 63% of its portfolio comprises high-quality equity holdings, mainly in the tech space, which has had a great year so far.
The rest of the fund’s portfolio comprises 4% cash and 33% convertible debt holdings across A, BBB, and non-rated securities. Despite its exposure to convertible debt, this 8.5% yielding fund has only trailed the S&P 500 by a mere five percentage points in total returns over the past five years, a remarkable performance for a fixed-income fund.
The fund does a phenomenal job of capturing yield, whether from dividends, interest, or covered calls. A cut in interest rates this year or next year is a crucial catalyst to watch out for. Until then, the cherry on top is that the fund trades at an 8% discount to book value, representing an enviable risk-reward profile that few other fixed-income funds can match.
