SOJF - ACV: Near-Term Risks Should Not Be Ignored
2025-03-19 12:06:31 ET
Summary
- The Virtus Diversified Income & Convertible Fund offers high current income and equity upside, outperforming traditional bonds in inflation-adjusted returns.
- Despite recent market volatility, the fund's distributions helped mitigate losses, outperforming the S&P 500 Index but underperforming the convertible bond index.
- The fund's assets change fairly frequently, and it has a very high turnover.
- The fund's high turnover and technology sector weighting pose risks, especially in a potential recession, but its 10.61% yield remains attractive.
- Trading at a 4.92% discount to NAV, the fund is priced better than its three-year average, presenting a potential buying opportunity.
The Virtus Diversified Income & Convertible Fund ( ACV ) is a closed-end fund that provides a method through which investors can obtain a very high level of current income from their assets without the need to sacrifice the upside potential of owning equities. This second factor is very important because equities tend to substantially outperform bonds over extended periods. We can see this quite clearly by looking at the total returns of the S&P 500 Index ( SP500TR ) compared to both the Bloomberg U.S. Aggregate Bond Index ( AGG ) and the Bloomberg High Yield Very Liquid Index ( JNK ) over the past ten years:
As we can see, the S&P 500 Index delivered a 229.51% total return, including the dividends paid out by its constituent companies over the ten-year period. Investors in domestic bonds did considerably worse, with junk bonds only delivering a 44.88% total return. Investment-grade bonds delivered almost nothing by comparison, as a 14.73% total return over a ten-year period works out to less than 2% per year.
When we look at real total returns, we see an even bigger reason to avoid most bonds. Here are the total real returns of the S&P 500 Index ( VFINX ), the domestic investment-grade bond index, and the domestic junk bond index assuming that all coupons and dividends were reinvested over the same ten-year period that is shown above:
ACV: Near-Term Risks Should Not Be Ignored