ACV - ACV: This Looks Like One Of The Best Convertible Funds In The Market

2024-02-04 02:47:16 ET

Summary

• The Virtus Diversified Income & Convertible Fund invests in convertible securities, providing income-focused investors with potential upside of equity investments.
• The fund appears to be one of the better convertible CEFs offered by Virtus as it has managed to outperform the S&P 500 and the Convertible Stock Indices.
• The fund pays a high distribution yield of 9.50% and has a consistent distribution history, making it attractive for income-focused investors. However, its share price is currently at a high premium.
• The fund is heavily invested in the technology sector, but it is still more diversified than the S&P 500 Index, which may interest some investors.
• The fund may end up overdistributing if the market does not maintain its current strength, but it looks pretty good for now.

The Virtus Diversified Income & Convertible Fund ( ACV ) is one of the several closed-end funds offered by Virtus that provide income-focused investors with a way to achieve their goals without the need to sacrifice the potential upside of an equity investment. The fund does this by investing in convertible bonds, which are fixed-income debt securities that can be converted into common equity under certain circumstances. As common equities theoretically have unlimited potential upside, an investor does not necessarily need to sacrifice upside potential in exchange for income by purchasing these securities. In practice, however, these securities do not always deliver the upside that investors may expect due to the fact that these securities are frequently issued by distressed or financially weak companies that may never deliver on their supposed potential. For example, there were numerous companies during the late 1990s technology bubble that ended up going bankrupt. For every Tesla ( TSLA ), there are at least ten Pets.com. That does not necessarily mean that these securities are bad investments though, and in fact, they may be one of the better things for income-focused investors to hold during periods of low interest rates and high stock valuations. This seems to be the environment that the market expects to exist in a year from now, so there could be an argument for buying some convertible securities today.

Unfortunately, the Virtus Diversified Income & Convertible Fund shares the problem faced by a few of Virtus's other convertible funds. Its performance over the past several years has been rather disappointing. As we can see here, shares of this fund have gained 7.06% over the past five years. This is substantially less than the 37.43% gain delivered by the iShares Convertible Bond ETF ( ICVT ) or the 81.27% gain of the S&P 500 Index ( SP500 ) over the same period:

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