CA - NCV: The Best Option Is To Get Out Of This Underperforming Fund Today

2024-01-23 11:29:30 ET

Summary

• The Virtus Convertible & Income Fund offers a high level of income with a 12.75% current yield, significantly higher than most other closed-end funds.
• The fund's performance has been disappointing, underperforming comparable indices and delivering negative returns over the past five years.
• The fund's distribution history is concerning, with multiple distribution cuts and declining net asset value, suggesting an unsustainable situation.
• The fund may have to cut its distribution in the near future as it has failed to cover its payout for two straight years.
• The FOMC could fail to satisfy the market's expectations for a March rate cut, causing the value of the assets in the fund's portfolio to fall.

The Virtus Convertible & Income Fund ( NCV ) is one of the more interesting and unique closed-end funds that are currently available to investors. As the name implies, the fund does do a reasonable job at providing its investors with a high level of income as its 12.75% current yield is significantly higher than most other closed-end funds in the market. Indeed, the only things that have comparable yields are floating-rate leveraged loan funds. Even most junk bond funds cannot compete with the yield on this one, which actually could be a bad sign as it suggests that the market is expecting a near-term distribution cut. Such an event would certainly not be the first time that this fund has had to cut its distribution, as it has been steadily declining for most of the past decade. That poor history certainly reduces the appeal that this fund may have otherwise had among those investors who are seeking to earn a secure and consistent level of income from the assets in their portfolios that could be used to pay bills or finance their lifestyles.

As regular readers may recall, we last discussed this fund in early November 2023. That was a week or two after the year-end market rally had started going in earnest so it might be expected that the fund’s share price performance since the date that my previous article was published has been very reasonable. After all, the market rally did lift the price of just about everything trading in the capital markets. This is true, although the fund’s performance was certainly not remarkable. As we can see here, shares of the Virtus Convertible & Income Fund have risen 2.24% since early November. This is quite a bit less than the Bloomberg U.S. Convertible Cash Pay Bond Index ( ICVT ), which is up 7.98% over the same period:

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