VGI ETF: An Attractive 12% Yield Masks a Lot of Issues
2023.07.27 15:37
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
With global growth rates slowing, a credit event looming and the housing market still looking vulnerable, it makes sense that investors might consider overweighting fixed income in their portfolios for some protection. But which segment of fixed income? High yield has done very well this year, but credit risk is underpriced and could blow up very quickly. Treasuries offer a degree of safety should something go awry, but they’ve failed to act like a risk-off asset for most of the past 18 months. International or emerging markets bonds? Risky indeed. What about a little bit of everything?
That’s the idea behind the Virtus Global Multi Sector Income Closed Fund (NYSE:). It invests in almost every corner of the fixed income market – sovereign debt, corporates, high yield, investment grade, MBS, ABS and bank loans – with the idea that a high yield is achievable while diversifying away overexposure risk to any one particular area of the market.
It makes sense on the surface, but overly broad strategies can also potentially turn into “jack of all trades, master of none” products. Let’s take a look to see if VGI falls into that category.
Fund Background
VGI’s investment objective is to maximize current income while preserving capital. The fund seeks to achieve its investment objective by applying extensive credit research to capitalize on opportunities across undervalued areas of the global bond markets. Newfleet Asset Management, which oversees the fund, claims expertise in every sector of the bond market, including evolving, specialized, and out-of-favor sectors. The team employs active sector rotation and disciplined risk management to portfolio construction. The fund also utilizes leverage in order to maximize yield and total return potential.
At a high level, VGI sounds like a good opportunity because why wouldn’t an investor want an “all-in-one” product instead of having to choose individual funds and assemble their own portfolio? I like the diversification factor, but there’s almost a little too much going on.
