Virtus Private Credit ETF's recent fee hike drives a downgrade to this strategy's Morningstar Medalist Rating to Negative from Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the most expensive quintile among peers.  

 The team managing this passive strategy earns the strategy an Average People Pillar rating. The strategy's investment approach stands out and earns an Above Average Process Pillar rating.  The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

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Morningstar's style-agnostic investment process evaluation looks for strategies that should be able to outperform their Morningstar Category index on a risk-adjusted basis over time. Virtus Private Credit ETF earns an Above Average Process Pillar rating.    The most substantial contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Impressive risk-adjusted performance also influences the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the experience of the management team, which averages seven years at this fund.

 Compared with other funds in the Nontraditional Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the category average, the managers have been an overweight corporate debt in recent years. In the latest month, the strategy has relatively overweighted corporate bonds compared with its peers as well. Additionally, there's been a notable underallocation from A rated bonds over the past few years. Similarly, in recent months, the strategy also had less exposure to A rated bonds than peers. Finally, during the past few years, the fund leaned meaningfully away from debt with 15- to 20-year maturities. Nevertheless, the fund's debt with 15- to 20-year maturities exposure was in line with peers in the latest month.

 This strategy's 12-month yield is 11.5%, higher than its average peer's 4.9%. In addition, it has a 10.7% 30-day SEC yield (a measure similar to yield-to-maturity). Higher yields tend to indicate higher credit risk. The portfolio has a lower average surveyed credit quality of B, compared with the typical peers' BB and 79% of the fund's assets are rated non-investment-grade, compared to its peers' 24%. Lower quality bonds have higher yields but come with more risk.

Above Average

Process

Virtus’s team earns An Average People Pillar rating. The main contributor to the rating is its parent firm's five-year success ratio of 54%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of the management team also influences the rating. Specifically, the fund has not seen a manager change in the last five years. Lastly, the rating is limited by the parent firm's five-year retention rate of 66%, which suggests it could do more to hold onto its portfolio managers.

Average

People

Virtus Investment Partners has been busy; its actions support an Average Parent rating.

The publicly traded firm uses a multimanager approach. It fully owns all but one of its 13 affiliated asset managers and also uses subadvisors. Since 2020, it purchased five affiliates, expanding its alternative offerings through its 2021 Westchester Capital Management acquisition. It also entered an agreement to buy quant alternatives manager AlphaSimplex, with an expected close in early 2023. Affiliates appreciate Virtus' distribution and back-office strength, while enjoying investment autonomy. Some of its managers are strong, such as  Kayne Anderson Rudnick, which constitutes roughly 30% of Virtus' assets under management.

In 2022, Virtus was forced to find new management for 17 of its funds that were subadvised by Allianz Global Investors, following the SEC disqualification of AGI from providing advisory services to U.S.-registered funds for 10 years. While Virtus had no connection to the AGI strategies at the center of the investigation, it had to find new management for the AGI subadvised funds within 90 days. Virtus maintained some portfolio managers who moved firms, but they hired affiliates for most of the mandates. Some were natural fits, but others were questionable, such as those on Virtus Global Allocation. Meanwhile, Virtus has merged or liquidated a number of funds, and its fees tend to be above average.

Parent

Virtus Private Credit Strategy ETF

VPC tracks an index of closed-end funds focused on the private credit market, including business development companies. The index is weighted by dividend yield.

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News for Virtus Private Credit Strategy ETF ETF (VPC)