Navigating High Yield: A Look Back at Virtus Seix Fund's Q3 2025 Performance

Well, another quarter has certainly flown by, hasn't it? As we reflect on the third quarter of 2025, we're pleased to share some insights into how our Virtus Seix High Yield Fund (VSHYX) navigated the market. It was, frankly, quite an interesting period for high-yield bonds, marked by a mix of cautious optimism and underlying economic resilience.

Overall, the high-yield market truly had a pretty decent run during Q3 2025. We saw credit spreads, those extra yields investors demand for taking on more risk, actually tighten up a bit. This, in turn, helped to push total returns into positive territory. What was driving all this? Largely, it was a confluence of factors: the economy seemed to be holding up better than many had feared, inflation concerns started to ease ever so slightly, and there was a growing sentiment that perhaps the Federal Reserve was nearing the end of its rate-hiking cycle, or at least that a 'soft landing' for the economy might just be achievable. It's a delicate balance, as you know, but the market certainly responded favorably to these signals.

Against this backdrop, our Virtus Seix High Yield Fund actually delivered a solid performance. We were quite pleased to see the fund outpace its benchmark, the Bloomberg US High Yield 2% Issuer Capped Index, by a noticeable margin for the quarter. This outperformance, we believe, speaks volumes about our team's dedicated approach to credit research and careful security selection, rather than simply riding the market's coattails.

So, what really drove these positive results for the fund? Well, a few sectors truly stood out. Our holdings in the Energy sector, particularly within the midstream segment, performed exceptionally well. These companies often boast stable cash flows and robust fundamentals, which really shone through. Utilities also proved to be a strong contributor; their defensive characteristics and steady demand profiles offered a welcome anchor. And let's not forget Capital Goods – specific companies within this area, thanks to strong underlying demand for their products and services, added considerable value. It's always gratifying when our in-depth analysis of individual credits pays off.

Of course, no quarter is ever perfectly smooth, and there were a few areas that, shall we say, presented more of a headwind. A handful of names within the Consumer Non-Cyclical sector, unfortunately, faced some idiosyncratic credit challenges that weighed on performance. Similarly, certain situations in Pharmaceuticals, largely company-specific issues rather than a broad sector trend, acted as modest detractors. These moments, while not ideal, reinforce our commitment to thorough ongoing monitoring and, crucially, to maintaining a diversified portfolio to mitigate the impact of any single position.

Looking ahead, we maintain a cautiously optimistic stance. The broader economic picture, the trajectory of inflation, and the Federal Reserve's future policy decisions remain central to the high-yield market's outlook. We're also keeping a very close eye on credit quality dynamics, global geopolitical developments, and the intricate balance of supply and demand for new bonds. Our strategy remains consistent: a disciplined focus on high-quality issuers, a diversified approach across sectors, and an unwavering commitment to bottom-up credit research. We believe this careful, active management is absolutely essential to uncover value and manage risk in what is undoubtedly a dynamic and sometimes unpredictable market. It's a journey, not a sprint, and we're continually adapting to ensure we're positioned for what comes next.