Morningstar - Q2 2021 - 53

Strategies

Convertibles With Conviction
Virtus AllianzGI Convertible is among the best in the space.

BEST IDEAS: MANAGER

Zachary Patzik

Virtus AllianzGI Convertible ANNPX

This article is adapted from the fund's Morningstar Global Fund Report dated
Feb. 09, 2021.

Stats 03/31/2021

Strong leadership and effective process have contributed to top-tier results
over the long term for Virtus AllianzGI Convertible ANNPX. The strategy's
cheapest share class earns a Morningstar Analyst Rating of Gold, while its
more expensive share classes warrant Silver, Bronze, and Neutral ratings.
The team benefits from skilled managers and a deep group of research analysts
that distinguish it from most convertibles Morningstar Category peers.
Portfolio managers Justin Kass and Doug Forsyth have led this strategy since
2004 and 1994, respectively, and provide a stable and consistent approach
to this niche space. Eight dedicated analysts back this experienced duo.

Morningstar Analyst Rating
Œ

Morningstar Category
Convertibles

Expense Ratio
0.71%

Fee Level
Below Avg

10-Yr Annlzd Return
12.88%

10-Yr % Rank in Cat
1

Morningstar Pillars 03/31/2021
Process
Above Avg

People
Above Avg

Parent
Average

Growth of 10K 03/31/2021

$25K

The strategy's disciplined approach to valuations paired with a strong
risk-management framework are a winning combination. The process monitors
risk through its delta-management framework (delta is a measure of
equity sensitivity) that allows for high-conviction bets (typically 1% to 2% of
assets each) in a controlled manner in addition to modest industry
deviations relative to its Bank of America Merrill Lynch All U.S. Convertible
Index benchmark. The team focuses on balanced issues that provide upside
participation with downside protection.

Virtus AllianzGI Convertible

The team's effective risk controls and strong security selection were paramount
to its handling of the coronavirus-related sell-off and subsequent rally
in 2020. Despite the institutional shares being down 25% between Feb. 20 and
the market's March 23 bottom (modestly lagging its typical peer during
that stretch), the team's tactical repositioning contributed to a sharp rally
and a 56% gain for the full year (a top-decile showing). K

ICE BofA US Convertible Bonds

04/2018

04/2019

4
8

5
04/2020

Morningstar Ratings 03/31/2021

74% 36-Month
Rolling Periods
14

Period

215 Observations, 3-Yr
17 Years.
5-Yr

Mstar
Return

Mstar
Risk

Mstar
Rating

High

Above Avg QQQQQ

Above Avg Above Avg QQQQQ
High

Above Avg QQQQQ

Overall Rating

QQQQQ

10-Yr
The shading and percentages correspond to how often
the fund's returns landed in each category quartile.

Maturity Schedule 02/28/2021

Maturity (Years)

■ Fund %

8.2
38.4

22.2

3 to 5

7 to 10

3-Yr Avg

❙ Category Average %

9.5

7.0

1 to 3

28.5

5 to 7

Zachary Patzik, CFA, is a manager research analyst for Morningstar Research Services LLC.

19.25

Rolling Return Summary 03/31/2021

When it comes to valuation discipline, the team frequently adjusts stakes in
equity-sensitive or busted issues that fall outside of its favored range to
shore up the portfolio's delta. Notably, the team trimmed its stake in electricvehicle maker Tesla TSLA throughout 2020 to lock in gains and cut risk
to make room for balanced issues. At 5% of assets at year-end 2020, that name
accounted for just half of its benchmark's weight.

19.78

35.0
47.8

21.2

0.5 0.9

5.0

2.0 2.1

20 to 30
0%

7.6
25

morningstar.com/lp/magazine

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53

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Morningstar - Q2 2021

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