Virtus Total Return Fund: A Hybrid Portfolio with Attractive Discount and Monthly Distribution.

Virtus Total Return Fund (ZTR) has delivered strong results since the last update in September 2024, partly through the discount narrowing. The fund's share price has narrowed, making it an attractive investment option. Its hybrid portfolio with a monthly distribution also adds value.

Virtus Total Return Fund (NYSE: ZTR) has shown impressive performance since the last update in September 2024, with significant contributions from the narrowing of the discount and a hybrid portfolio approach. The fund's share price has narrowed, making it an attractive investment option for those seeking discounted assets. Additionally, its hybrid portfolio structure, which includes a monthly distribution, adds value for income-oriented investors.

Since the previous update, ZTR has delivered strong results, underperforming the S&P 500 Index but still providing a reliable return. The fund's unique approach of investing in a basket of utilities alongside fixed-income exposure has proven to be a strong combination, particularly in the context of income-driven investments. The reliability of utilities and the consistent yield from bonds in a diversified portfolio have been significant contributors to the fund's performance.

One of the key developments since the last update is the fund's second conditional tender offer, where it repurchased 10% of the outstanding shares at 98% of NAV. This move, triggered by the Fed's rate cuts, has helped to reduce the fund's borrowing costs and lower its expense ratio. The fund's leverage has also decreased, with total borrowings falling from $168.3 million to $164.9 million.

ZTR's investment objective is to achieve capital appreciation with current income as a secondary objective. The fund accomplishes this through a combination of equity and fixed-income investments, with a focus on owners/operators of infrastructure in the communications, utility, energy, and transportation industries. The fixed-income sleeve is designed to generate high current income and total return through active sector rotation and disciplined risk management.

The fund's performance has been bolstered by the stabilization of interest rates, which has reduced borrowing costs. Additionally, several of the fund's largest holdings within the utility space and energy investments have benefited from the growing demand for data centers driven by AI investments. The fund's high-yield debt exposure is mitigated by its high diversification, with 695 total holdings.

ZTR's distribution rate, currently at 9.52%, has been growing with the fund's strong underlying performance. The fund's net investment income has declined slightly, but the distribution remains attractive for income-oriented investors. The fund's tax-friendly distribution, with a significant portion classified as return of capital, adds to its overall appeal.

In conclusion, Virtus Total Return Fund has delivered strong results since the last update, driven by the narrowing of the discount and the fund's hybrid portfolio approach. The fund's unique combination of utilities and fixed-income exposure, along with its monthly distribution, makes it an attractive investment option for income-oriented investors.

References:
[1] https://seekingalpha.com/article/4816548-ztr-hybrid-portfolio-with-a-monthly-distribution-and-attractive-discount