In the fourth quarter of 2025, the fixed income market continued to experience significant shifts in macroeconomic, geopolitical, and fundamental dynamics, building on trends from the previous quarter. Despite these changes and challenges, including delays in key economic data releases due to a U.S. government shutdown, the overall U.S. economy demonstrated remarkable resilience. Amidst this backdrop, markets began to recover from earlier lows, showcasing their ability to adapt to evolving conditions. This period was characterized by a cautious yet optimistic sentiment as investors navigated a complex financial landscape.
The Virtus Newfleet Multi-Sector Intermediate Bond Fund (Class I) showcased a strong performance in the fourth quarter of 2025, delivering a return of 1.51%. This notably surpassed the Bloomberg U.S. Aggregate Bond Index's return of 1.10%. A key factor contributing to this outperformance was the fund's strategic decision to maintain an underweight position in U.S. Treasuries. This positioning proved beneficial as most spread sectors outperformed U.S. Treasuries, consequently generating excess returns for the fund. During this period, the fund also made significant portfolio adjustments, increasing its exposure to mortgage-backed securities (MBS), investment-grade corporates, and cash. Simultaneously, it reduced its allocations to asset-backed securities (ABS), residential mortgage-backed securities (RMBS), and bank loans, reflecting a proactive management approach in response to market conditions.
With market valuations appearing tight, the fund is adopting a defensive posture. This strategy involves a preference for investments in sectors such as U.S. banks, utilities, and capital goods, which are typically considered more stable during periods of uncertainty. The fund's ability to adapt its portfolio and maintain a strategic allocation amidst fluctuating market conditions underscores a disciplined investment philosophy focused on delivering robust returns while managing risk. Looking ahead, this defensive stance aims to preserve capital and capture opportunities in a market environment that remains complex yet dynamic.
The strategic decisions and adaptive management of the Virtus Newfleet Multi-Sector Intermediate Bond Fund exemplify how thoughtful investment strategies, coupled with agile adjustments to market realities, can lead to positive outcomes. In an ever-changing financial world, prioritizing resilience, making informed allocation choices, and maintaining a forward-looking perspective are essential for achieving sustained growth and navigating challenges successfully.