Investment professionals have relied on Dorsey Wright’s proprietary technical analysis for more than a quarter-century, and now the firm’s Relative Strength price momentum rankings will be used to guide five of Virtus Investment Partners’ open-end mutual funds. The funds, formerly known as the AlphaSector funds, have been renamed the Virtus Trend funds, and F-Squared Investments has been removed as a sub-advisor to the series.
The Virtus Trend Funds
“We believe Relative Strength price momentum is an attractive method for identifying meaningful patterns in daily share price movements to manage risk and concentrate investments in those areas of the market with the higher probabilities of future outperformance,” said Frank Waltman, Virtus’s executive vice president of product management, in a recent statement.
The funds affected by the switch from F-Squared to Dorsey Wright include all of the following:
- Virtus Sector Trend Fund (PWBAX), formerly AlphaSector Rotation;
- Virtus U.S. Equity Trend Fund (VAPAX), formerly Premium AlphaSector;
- Virtus Global Equity Trend Fund (VGPAX), formerly Global Premium AlphaSector;
- Virtus Multi-Asset Trend Fund (VAAAX), formerly Allocator Premium AlphaSector; and
- Virtus Dynamic Trend Fund (EMNAX), formerly Dynamic AlphaSector.
The management fees for VAPAX, VGPAX, and VAAAX have also been reduced.
Additionally, Virtus Senior Managing Director Warren Kumar has been named co-portfolio manager of the funds, alongside Amy Robinson of Euclid Advisors. Euclid continues its role as the funds’ sub-advisor responsible for portfolio implementation and trading.
Dorsey Wright’s Contribution
The Virtus Trend Funds will continue to employ rules-based strategies that pursue exposure in rising markets, while reducing exposure ahead of declines as market conditions dictate. The difference is that each of the funds will now be informed by Dorsey Wright’s Relative Strength price momentum ratings, which will be used to identify attractive opportunities across asset classes, sectors, sub-industry groups, and individual securities. The funds’ rules-based procedures have also been modified to provide more opportunities to participate more meaningfully in bull markets, while mitigating the impact of volatility.
“We are excited to begin a partnership with Virtus, bringing our longstanding Relative Strength expertise to the ‘Virtus Trend’ line-up of funds,” said Tom Dorsey, Founder of Dorsey, Wright & Associates. “Our collaboration with Virtus allows Dorsey Wright to further expand how it brings turn-key, quality solutions to the financial community.”
Dorsey Wright recently published a white paper titled “Sector Rotation With Point and Figure Matrices” that explains its methodology. The 17-page document is available for download at dorseywrightmm.com.
Virtus Stock: A Good Value?
While prospective investors in the Virtus Trend funds may welcome this news, current investors in the stock of Virtus Investment Partners didn’t like the firm’s disappointing earnings, announced the same day.
The image above depicts Virtus’s stock performance May 1 through May 15. As you can see, the stock fell 12.7% on May 11 and has hovered in the $116 range since. This makes the stock somewhat attractive on a valuation basis, as its forward earnings multiple of 12.5 means Virtus is trading at a 33% discount to the S&P 500’s 18.5.
While shares of Virtus may be at an attractive valuation, thus far in 2015, the returns of the former AlphaSector funds haven’t been pretty.
- Only the Virtus Global Equity Trend Fund generated positive returns in the first four months of the year, and they were anemic at +0.47%, ranking the fund in the bottom 2% of its Morningstar category.
- On a relative basis, Virtus’s Multi-Asset Trend and Dynamic Trend funds had the best returns, although their respective returns of -0.09% and -0.18% still ranked in the bottom 19% and 27% of their categories.
- The Virtus Sector Trend and U.S. Equity Trend funds had respective year-to-date returns of -1.77% and -2.67% through April 30, ranking them in the bottom 2% and 3% of their categories.
The addition of Dorsey, Wright & Associates, who also serves as sub-advisor to firms such as First Trust, Arrow Funds and Invesco, may boost the relative performance the rebranded Virtus Trend Funds, and help rehabilitate the stock price, too.
For more information, see Introducing the Virtus Trend Funds at virtus.com.