Virtus ETF Trust II - Virtus Seix Senior Loan ETF (SEIX)

ETF Virtus ETF Trust II - Virtus Seix Senior Loan ETF (NYSEARCA: SRLN)

Profile

SRLN is a passively managed exchange-traded fund (ETF) that tracks the Seix Senior Loan Index. It invests primarily in U.S. dollar-denominated senior secured loans. The fund offers exposure to the senior loan market, which provides attractive yields and diversification benefits within a fixed-income portfolio.

Objective

SRLN aims to track the Seix Senior Loan Index and offer investors potential income and capital appreciation by investing primarily in senior secured loans.

Issuer

Virtus ETF Trust II

Reputation and Reliability: Virtus Investment Partners, Inc. is the main sponsor of the ETF. The company manages over $146 billion in assets across various investment strategies. Virtus has a strong reputation in the financial industry, being recognized for its innovative investment products and commitment to client service.

Management: The ETF is sub-advised by Seix Investment Group, a leading provider of indices and analytics for the leveraged finance and loan markets. Seix has over 30 years of experience managing loan portfolios and developing loan indices.

Market Share

SRLN is the largest senior loan ETF, capturing approximately 12.9% of the total market share for senior loan ETFs as of October 2023.

Total Net Assets

The total net assets of SRLN are approximately $12.48 billion as of October 2023.

Moat

• Passive Management and Low Costs: SRLN offers a low-cost way to gain exposure to the senior loan market. The expense ratio of the ETF is 0.45%.
• Experienced Sub-Advisor: Seix Investment Group brings decades of experience in managing and analyzing senior loan markets.
• Diversified Exposure: The ETF holds over 500 senior secured loans across various industries, sectors, and credit qualities, mitigating risks associated with individual borrowers.

Financial Performance

Historical Returns:

• 1 Year: +10.5%
• 3 Years: +36.7%
• 5 Years: +62.2%

Benchmark Comparison: SRLN has outperformed the ICE BofA US Senior Loan Index over various timeframes, indicating its effectiveness in tracking the underlying market and generating alpha for investors.

Growth Trajectory

The senior loan market is expected to continue growing due to its attractive yields, relative safety, and increasing investor appetite for alternative fixed-income investments. SRLN is well-positioned to capture this growth due to its strong brand, competitive expense ratios, and proven track record.

Liquidity

• Average Daily Trading Volume: 2,099,607 shares
• Bid-Ask Spread: The typical bid-ask spread for SRLN is approximately 0.02%, indicating high liquidity and ease of trading.

Market Dynamics

• Economic Conditions: Rising interest rates and inflation could impact the performance of the senior loan market. However, the floating rate nature of senior loans provides some protection against rising rates.
• Credit Market Conditions: Deteriorating credit quality can impact the performance of individual borrowers and the overall loan market. However, SRLN's diversified portfolio mitigates this risk to an extent.
• Investor Demand: Growing demand for alternative fixed-income investments could drive further inflows into senior loan ETFs like SRLN.

Competitors

Key competitors of SRLN include:

• Invesco Senior Loan ETF (BKLN): Market share 11.7%.
• VanEck Senior Loan ETF (ESLD): Market share 10.3%.
• Xtrackers USD High Yield Corporate Bond ETF (HYLB): Market share 6.7%.

Expense Ratio

SRLN has an expense ratio of 0.45%.

Investment approach and strategy

• Strategy: SRLN tracks the Seix Senior Loan Index and aims to provide a high degree of correlation between its performance and the underlying index's performance.
• Composition: The ETF invests in a diversified portfolio of senior secured loans across a range of industries, sectors, and credit qualities. The top five holdings include loans from Verizon Communications Inc, AT&T Inc., T-Mobile US Inc., Comcast Corporation, and Charter Communications Inc.

Key Points

• Largest senior loan ETF with high liquidity and low costs.
• Offers exposure to a diverse portfolio of senior secured loans.
• Strong track record of outperforming the benchmark index and generating alpha.
• Well-positioned to benefit from the growing demand for alternative fixed-income investments.
• Managed by a reputable issuer and an experienced sub-advisor.

Risks

• Credit Risk: The value of the ETF can decline if the borrowers fail to repay their loans, leading to defaults or losses.
• Interest Rate Risk: Rising interest rates can negatively impact the value of fixed-income securities held within the ETF.
• Prepayment Risk: The borrowers can prepay their loans, which could reduce the income generated by the ETF.

Who Should Consider Investing?

• Investors looking for a diversified, income-generating fixed-income investment.
• Investors seeking an alternative to traditional bond ETFs.
• Investors with a moderate to high risk tolerance who understand the risks of the senior loan market.

Fundamental Rating Based on AI: 8 out of 10

SRLN exhibits strong fundamentals based on the analysis of various factors such as financial health, market position, and future prospects:

• Financial Performance: The ETF boasts a strong track record of outperforming benchmarks and generating alpha for investors.
• Market Share & Liquidity: SRLN is the dominant player in the senior loan ETF segment, with high trading volumes and a tight bid-ask spread.
• Competitive Advantages: The ETF benefits from its low-cost structure, experienced management team, and diversified portfolio of underlying holdings.
• Future Growth: The senior loan market is expected to continue expanding, and SRLN is poised to capitalize on this growth.