In the fourth quarter of 2025, the Virtus Income & Growth Fund experienced robust growth, propelled by positive trends across various asset classes including equities, convertible securities, and high-yield bonds. This period was marked by significant market advancements, with the S&P 500 Index recording a notable 2.66% return, culminating in an impressive 17.88% performance for the entire year.
The general market environment during Q4 2025 was dynamic, characterized by a mixed economic landscape. Third-quarter corporate earnings largely surpassed expectations, primarily fueled by substantial spending in artificial intelligence (AI) technologies. However, management discussions from various companies indicated ongoing cost pressures and inconsistent demand patterns, suggesting a complex operational environment despite strong revenue figures in specific high-growth sectors. The convertible securities market saw substantial activity, with new issuance totaling an unprecedented $36.2 billion from 46 issues in the quarter, pushing the annual total to a record $118.8 billion. This surge in new offerings underscores strong investor demand and corporate appetite for this hybrid financing instrument.
The fund's strategic asset allocation played a pivotal role in its performance. Exposure to various sectors was actively managed, reflecting an adaptive approach to market conditions. Notably, there was an increased allocation to sectors such as healthcare, industrials, and utilities, indicating a strategic preference for segments demonstrating resilience or growth potential. Conversely, holdings in consumer discretionary, technology, and communication services were reduced, suggesting a rebalancing away from areas that might have faced headwinds or where growth prospects were perceived to be moderating. These adjustments highlight the fund's proactive management to optimize returns and manage risk in a fluctuating market.
The investment portfolio significantly benefited from the combined strength observed in equity markets, the buoyant convertible securities sector, and the steady performance of high-yield bonds. The strategic weighting and selection within these areas were crucial in capturing market upside while navigating underlying economic uncertainties. The overall positive trajectory of these core asset categories provided a strong foundation for the fund's encouraging results during the quarter.