Destocking Your

Why investors concerned about frothy stock valuations and may want to consider equity alternatives like convertible and high yield bonds.

After a strong market advance, prudent investors looking to adjust their portfolios need to weigh their need and ability to tolerate volatility. That translates to putting more emphasis on a manager’s -adjusted returns and rethinking the idea of just allocating to high-quality bonds when they can’t afford to do so. They will have to embrace higher volatility to generate the long-term returns they need to maintain spending through retirement.

Where else can investors turn to achieve the growth their portfolios require? Consider convertible and high yield bonds. Convertibles and high yield may not cushion against declining equity markets the way Treasuries and investment grade bonds do, but in a lower for longer rate environment, their potential return generation merits closer examination.

Enter two five-star funds: the Virtus AllianzGI Convertible Fund and the Virtus Seix High Yield Fund. While those ratings are explained below, here’s how the funds’ risk/return, upside/downside, and correlation compare to the S&P 500® Index:

THE CONVERTIBLES AND HIGH YIELD DASHBOARD Virtus Since Virtus Seix HY PM AllianzGI Virtus S&P Inception (March 2007– Convertible Seix 500® June 2021) Institutional High Yield I Index Return 11.92% 6.05% 10.36% 13.37% 8.32% 15.47% 0.85 0.65 0.66 Sortino Ratio 1.35 0.91 0.98 Up Capture 86% 44% 100% Down Capture 69% 35% 100% Beta (S&P 500) 0.76 0.40 1.00 Correlation (S&P 500) 0.88 0.73 1.00 Correlation (B.B. U.S. Agg) 0.12 0.24 0.03 Past performance is not indicative of future results. Source: Allianz Global Investors US LLC and Morningstar Direct. Data as of 6/30/21

� When analyzing beta, correlations, and capture profiles, you can see convertible bonds have produced more equity-like returns than high yield bonds; Virtus AllianzGI Convertible captured 42% more of the upside of the S&P 500 than Virtus Seix High Yield. � Virtus AllianzGI Convertible’s beta is 0.76 vs. 0.40 for Virtus Seix High Yield. Within a broader portfolio context, investors looking to take some off the table may find convertibles attractive because you don’t alter the beta profile of the equity portfolio significantly. High yield bonds may offer much better downside mitigation, but they do give up a bit of return on the upside.

Comparing Convertible Bonds and High Yield Bonds Convertibles are hybrid securities that combine equity and debt features. Through convertible securities, the investor participates in an equity’s price appreciation with more limited downside risk. The debt feature of a convertible bond is derived from the convertible’s stated coupon and claim to principal. The debt feature protects the convertible from a full decline in the price of the equity.

� An investor looking to trim some risk but maintain exposure to the equity risk premium can utilize convertible bonds to maintain an attractive level of upside to the S&P with historically less downside—The Virtus AllianzGI Convertible Fund, for instance, has shown 86.3% upside with 70.6% downside since inception (using monthly data from 5/1993 to 6/2021), according to Morningstar.

� High yield bonds have offered an attractive risk-adjusted return to investors and certainly come with equity- beta but capture much less of the movement of the equity market when compared to convertible bonds. Historically, they have captured much less of the upside of the equity market, and have also captured much less of the downside. The Virtus Seix High Yield Fund captured 39% upside and 38% downside over the past 10 years, as of 6/30/21.

Here are two ways to look at the risk-adjusted returns of convertible bonds and high yield bonds, relative to equities.

ATTRACTIVE RISK/RETURN PROFILES LED BY CONVERTIBLES AS AN EQUITY SURROGATE 10 Years Ended June 30, 2021 Since Virtus Seix PM Inception March 1, 2007–June 30, 2021 15 15 Virtus AllianzGl Convertible Inst S&P 500® Virtus AllianzGl Convertible Inst ® 10 Index 10 S&P 500 Index Virtus Seix High Yield I Virtus Seix High Yield I

Return (%) 5 Return (%) 5 BBgBarc U.S. Agg Bond Index BBgBarc U.S. Agg Bond Index 0 0 0 5 10 15 0 5 10 15 20 Standard Deviation (%) Standard Deviation (%)

Past performance is not indicative of future results. Source: Allianz Global Investors US LLC and Morningstar Direct.

HOW THE CONVERTIBLE AND HIGH YIELD FUNDS HAVE PERFORMED IN VARIOUS EQUITY ENVIRONMENTS Average Monthly Return (%), Up Months, and Down Months

2.8 3.3 1.4 Virtus Seix High Yield I Virtus AllianzGI Convertible Institutional S&P 500® Index -1.4 -2.8 -4.0 117 Up Months 55 Down Months Past performance is not indicative of future results. Source: Allianz Global Investors US LLC and Morningstar. Data for Virtus AllianzGI Convertible Fund from January 1, 2001. Data for Virtus Seix High Yield Fund based on the current portfolio managers’ start date on March 2007.

2 Why Invest?

AllianzGI Seix

Tenure and � Preeminent manager in the � 24+ years in high yield 1 experience of the convertible bond market. management. investment teams � Experienced team that follows � Consistent leadership of key a disciplined approach that has investment personnel. delivered strong returns in all � “Senior sector specialists;” credit market environments. analysts are not generalists.

Proven investment � The investment team seeks to � Entire credit research process is 2 philosophy and identify companies poised to focused on assessing default risk. process benefit from positive fundamental � Quantitative are monitored change and are projected to meet by Bloomberg AIM system. or exceed market expectations. � Analysts examine issuers’ adherence to covenants.

Disciplined, � A disciplined, fundamental � The team seeks to create value 3 fundamental, bottom-up research process through a sound, transparent, and bottom-up research facilitates the early identification repeatable process that leverages of issuers demonstrating an ability Seix’s competitive advantages and to improve their fundamental aims to capture upside potential characteristics, exceed minimum while limiting downside risk. credit statistics, and exhibit � Critical to achieving this is in- the highest visibility of future depth fundamental, bottom-up expected operating performance. credit analysis and a strict sell discipline.

Focused on � The investment team is skilled � The team has demonstrated ways 4 favorable risk/ in identifying and investing in to enhance potential income and return profile convertible securities with an total return, lower interest rate asymmetric risk/reward profile volatility, and diversify risk in that strives to participate in the fixed income portfolios. upside potential of the underlying equity while providing downside protection.

The Takeaway

While stocks have outperformed bonds over time, there have been very long stretches where this relationship has been upside down. The more you appreciate these factors and the randomness of returns over shorter time frames, the more you must also appreciate the timeless merits of diversification, rebalancing, and differentiated active management. Consider convertible and high yield bonds’ potential to check all three of those boxes.

3 AVERAGE ANNUAL TOTAL RETURNS (%) as of 6/30/21 Virtus AllianzGI Convertible Fund n Fund Class Institutional n Index 46.39 45.75 25.32 21.97 21.22 18.86 -1.40 13.63 12.85 11.90 9.74 6.90 4.95 3.67 3.92

QTD YTD 1 Year 3 Year 5 Year 10 Year Since Inception (4/19/93)

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit virtus.com for performance data current to the most recent month end. This share class has no sales charges and is not available to all investors. Other share classes have sales charges. See virtus.com for details. The fund class gross expense ratio is 0.79%. The net expense ratio is 0.71%, which reflects a contractual expense reimbursement in effect through 2/1/2023. Average annual total return is the annual compound return for the indicated period and reflects the change in share price and the reinvestment of all dividends and capital gains. Returns for periods of one year or less are cumulative returns. Index: The ICE BofA U.S. Convertibles Index tracks the performance of publicly issued U.S. dollar denominated convertible securities of U.S. companies. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

Virtus Seix High Yield Fund

n Fund Class I n Index 13.95 13.44 7.73 7.25 7.39 7.23 6.99 6.80 6.43 5.84 2.88 2.65 2.57 2.29

QTD YTD 1 Year 3 Year 5 Year 10 Year Since Inception (12/29/00)

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit virtus.com for performance data current to the most recent month end. This share class has no sales charges and is not available to all investors. Other share classes have sales charges. See virtus.com for details. The fund class gross expense ratio is 0.76%. The net expense ratio is 0.64%, which reflects a contractual expense reimbursement in effect through 4/30/2022. Average annual total return is the annual compound return for the indicated period and reflects the change in share price and the reinvestment of all dividends and capital gains. Returns for periods of one year or less are cumulative returns. Index: The ICE BofA U.S. High Yield BB-B Constrained Index measures performance of BB/B U.S. dollar denominated corporate bonds publicly issued in the U.S. domestic market, and is restricted to a maximum of 2% per issuer. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

4 VIRTUS ALLIANZGI CONVERTIBLE FUND* MORNINGSTAR RATINGS Class: INST Convertibles Category Class A: ANZAX Time Period # of Stars # of Funds Class ADMIN: ANNAX Overall HHHHH 72 Class C: ANZCX 3 Year HHHHH 72 HHHHH Class INST: ANNPX 5 Year 70 To learn more about 10 Year HHHHH 53 Class P: ANCMX Morningstar ratings are based on risk-adjusted conservative equity Class R: ANZRX returns. Strong ratings are not indicative of positive future performance. substitutes, Virtus’ convertible strategy VIRTUS SEIX HIGH YIELD FUND MORNINGSTAR RATINGS Class: I High Yield Bond Category and a suite of high Class A: HYPSX Time Period # of Stars # of Funds yield solutions, Class I: SAMHX Overall HHHH 634 please contact us at Class R6: HYIZX 3 Year HHHHH 634 5 Year HHHH 556 800-243-4361 or 10 Year HHHH 361 visit virtus.com Morningstar ratings are based on risk-adjusted returns. Strong ratings are not indicative of positive future performance.

*Effective February 1, 2021, this fund’s name and investment adviser have changed. The fund’s distributor is now VP Distributors, LLC.

Glossary—Sharpe Ratio: A risk-adjusted measure calculated using standard deviation and excess return to determine reward per unit of risk. Standard Deviation: Measures variability of returns around the average return for an investment portfolio. Higher standard deviation suggests greater risk. Sortino ratio: a variation of the Sharpe ratio, differentiates harmful volatility from volatility in general by using a value for downside deviation. The Sortino ratio is the excess return over the risk-free rate divided by the downside semi-variance, and so it measures the return to “bad” volatility. Beta: A quantitative measure of the volatility, or , of a security or a portfolio in comparison to the market as a whole. Correlation is a statistical measure of how two securities move in relation to each other. Up/Down Capture Ratio measures how well a manager was able to replicate or improve on phases of positive benchmark returns and how badly the manager was impacted by phases of negative benchmark returns. Index Definitions—The S&P 500® Index is a free-float market-capitalization weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment. RATINGS DISTRIBUTION METHODOLOGY Morningstar Rating™ for funds, or ‘star rating,’ is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Ratings do not take into account the effect of sales charges and loads. © 2021 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Lipper Category Classifications © 2021 Lipper. All rights reserved. IMPORTANT RISK CONSIDERATIONS Market Volatility: Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended. Issuer Risk: The porfolio will be affected by factors specific to the issuers of securities and other instruments in which it invests, including actual or perceived changes in the financial condition or business prospects of such issuers.Convertible Securities: A convertible security may be called for redemption at a time and price unfavorable to the fund. Interest Rate: The values of debt instruments may rise or fall in response to changes in interest rates, and this risk may be enhanced for securities with longer maturities. Counterparties: There is risk that a party upon whom the fund relies to complete a transaction will default. : If the issuer of a debt instrument fails to pay interest or principal in a timely manner, or negative perceptions exist in the market of the issuer’s ability to make such payments, the price of the security may decline. Prepayments/Calls: If issuers prepay or call fixed rate obligations when interest rates fall, it may force the portfolio to reinvest at lower interest rates. Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. High Yield Fixed Income Securities: There is a greater risk of issuer default, less liquidity, and increased price volatility related to high yield securities than investment grade securities. Credit & Interest: Debt instruments are subject to various risks, including credit and . The issuer of a debt security may fail to make interest and/or principal payments. Values of debt instruments may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities. Foreign Investing: Investing in foreign securities subjects the fund to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and .Prospectus : For additional information on risks, please see the fund’s prospectus. Please consider a Fund’s investment objectives, risks, charges, and expenses carefully before investing. For this and other information about any Virtus Fund, contact your financial representative, call 800-243-4361, or visit virtus.com for a prospectus or summary prospectus. Read it carefully before investing. Not all products or marketing materials are available at all firms. Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value. Distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc. 5913 7-21 © Virtus Mutual Funds