Securitized products demonstrated robust performance in the fourth quarter of 2025, with both total and excess returns outstripping corporate bonds. This period saw agency mortgage-backed securities (MBS) emerge as the leading performers within the domestic fixed income market, driven by tighter spreads and their outperformance against risk-free assets. As a result, Newfleet Asset Management significantly increased its allocation to agency MBS, achieving its highest exposure in several years, while concurrently reducing its holdings in credit risk transfer (CRT) securities and commercial mortgage-backed securities (CMBS) from legacy conduits.
The Virtus Newfleet Securitized Income ETF (VABS) reported a 1.13% return at net asset value (NAV) for the quarter, slightly trailing the ICE BofA 1-3 Year A-BBB US Corporate Index's return of 1.21%. This slight underperformance was primarily due to certain positions within deeper sub-prime auto ABS, which experienced a lag during the quarter. Additionally, Newfleet Asset Management's investment in a specific whole business transaction encountered difficulties as the issuer initiated discussions with creditors regarding a potential debt restructuring, further impacting the fund's quarterly results.
Despite these challenges, the strategic reallocation to agency MBS underscores a proactive approach to managing market dynamics and seeking risk-adjusted returns. The fund's performance reflects a blend of successful tactical shifts in response to market conditions and the inherent volatility associated with certain credit-sensitive assets. Moving forward, continued vigilance and adaptive strategies will be crucial in navigating the complexities of the securitized product landscape.
In the dynamic realm of financial markets, strategic foresight and adaptability are paramount for success. Even when faced with unforeseen challenges and market fluctuations, a well-defined investment philosophy, coupled with the courage to make decisive adjustments, can pave the way for long-term growth and resilience. The pursuit of robust returns must always be balanced with prudent risk management, fostering an environment where innovation and sound judgment converge to create lasting value.