From Seekingalpha · Stanford Chemist · · 1m
Virtus Convertible Funds Trade Widely Apart
Virtus convertible funds NCZ and NCV trade unusually far apart despite similar portfolios.
In brief
Virtus convertible funds NCZ and NCV trade unusually far apart despite similar portfolios. Virtus Convertible & Income Fund II (NCZ) and Virtus Convertible & Income Fund (NCV) trade at a 9.51% discount versus 12.13% discount, a gap two standard deviations above their one-year average. Originally reported by…
Virtus Convertible Funds Trade Widely Apart
Virtus Convertible & Income Fund II and Virtus Convertible & Income Fund hold nearly identical portfolios but trade at a 9.51% discount versus NCV's 12.13% discount.
Discount Gap Exceeds Average
The discount gap between NCZ and NCV is about two standard deviations above their one-year average of roughly 0.5 points.
High Correlation in Portfolio Moves
With a 0.998 correlation in daily NAV moves over the past year, rotating between the funds keeps essentially the same convertibles exposure at a lower valuation.
Investor Strategy for Spread Profit
Advanced investors can pair a short NCZ position with a long NCV position to profit from the spread alone, net of borrow costs.
The essence
Virtus Convertible & Income Fund II (NCZ) and Virtus Convertible & Income Fund (NCV) trade at a 9.51% discount versus 12.13% discount, a gap two standard deviations above their one-year average.
