Virtus AI Fund: Tax Loss Selling Creates Bargain In This Technology-Based CEF (NYSE:AIO)

Virtus AI Fund: Tax Loss Selling Creates Bargain In This Technology-Based CEF (NYSE:AIO)

processor chip, technological environment, blockchain concept


Written by George Spritzer, co-produced by Alpha Gen Capital

(Data beneath was obtained from the Virtus and BlackRock web sites, except in any other case famous.)

Author’s be aware: An earlier model of this text was printed on Nov. 21. Released 2022 to members of Yield Hunting. Please test the most recent knowledge earlier than you make investments.

At the top of every 12 months, many traders have a look at their portfolios and try and offset previous capital positive aspects in opposition to losses, or to generate new losses to hold ahead to future tax years. With closed-end funds, this tax loss promoting impact is inflicting sturdy promoting strain in particular sectors that had been notably weak earlier within the 12 months. This typically results in larger reductions.

In 2022, there are lots of weak sectors in each mounted revenue and equities. But one of many weakest areas was funds much like the Cathie Wood ARK ETFs focusing on “disruptive” expertise.

In this text, I cowl a technology-based closed-end fund that trades at a comparatively steep low cost. It ought to profit from a tax loss promoting bonus as soon as the tax loss promoting interval is over.

At one time this reversal of tax loss gross sales would happen early within the new 12 months, however extra not too long ago it has occurred earlier. Sometimes you see a pleasant bounce in late December as we method the top of the 12 months.

Virtus Artificial Intelligence & Technology Opportunities Fund ticker: (NYSE: AIO)

Start date: 31 October 2019

Total managed property: 803.9 million

Total widespread property: 673.9 million

Baseline expense ratio = 1.53%

Leverage: 16.26%

Discount= -14.51%

Average 1 12 months low cost= -10.74%

Annual distribution charge (market value) = 10.61%

Current month-to-month distribution = $0.15

Annual distribution = $1.80

Sub-advisor: Voya

Investment goal

AIO invests in a mix of securities issued by synthetic intelligence corporations and in different corporations that profit from synthetic intelligence and different expertise alternatives.

The fund seeks to generate a steady revenue stream together with progress of capital utilizing a multi-asset method.

Investment technique

Differentiated Approach — AIO makes use of a differentiated, multi-asset method that strives to create a gorgeous threat/reward profile by elementary analysis and dynamic allocation between private and non-private investments in convertible securities and equities.

Portfolio Sector Analysis (as of 30/09/2022)

Sector ownership

AIO sector outage (Virtus web site)

AIO- Top 10 Holdings (as of 30/09/2022)

Top 10 portfolio holdings

AIO Top 10 Holdings (Virtus web site)

Limited time period characteristic

AIO was established as a restricted time period fund with a termination date of October 29, 2031. This will present a headwind as the present 14.5% low cost ought to regularly disappear as we method the termination date in 9 years.

The board has the choice to increase the fund’s termination date for a complete of 18 months. Note that the Fund just isn’t a “target term” fund and won’t search to return the Fund’s preliminary public providing value per share.

AIO- Institutional Ownership

Institutional traders personal about 15.7% of the excellent shares. The prime two institutional traders are Morgan Stanley who owned $15.7 million and Karpus Management who owned $11.2 million as of 09/30/2022. Many of the Morgan Stanley shares are doubtless held by monetary advisors in managed accounts.

Apart from Karpus Management, I do not see another CEF activist traders with massive stakes. Karpus considerably added to his place in Q3 2022, including 421,038 shares, bringing his present whole to 666,465 shares.


AIO- Investment Performance: NAV return as of 18/11/2022

YTD -20.42%

1-year -21.97%

3-Year +10.98% annualized

NAV efficiency has been unfavorable to date in 2022, however AIO has really overwhelmed its friends throughout this era. Morningstar ranks its efficiency #1 out of 5 funds in its Technology class.


AIO- Three Year Discount History

CEF Discount history

AIO low cost historical past (cefconnect)

Effective Leverage operated roughly 20% of managed property. They primarily use reverse repo agreements or different derivatives with built-in leverage.

Z-Score Analysis

The low cost on NAV from 23 November is -14.51%.

Here are a number of the present discounted Z scores:

Three months: -0.27 Six months: -0.49 One 12 months: -0.93

Source: cefconnect


There are a number of the reason why I like AIO right here:

  • Year-end tax loss gross sales happen in lots of their holdings. We might see a bounce as we method year-end or early 2023.
  • Metwind from the 14.5% low cost and termination date in 2031.
  • The underlying “AI Disruptive” portfolio does not simply personal dangerous AI analysis shares. The prime two possessions are UNH and DE, that are stable blue chips that use AI expertise.

I’d attempt to purchase AIO at a reduction of 14% or extra. The fund is kind of liquid, with a median buying and selling quantity of over 125,000 shares per day.

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