This report from Virtus Investment Partners offers a detailed analysis of the market performance during the first quarter of 2026, focusing on the Virtus Income & Growth Fund. It highlights the impact of geopolitical events and provides insights into sector performance, key contributors, and strategic portfolio adjustments made in response to evolving market conditions.
Strategic Adaptations Amidst Global Volatility
Market Performance in Early 2026
The initial quarter of 2026 presented a diverse landscape across major financial indices. Convertible securities demonstrated resilience and growth, contrasting with declines observed in both equities and high-yield bonds. A significant factor influencing market sentiment and causing disruptions was the escalating geopolitical situation in Iran, which introduced considerable uncertainty into global financial markets.
Robust Earnings Season Highlights
Despite the broader market's mixed performance, the fourth-quarter reporting season concluded with impressive results, surpassing initial forecasts. The S&P 500 Index reported a substantial year-over-year earnings growth, nearing 14%. This strong showing underscored the underlying health and profitability of many companies, even in a challenging macroeconomic environment.
Sectoral Variances within Convertible Markets
Within the ICE BofA U.S. Convertible Index, sector performance was varied. Energy, technology, and utilities sectors exhibited strong outperformance, reflecting investor confidence and specific growth drivers within these areas. Conversely, financials, media, and consumer discretionary sectors experienced underperformance, indicating potential vulnerabilities or shifting market preferences.
Leading Performers and AI's Influence
Among individual holdings, Lumentum Holdings, Inc. emerged as a notable performer, reporting exceptional financial results that significantly exceeded expectations. This was primarily driven by robust demand related to artificial intelligence (AI) technologies, highlighting the increasing impact of AI on corporate revenues and market valuations. Johnson & Johnson also showed strength, with better-than-anticipated top-line and bottom-line figures, and an optimistic outlook supported by advancements in its drug pipeline.
Proactive Portfolio Management
In response to market volatility and emerging risks, the portfolio manager implemented strategic adjustments. Cash reserves were increased through February and maintained at elevated levels into March. Concurrently, exposure to cyclical sectors was reduced, with capital reallocated towards companies offering greater visibility into their operating performance. This shift aimed to mitigate risks and enhance stability in an unpredictable market.
