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Tuesday, August 06, 2013

Three Things To Know About Virtus

Reported by Casey Quinlan

Virtus Investment Partners [profile] revenues came in at $96.1 million surpassing S&P Capital IQ analysts, whom expected sales of $96 million, The Motley Fool's Seth Jayson writes.

Net income attributable to common stockholders was reported to be $1.91 per diluted share or $15.4 million, an increase of 84 percent from $8.4 million or $1.04 per share in the second quarter. S&P Capital IQ analysts expected $1.98 per share.

Net flows increased 80 percent to $2.5 billion from $1.4 billion and long-term open end mutual fund net flows increased 87 percent to $2.6 billion. Virtus had an AUM of $52.7 billion at June 30, an increase of 36 percent from $38 billion in the second quarter of last year.

Reading through the earnings transcript, MFWire found three things of note:

POINT 1: Virtus is working on translating its success distributing to wirehouses to independents and IRAs, and seeing some success.

POINT 2: Seventy percent of flows are in equity and alternative premium products.

POINT 3: Virtus is making progress in the institutional business but it's still not near the level of retail business.

POINT 1: Virtus is working on translating its success distributing to wirehouses to independents and IRAs, and seeing some success.

Steven Schwartz of Raymond James & Associates:
Schwartz: Right. George, I was thinking here of -- I think that you're mostly strong in the wirehouses and have been talking up the opportunity in RIA. I was specifically referencing that.

George Aylward, CEO, President, Director of Virtus:

No -- yes. And again, you're absolutely right. I mean, while we have some agreements with everyone, and we've been in most places for many, many years, in the last few years, a lot of our greatest focus and penetration was in the wirehouses where we achieved very high rankings. And we expanded our sales force a little over a year ago, and we've seen great results. I mean, the percentage of growth is significantly high in that channel that's coming from a smaller base. So I have to say, we've been very happy that we have truly been able to translate some of the success that we've had on the traditional wirehouses into the independents and the RIAs. Mike, anything? No? POINT 2: Seventy percent of flows are in equity and alternative premium products.

Terry M. Lally of Spotlight Funds Management:
Okay. I think you mentioned that 70% of the flows, recent flows have been in the equity and alternative premium products. And we've seen a very positive mix shift with your average fee up 150 basis points. What's the average fee on the equity and alternatives? And how come we see that continue to lift your average revenue?

Aylward: Yes -- no. It's a great question, because the higher fee products are the input equity in the alternative funds. And the 2 funds in particular -- one, I believe, has about 110 basis point fee and the other is 150. Again, which -- those are subadvised products, but those are obviously higher fee than the -- obviously, the fixed-income products that we're selling a lot of last quarter. So both of the products that we're selling more of this quarter. So last quarter, it was Emerging Markets, which is 100 bps, and Multi-Sector, which will land at about 42 or 43.
POINT 3: Virtus is making progress in the institutional business but it's still not near the level of retail business.

John Joseph Dunn of Sidotti & Company:
Could you just talk a little more on the institutional channel and if you have an idea of where you'd like that to go as a percentage of total AUM mix?

Aylward: Yes. For our institutional business, again, our -- we've had a very high level of growth on the retail side, and the institutional side has not been anywhere near that level. It's been basically very stable. And we were sort of pleased with some of the gross sales that we're seeing in that place. As a reminder, for our institutional business, it's really going to be focused on our affiliated managers as opposed to subadvisories. So we don't do institutional for those strategies, which are really done through subadvisories.

Such an area where we had invested some resources very early last year, I think. It's a little bit more than a year now where we invested in some resources in terms of distribution, and we've sort of been pleased with the traction that they've been able to generate. Which again, you haven't seen a significant level of flows, but it certainly has increased, the pipeline has increased, as well as the activity. So again, it's certainly not the same level of retail nor would we expect it to be, and it's a longer-tailed business. But I think a lot of the changes that were put in place and some of the work that has been done over the last year has started to pay out.

See the transcript of Virtus' earnings call and the earnings release for more on how Virtus is doing.  

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