ZTR CEF: Great Results From The Rights Offering, Reiterate Buy

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Virtus Total Return Fund (NYSE:ZTR) announced the results of its rights offering yesterday:

Virtus Total Return Fund Inc announced today that it has issued 20.3 million common shares in its recently completed non-transferable rights offering. Total net The proceeds from the rights offering, which are estimated to be approximately $140.6 million after deducting the estimated costs of the offering, are expected to be invested across the Fund’s equity portfolio. The net proceeds were calculated based on a share subscription price of $6.96, which was 95% of the average of the last reported selling price of the Fund’s common shares on September 16, 2022, the date of the pricing of the offering, and the prior four business days.

These are absolutely great results for ZTR. Let’s take a look:


capital structure (CefConnect)

The pre-issuance capital structure shows the fund has total unleveraged assets of $370 million and approximately 47,000 shares. The rights offering basically expanded the asset base by a whopping 40%! That gives a potential investor a number of takeaways:

  • Investors are realizing the appeal of raising cash in this environment for a CEF
  • The investor community sees the rights offering and the AUM increase as a very positive development
  • In today’s environment, CEFs offering options are emblematic of intelligent management and are rewarded by investors with large stock buyouts
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To put this in context for a retail investor, prior to the rights offering, ZTR was a fully invested CEF with leverage on top. Now a CEF, ZTR sits on a cash hoard of 40% of its unleveraged basis and is in an absolutely enviable position to use that money and buy assets during a bear market when asset prices are discounted.

What will be the end result of this cash raising exercise? A significant outperformance in 2023 and longer term. The management of ZTR spoke on this topic:

We see attractive investment opportunities across all sectors of global infrastructure, particularly given the ongoing transition to a clean energy economy and the significant need for further investment in these essential infrastructure services,” said Connie Luecke, CFA, co-portfolio manager of the fund and senior managing director, Duff & Phelps Investment Management Co. “We also see global infrastructure as a good defensive strategy in a volatile market because the sector can provide downside protection and diversification within an investor’s larger portfolio due to infrastructure’s historically lower correlation with most other stocks and bonds .

We cannot stress enough the importance of having fresh capital available in this environment. The year 2022 has seen its worst bond market returns ever, with the S&P 500 index down -20% and poised for further downside. Will 2023 be just as bad? We don’t think. Being able to put cash on the lows is something of a bonanza in today’s environment, and the investor base has recognized this:

Sufficient common shares were available to fully satisfy all oversubscription requests. Refunds for overpayments are expected to be sent out starting today. Confirmation statements are expected to be mailed to fund shareholders from September 23, 2022.


The fund targets an equity allocation of around 60%. The fund invests in infrastructure owners and operators in the communications, utilities, transportation and energy industries with sizeable market capitalisations:

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assignments (fund data sheet)

Similar to the DNP fund, the manager allocates a very high percentage of the stock allocation to the utilities sub-sector. In terms of individual stocks, the fund’s top holdings are currently as follows:

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top holdings (fund data sheet)

On the fixed income side, the fund invests primarily in high yield and leveraged loans:


Fixed income parsing (fund data sheet)

There are categories for Investment Grade Bonds, Non-Agency RMBS and some Asset Backed Securities (ABS), but please remember that the percentages above represent % Fixed Invested Assets.


ZTR is a 60/40 CEF with an infrastructure focus on the equity side. The fund has just announced the results of its rights offering, which has seen its unleveraged asset base grow nearly 40%. These are great results for investors in the fund as the vehicle now sits on a very large liquidity position that it can use to buy assets at distressed levels during the current bear market. We confirm our buy recommendation for the CEF.

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