Virtus Duff & Phelps Water Fund — Q3 2025 Commentary & Outlook

The Virtus Duff & Phelps Water Fund navigated mixed markets in Q3 2025 by emphasizing durable water infrastructure and select water-related equities. Fund managers highlight that macroeconomic uncertainty and supply-chain normalization shaped performance, while persistent demand for water treatment, distribution upgrades and industrial efficiency supported long-term fundamentals.

Portfolio positioning remained focused on three core themes: municipal and utility providers with stable cash flow profiles, companies that enable water efficiency and reuse, and specialty industrials supplying critical components for treatment and distribution. This sector-focused approach seeks to balance defensive revenue streams with targeted growth exposure to firms rolling out digital monitoring, advanced membranes, and recycling technologies.

Top performance contributors during the quarter were firms tied to infrastructure spending and operational upgrades, where predictable service revenue and contract backlogs insulated earnings. Conversely, smaller-cap specialty suppliers showed greater volatility due to order timing and raw-material costs. Management says active security selection, alongside duration and credit discipline, helped limit downside from episodic market moves.

Risk management remains central: the team monitors regulatory developments, drought and climate risk, and capital spending cycles that can influence municipal budgets. Currency and interest-rate sensitivity are managed through sector weighting and fixed-income allocation within the fund’s mandate. ESG considerations — including water stewardship and regulatory compliance — continue to influence research and engagement with portfolio companies.

Outlook: fund leadership expects continued structural demand for water infrastructure driven by aging systems, stricter environmental standards, and urbanization. Near-term returns may be modulated by macro volatility and project timing, but the managers remain constructive on secular growth in water efficiency, monitoring, and treatment technologies. They emphasize long-term capital preservation, income generation where available, and selective growth exposure.

Investors should weigh the defensive characteristics of utility-like holdings against cyclical exposure in industrial suppliers. The fund’s active approach aims to capture opportunities across the water value chain while managing regulatory, supply-chain and interest-rate risks that can affect short-term performance.