Virtus ETF Trust II

 

VIRTUS DUFF & PHELPS CLEAN ENERGY ETF

VIRTUS NEWFLEET ABS/MBS ETF

VIRTUS NEWFLEET HIGH YIELD BOND ETF

VIRTUS SEIX SENIOR LOAN ETF

VIRTUS STONE HARBOR EMERGING MARKETS HIGH YIELD BOND ETF

VIRTUS TERRANOVA U.S. QUALITY MOMENTUM ETF

ANNUAL REPORT
July 31, 2023

Table of Contents

 

Page (s)

Shareholder Letter 

1

Management’s Discussion of Fund Performance 

2

Shareholder Expense Examples 

19

Schedules of Investments 

20

Virtus Duff & Phelps Clean Energy ETF

20

Virtus Newfleet ABS/MBS ETF 

22

Virtus Newfleet High Yield Bond ETF 

25

Virtus Seix Senior Loan ETF 

29

Virtus Stone Harbor Emerging Markets High Yield Bond ETF

33

Virtus Terranova U.S. Quality Momentum ETF 

37

Statements of Assets and Liabilities 

40

Statements of Operations 

42

Statements of Changes in Net Assets 

44

Financial Highlights 

47

Notes to Financial Statements 

53

Report of Independent Registered Public Accounting Firm 

63

Statement Regarding Liquidity Risk Management Program 

64

Approval of Advisory Agreements & Board Considerations 

65

Trustees and Officers of the Trust 

68

Supplemental Information 

72

1

10

Shareholder Letter (unaudited)

September 2023

Dear Shareholder:

On behalf of Virtus ETF Advisers LLC (the “Adviser”), I am pleased to present the shareholder report for the Virtus ETF Trust II (the “Trust”) for the annual fiscal period ended July 31, 2023.

The Adviser is part of Virtus Investment Partners, a distinctive partnership of boutique investment managers singularly committed to the long-term success of individual and institutional investors.

The report provides financial statements and portfolio information for the following funds within the Trust:

Virtus Duff & Phelps Clean Energy ETF (VCLN)

Virtus Newfleet ABS/MBS ETF (VABS)

Virtus Newfleet High Yield Bond ETF (BLHY)

Virtus Seix Senior Loan ETF (SEIX)

Virtus Stone Harbor Emerging Markets High Yield Bond ETF (VEMY) – This fund commenced operations on December 12, 2022 and seeks current income and capital appreciation by investing in emerging market high yield debt securities, both sovereign and corporate.

Virtus Terranova U.S. Quality Momentum ETF (JOET)

On behalf of the Adviser and our fund Sub-Advisers, thank you for your investment. If you have questions, please contact your financial adviser, or call 1-888-383-0553. For more information about the funds and the other ETFs we offer, we invite you to visit our website, www.virtusetfs.com.

Sincerely,

William Smalley
President

Virtus ETF Trust II

This material must be accompanied or preceded by the prospectus.

2

Management’s Discussion of Fund Performance (unaudited)

July 31, 2023

Virtus Duff & Phelps Clean Energy ETF (VCLN)

How did the markets perform during the ETF’s fiscal year ended July 31, 2023?

The S&P Global Clean Energy Index (net) (the “Index”) declined 17.12% for the 12-month period. From a sector standpoint, the primary drivers of the Index’s negative performance were information technology and industrials. Rising interest rates were a consistent headwind for both sectors. Over the course of the fiscal year, the yield on the 10-year U.S. Treasury rose from about 2.6% to about 3.9%, and peaked at about 4.2%. This increase in rates pressured equity valuations. For the technology sector in particular, the increase in rates had an impact on consumer-facing companies like those in the rooftop solar market, where increased borrowing costs had a negative impact on demand. Further pressuring the rooftop solar sector was the fact that California, one of the largest rooftop solar markets in the U.S., enacted a significant policy change during the period that caused a temporary slowdown in demand and a corresponding increase in inventories.

On a positive note, the passage of the Inflation Reduction Act (IRA) in the U.S. was described by many companies as a “game-changer.” As a result, the European Union (EU) developed the Green Deal Industrial Plan which introduced measures similar to those of the IRA regarding increased renewable targets, local content rules, supply of critical raw materials, and access to funding. During the period, the IRA appeared to initiate a global pro-investment policy response that has the potential to positively impact clean energy for years to come.

What factors affected the performance of the ETF during its fiscal year?

For the 12 months through July 31, 2023, the Fund generated a total return of -13.55% based on net asset value and -13.91% based on market price, versus -17.12% for its benchmark, the S&P Global Clean Energy Index (net).

Two of the Fund’s strongest contributors during the period were First Solar and Iberdrola. The IRA was a game-changer for First Solar as it provided the company with a distinct competitive advantage as the only large U.S. manufacturer of solar panels. First Solar demonstrated one of the most visible earnings-growth profiles in the clean-energy industry during the period, as evidenced by its fully contracted backlog through at least 2026. Iberdrola posted strong results for fiscal year 2022, including a dividend that was nicely above consensus. Iberdrola continued to benefit from its global renewables build-out plan, while higher inflationary costs were more than absorbed by higher electric power sales prices.

Two of the largest detractors from Fund performance during the 12-month period were Enphase Energy and SolarEdge Technologies. Both companies are the leading technology and equipment providers to the U.S. rooftop solar industry. As mentioned, the increase in interest rates and change in California’s rooftop solar policy had a negative impact on the performance for both companies.

The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.

Performance as of 7/31/2023

Average Annual Total Return

Fund
Net Asset Value

Fund
Market Price

S&P Global Clean Energy Index (net)(1)

1 Year

-13.55%

-13.91%

-17.12%

Since Inception(2)

-8.82%

-8.88%

-9.98%

  

(1)The S&P Global Clean Energy Index (net) is designed to measure the performance of companies in global clean energy-related businesses from both developed and emerging markets, with a target constituent count of 100, calculated on a total return basis with net dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

(2)Commencement of operations on August 3, 2021.

Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.

3

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.

Clean Energy Industry: Developments in the clean energy segment could adversely affect the price and valuations of portfolio holdings. These developments include swift price and supply fluctuations caused by events relating to international politics, the success of project development and tax and other governmental regulatory policies. There could also be weak demand for clean energy company products or services, the obsolescence of existing technology or short product cycles, and falling prices and profits due to the supply of, and demand for, oil and gas along with competition from new market entrants.

Limited Number of Investments: Because the portfolio has a limited number of securities, it may be more susceptible to factors adversely affecting its securities than a portfolio with a greater number of securities.

Non-Diversified: The portfolio is not diversified and may be more susceptible to factors negatively impacting its holdings to the extent the portfolio invests more of its assets in the securities of fewer issuers than would a diversified portfolio.

Foreign & Emerging Markets: Investing in foreign securities, especially in emerging markets, subjects the portfolio to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and market risk.

Market Volatility: The value of the securities in the portfolio may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be short- or long-term. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio’s manager(s) to invest the portfolio’s assets as intended.

Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.

Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.

No Guarantee: There is no guarantee that the Fund will meet its objective.

Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.

Virtus Duff & Phelps Clean Energy ETF (continued)

4

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Value of a $10,000 Investment Since Inception at Net Asset Value

The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.

Virtus Duff & Phelps Clean Energy ETF (continued)

5

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Virtus Newfleet ABS/MBS ETF (VABS)

How did the markets perform during the ETF’s fiscal year ended July 31, 2023?

Performance over the 12-month period can be defined by the higher move in interest rates and by the Federal Reserve’s (the Fed’s) continued use of quantitative tightening. The Fed’s target interest rate rose from 2.5% to 5.5% during the period, over the course of seven rate hikes. The yield on the two-year U.S. Treasury note went from 2.89% to 4.88% during the fiscal year. There were few areas with positive returns in mainstream fixed income as the Bloomberg U.S. Aggregate Bond Index returned -3.37%, while the securitized debt component of the Index returned -4.50%. Securities with greater sensitivity to changes in interest rates that offered higher yields were able to generate positive total returns.

The economy, as measured by gross domestic product (GDP), bounced back from two consecutive negative GDP quarters in the first half of 2022 to post four solid positive quarters averaging 2.6% growth through June 30, 2023. Inflation as measured by the Consumer Price Index (CPI) continued to ease, seeing only a 3% year-over-year increase as of June 2023.

Unemployment levels remained at record lows during the fiscal year, buoying consumer confidence. Consumer prices rose steadily while the market saw stable to rising prices for autos, housing, and rents. In turn, credit performance within the securitized markets remained strong as asset price inflation buttressed securitized deal structures. Investors retreated to consumer-backed assets during the second half of the fiscal year as fears of recession abated. The consumer proved resilient and security prices gained due to stronger fundamentals and favorable supply technical factors.

What factors affected the performance of the ETF during its fiscal year?

The securitized market experienced excellent credit performance and was the real driver of returns for the Fund versus the benchmark. The Fund’s return based on net asset value for the 12 months ended July 31, 2023, was 2.62%, and its return based on market price was 2.51%, versus a total return of 1.71% for the ICE BofA 1-3 Year A-BBB US Corporate Index, the Fund’s benchmark.

Positive contributors to the Fund’s returns included subordinate auto asset-backed securities (ABS), private label credit card ABS, and select holdings in floating rate commercial mortgage-backed securities (CMBS), including securities-backed leading regional super malls.

Primary detractors from the Fund’s relative performance included residential mortgage-backed securities (RMBS) with longer durations, or greater sensitivity to changes in interest rates. This included more interest rate-sensitive mortgage-backed securities (MBS) issued by Ellington Financial and Verus Securitization Trust.

The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.

Performance as of 7/31/2023

Average Annual Total Return

Fund
Net Asset Value

Fund
Market Price

ICE BofA 1-3 Year
A-BBB US
Corporate Index
(1)

1 Year

2.62%

2.51%

1.71%

Since Inception(2)

-0.31%

-0.34%

-0.82%

  

(1)The ICE BofA 1-3 Year A-BBB US Corporate Index measures performance of U.S. corporate bond issues rated A through BBB, inclusive (based on an average of Moody’s, S&P and Fitch), with a remaining term to final maturity less than 3 years. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

(2)Commencement of operations on February 9, 2021.

Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.

6

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

MBS and ABS Risks: MBS and ABS may be less liquid than other bonds, and may be more sensitive than other bonds to the market’s perception of issuers and creditworthiness of payees, particularly in declining general economic conditions when concern regarding mortgagees’ ability to pay (e.g., the ability of homeowners, commercial mortgagees, consumers with student loans, automobile loans or credit card debtholders to make payments on the underlying loan pools) rises, which may result in the Fund experiencing difficulty selling or valuing these securities. MBS and ABS issued by participants in housing and commercial real estate finance, as well as asset-backed markets generally, have experienced extraordinary weakness and volatility at various times in recent years, and may decline quickly in the event of a substantial economic or market downturn.

Fixed Income Securities Risks: Risks of investments in fixed income securities include, without limitation, credit risk, interest rate risk, liquidity risk, maturity risk and prepayment risk. These risks could affect the value of investments in which the Fund invests, possibly causing the Fund’s share price and total return to be reduced and fluctuate more than other types of investments.

Credit Risk: The value of fixed income securities is dependent on the creditworthiness of their issuers. A deterioration in the financial condition or credit rating of an issuer, changes in the market’s perception of the issuer’s financial strength, or a deterioration in general economic conditions may have an adverse effect on the value of the investment and may cause an issuer to fail to pay principal and interest when due.

Interest Rate Risk. The value of the Fund’s fixed income investments will generally vary inversely with the direction of prevailing interest rates. In general, rising interest rates will negatively impact the price of a fixed rate debt instrument and falling interest rates will have a positive effect on price. Risks associated with rising interest rates are heightened given that interest rates in the U.S. are near historic lows. Adjustable rate instruments also react to interest rate changes in a similar manner, although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including the index chosen, frequency of reset and reset caps or floors, among other factors). Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules.

Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.

Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.

No Guarantee: There is no guarantee that the Fund will meet its objective.

Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.

Virtus Newfleet ABS/MBS ETF (continued)

7

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Value of a $10,000 Investment Since Inception at Net Asset Value

The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.

Virtus Newfleet ABS/MBS ETF (continued)

8

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Virtus Newfleet High Yield Bond ETF (BLHY)

How did the markets perform during the ETF’s fiscal year ended July 31, 2023?

The Bloomberg U.S. High Yield 2% Issuer Capped Bond Index generated a 4.42% return for the fiscal year ended July 31, 2023. The high yield market in general was volatile as investor fears of a recession continuously shifted. In addition, the banking system stress surrounding the collapse of Silicon Valley Bank drove heightened volatility in March of 2023. The high yield market largely rallied from late spring through the end of the fiscal year as a series of favorable economic data releases led investors to view a soft landing for the economy as the most likely scenario. The optimism was fueled by the fact that inflation appeared to recede during the period, while economic growth remained robust.

Credit spreads tightened by more than 1.00% during the fiscal year, which helped offset the rise in “risk-free” rates. Spread refers to the additional compensation of high yield bonds over ​U.S. Treasuries, which are considered the “risk-free” comparison from a credit risk perspective. Single-B-rated securities outperformed on a total return basis as they had less exposure to changes in interest rates than double-B-rated securities, and saw more spread tightening than triple-C-rated securities.

From an industry perspective, gaming, financial/lease, and leisure were the largest contributors to returns for the high yield market, while media cable, wirelines, and media other were the largest detractors. Looking at total returns, oil field services had the highest return, at over 20%, while media cable had the lowest, at -4.8%.

What factors affected the performance of the ETF during its fiscal year?

For the 12 months ended July 31, 2023, the Fund generated a total return of 6.31% based on net asset value and 6.37% based on market price, versus 4.42% for its benchmark, the Bloomberg U.S. High Yield 2% Issuer Capped Bond Index. The Fund outperformed its benchmark by more than 1.9% due to strong selection within the high yield rating tiers, especially triple-Cs, which returned over 10%. In addition, the Fund was underweight double-Bs relative to its benchmark, which were the worst performing rating tier. The Fund maintained some out-of-index exposures that were generally a drag on performance.

From an industry perspective, investments in health care, metals & mining, and industrial other were the largest contributors to Fund performance, while technology, leisure, and automotive were the largest detractors. From an individual security perspective, the top three contributors were bonds of New Enterprise Stone & Lime, Taseko Mines, and Global Infrastructure Solutions, while the bottom three contributors were Rackspace Technology, Hearthside Foods, and DISH DBS. Lastly, the Fund had a slightly lower duration, or sensitivity to changes in interest rates, than the Index, which contributed to the outperformance given the move higher in “risk-free” rates during the fiscal year.

The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.

Performance as of 7/31/2023

Average Annual Total Return

Fund
Net Asset Value

Fund
Market Price

Bloomberg
U.S. High-Yield
2% Issuer Capped
Bond Index
(1)

1 Year

6.31%

6.37%

4.42%

5 Year

2.42%

2.41%

3.40%

Since Inception(2)

2.64%

2.60%

4.10%

  

(1)The Bloomberg U.S. High-Yield 2% Issuer Capped Bond Index is a market capitalization-weighted index that measures fixed rate non-investment grade debt securities of U.S. and non-U.S. corporations. No single issuer accounts for more than 2% of market cap. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

(2)The Fund commenced operations on December 5, 2016.

Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most

9

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.

Fixed Income Securities: Risks of investments in fixed income securities include, without limitation, credit risk, interest rate risk, liquidity risk, maturity risk and prepayment risk. These risks could affect the value of investments of the Fund, possibly causing the Fund’s share price and total return to be reduced and fluctuate more than other types of investments.

Credit Risk: The value of fixed income securities is dependent on the creditworthiness of their issuers.A deterioration in the financial condition or credit rating of an issuer, changes in the market’s perception of the issuer’s financial strength, or a deterioration in general economic conditions may have an adverse effect on the value of the investment and may cause an issuer to fail to pay principal and interest when due.

Interest Rate Risk. The value of the Fund’s fixed income investments will generally vary inversely with the direction of prevailing interest rates.In general, rising interest rates will negatively impact the price of a fixed rate debt instrument and falling interest rates will have a positive effect on price.Risks associated with rising interest rates are heightened given that interest rates in the U.S.are near historic lows.Adjustable rate instruments also react to interest rate changes in a similar manner, although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including the index chosen, frequency of reset and reset caps or floors, among other factors).Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules.

Junk Bonds or High Yield Securities: High yield securities are generally subject to greater levels of credit quality risk than investment grade securities. The retail secondary market for these “junk bonds” may be less liquid than that of higher-rated fixed income securities, and adverse conditions could make it difficult at times to sell these securities or could result in lower prices than higher-rated fixed income securities. These risks can reduce the value of the Fund’s shares and the income it earns.

Foreign Securities: Investments in foreign securities involve the risk of possible adverse changes in investment or exchange control regulations or currency exchange rates, expropriation or confiscatory taxation, limitation on the removal of cash or other assets of the Fund from foreign markets, political or financial instability, or diplomatic and other developments which could affect such investments. Further, foreign securities often trade with less frequency and volume than domestic securities and therefore may exhibit greater price volatility. These risks are generally greater in emerging markets.

Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.

Loan Participation and Assignment: The principal risk associated with acquiring loan participation interests and assignments is the credit risk associated with the underlying corporate borrower. There is also a risk that there may not be a readily available market for loan participation interests or assignments and, in some cases, this could result in the Fund disposing of such securities at a substantial discount from face value or holding such securities until maturity.

Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.

Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.

No Guarantee: There is no guarantee that the Fund will meet its objective.

Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.

Virtus Newfleet High Yield Bond ETF (continued)

10

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Value of a $10,000 Investment Since Inception at Net Asset Value

The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.

Virtus Newfleet High Yield Bond ETF (continued)

11

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Virtus Seix Senior Loan ETF (SEIX)

How did the markets perform during the ETF’s fiscal year ended July 31, 2023?

Fixed income markets saw some difficulty in 2022 and into 2023 as the Federal Reserve (the Fed) raised interest rates more than expected, culminating in a 5.00% increase in the Federal funds rate by the end of the 12-month period. Fixed rate debt struggled during the Fed’s continued rate hikes, but floating rate bank loan debt did well as its short duration, or lower sensitivity to changes in interest rates, and floating rate structure enabled it to take advantage of the hike in its short-term reference rates (LIBOR and SOFR). The Ukraine war, while continuing, became less of a major risk factor, as a resilient U.S. economy took center stage with growth, and inflation, being the main topics of discussion. While inflation declined from 2022’s high levels, the market remained concerned that inflation could be stickier for a longer period of time, thus keeping the Fed focused on rate hikes.

Investors witnessed a regional banking crisis in March 2023 after Silicon Valley Bank’s (SVB) bankruptcy filing awakened the market to a risk associated with the Fed’s increase in rates. Most banks categorize their investment holdings into two buckets: Available for Sale (AFS) and Held to Maturity (HTM). The AFS grouping is a smaller portion of the investment portfolio and is marked to market. In the case of rising interest rates, fixed rate debt will trade lower, with losses unrealized until sold, as lower prices are needed to offset the rise in rates. The AFS category assumes much of that mark-to-market loss. The HTM group, typically a much larger portion of a bank’s portfolio, is not marked to market. Should there be a need to immediately sell these securities during times of financial stress, losses may occur due to unexpected and unaccounted for reasons. Such was the case for SVB and eventually Signature Bank and First Republic Bank. This remained an issue in the marketplace through the end of the fiscal year, as the Fed continued to raise rates, placing pressure on banks’ investment portfolios.

Despite the rise in interest rates during the 12-month period, the U.S. economy continued to grow and inflationary pressures continued to linger. While there was a modest increase in defaults in the bank loan sector, they remained slightly below historical norms.

What factors affected the performance of the ETF during its fiscal year?

For the 12 months ended July 31, 2023, the ETF generated a total return of 9.46% based on net asset value and 9.60% based on market price, versus the ETF’s benchmark, the Credit Suisse Leveraged Loan Index, which returned 9.49%. The Fund’s focus on higher quality issues contributed positively to performance as concerns about strained consumers, a possible banking crisis, and fears of higher rates impacting the bottom line of floating rate debt issuers continue to swirl around the market. There were periods of low-quality rallies over the year as the recession anticipated in the first half of 2023 continued to be pushed further out. However, risk concerns eventually re-entered the conversation and the outperformance of higher quality assets resumed, thereby helping the Fund’s 12-month return.

The preceding information is the opinion of the investment adviser and sub-adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.

Performance as of 7/31/2023

Average Annual Total Return

Fund
Net Asset Value

Fund
Market Price

Credit Suisse
Leveraged Loan Index
(1)

1 Year

9.46%

9.60%

9.49%

Since Inception(2)

4.07%

4.12%

4.09%

  

(1)The Credit Suisse Leveraged Loan Index is a market-weighted index that tracks the investable universe of the U.S. dollar denominated leveraged loans. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

(2)Commencement of operations on April 24, 2019.

Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the New York Stock Exchange Arca (“NYSE”), ordinarily 4:00 p.m. Eastern time, on each day during which the NYSE is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.

12

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Fixed Income Securities: Risks of investments in fixed income securities include, without limitation, credit risk, interest rate risk, liquidity risk, maturity risk and prepayment risk. These risks could affect the value of investments of the Fund, possibly causing the Fund’s share price and total return to be reduced and fluctuate more than other types of investments.

Junk Bonds or High Yield Securities: High yield securities are generally subject to greater levels of credit quality risk than investment grade securities. The retail secondary market for these “junk bonds” may be less liquid than that of higher-rated fixed income securities, and adverse conditions could make it difficult at times to sell these securities or could result in lower prices than higher-rated fixed income securities. These risks can reduce the value of the Fund’s shares and the income it earns.

Foreign Securities: Investments in foreign securities involve the risk of possible adverse changes in investment or exchange control regulations or currency exchange rates, expropriation or confiscatory taxation, limitation on the removal of cash or other assets of the Fund from foreign markets, political or financial instability, or diplomatic and other developments which could affect such investments. Further, foreign securities often trade with less frequency and volume than domestic securities and therefore may exhibit greater price volatility. These risks are generally greater in emerging markets.

Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.

Loan Participation and Assignment: The principal risk associated with acquiring loan participation interests and assignments is the credit risk associated with the underlying corporate borrower. There is also a risk that there may not be a readily available market for loan participation interests or assignments and, in some cases, this could result in the Fund disposing of such securities at a substantial discount from face value or holding such securities until maturity.

Non-Diversified: The portfolio is not diversified and may be more susceptible to factors negatively impacting its holdings to the extent the portfolio invests more of its assets in the securities of fewer issuers than would a diversified portfolio.

Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.

Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.

No Guarantee: There is no guarantee that the Fund will meet its objective.

Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.

Virtus Seix Senior Loan ETF (continued)

13

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Value of a $10,000 Investment Since Inception at Net Asset Value

The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.

Virtus Seix Senior Loan ETF (continued)

14

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Virtus Stone Harbor Emerging Markets High Yield Bond ETF (VEMY)

Inception December 12, 2022

How did the markets perform during the ETF’s fiscal period from December 12, 2022, through July 31, 2023?

By the end of 2022, tentative signs of easing inflation in the U.S. prompted cautious optimism about the global inflation outlook, which led to forecasts of less aggressive monetary tightening in 2023. Nevertheless, stubbornly high inflation readings globally, banking sector stress stemming from the rapid increase in the U.S. Fed funds rate, and uncertainty over the outcome of the U.S. debt ceiling debate weighed on market sentiment in February and March of 2023.

Concerns over each of these issues subsided by the end of the fiscal period – particularly as inflation data appeared to suggest the effects of tightening were continuing to filter through the economy. These developments supported investor sentiment in emerging markets (EM) bond markets. In addition, during this time, markets pushed expectations for a possible U.S. recession further into the future. Further support to EM debt markets came from bilateral lenders and multilateral lenders, including the International Monetary Fund, which continued to lend to many of the most challenged EM sovereign credits, effectively reducing default risk.

Against this backdrop, EM debt spreads narrowed on average, reflecting lower perceived near-term default risks among sovereign and corporate borrowers.

What factors affected the performance of the ETF during the fiscal period?

The Fund outperformed its benchmark, the J.P. Morgan Hard Currency Credit 50-50 (EMBIG Diversified and CEMBI Broad Diversified) High Yield Index, as a result of country selection in hard currency sovereign debt and country exposure in hard currency corporate debt. Returns that were not explained by credit decisions were positive.

The top contributors to relative performance in hard currency sovereign debt included overweights in Argentina, El Salvador, and Pakistan. In hard currency corporate debt, an underweight exposure in China, overweight exposure and issue selection in Ghana, and issue selection in Jamaica all enhanced performance.

The top detractors from performance in hard currency sovereign debt included an overweight and issue selection in Ecuador, an underweight and issue selection in Sri Lanka, and an overweight and issue selection in Mexico. In hard currency corporate debt, overweight exposures and issue selection in Brazil and Mexico detracted most from relative performance. Underweight exposure in Ukraine also detracted from relative returns.

The preceding information is the opinion of the investment adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.

Performance as of 7/31/2023

Cumulative Total Return*

Fund
Net Asset Value

Fund
Market Price

J.P. Morgan Hard Currency Credit 50-50 (EMBIG Diversified and CEMBI Broad Diversified) High Yield Index(1)

Since Inception(2)

7.22%

7.49%

7.45%

  

*Total return calculated for a period of less than 1 year is not annualized

(1)The J.P. Morgan Hard Currency Credit 50-50 (EMBIG Diversified and CEMBI Broad Diversified) High Yield Index tracks liquid, US-dollar emerging market fixed and floating-rate debt instruments issued by corporate, sovereign, and quasi-sovereign entities. The index tracks instruments that are classified as high yield (HY) in the established J.P. Morgan EMBI Global Diversified and J.P. Morgan CEMBI Broad Diversified indices and combines them with an equal weight (50-50). The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

(2)Commencement of operations on December 12, 2022.

Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most

15

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the Nasdaq Stock Market (“Nasdaq”), ordinarily 4:00 p.m. Eastern time, on each day during which the Nasdaq is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.

Emerging Markets Investing: Emerging markets securities may be more volatile, or more greatly affected by negative conditions, than those of their counterparts in more established foreign markets.

Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.

Foreign Investing: Investing in foreign securities subjects the portfolio to additional risks such as increased volatility; currency fluctuations; less liquidity; less publicly available information about the foreign investment; and political, regulatory, economic, and market risk.

Junk Bonds or High Yield Securities: High yield securities are generally subject to greater levels of credit quality risk than investment grade securities.The retail secondary market for these “junk bonds” may be less liquid than that of higher-rated fixed income securities, and adverse conditions could make it difficult at times to sell these securities or could result in lower prices than higher-rated fixed income securities.These risks can reduce the value of the Fund’s shares and the income it earns.

Non-Diversified: The portfolio is not diversified and may be more susceptible to factors negatively impacting its holdings to the extent the portfolio invests more of its assets in the securities of fewer issuers than would a diversified portfolio.

Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track.The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.

Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.

No Guarantee: There is no guarantee that the Fund will meet its objective.

Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.

Virtus Stone Harbor Emerging Markets High Yield Bond ETF (continued)

16

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Value of a $10,000 Investment Since Inception at Net Asset Value

The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.

Virtus Stone Harbor Emerging Markets High Yield Bond ETF (continued)

17

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Virtus Terranova U.S. Quality Momentum ETF (JOET)

How did the markets perform during the ETF’s fiscal year ended July 31, 2023?

U.S. equities rebounded during the first half of the fiscal year, surprising many investors after their sharp decline in 2022. The tech-heavy Nasdaq Composite® Index had its best half-year in 40 years. The U.S. economy proved resilient in the face of the Federal Reserve’s (the Fed’s) aggressive monetary policy tightening and was able to avoid a much-anticipated recession.

Higher interest rates set off a regional banking crisis in March 2023 with the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. After hitting 40-year highs in the summer of 2022, inflation marched steadily down during the fiscal year. Investors were hopeful that this would provide an open door for the Fed to pause on lifting interest rates.

The S&P 500® Index returned 13.02% for the 12 months ended July 31, 2023, as the information technology and the communication services sectors were the best performers, while interest-rate sensitive groups including real estate and utilities were the leading detractors.

What factors affected the performance of the ETF during its fiscal year?

For the 12 months ended July 31, 2023, the Fund’s total return based on net asset value (NAV) was 9.72%. The Fund’s total return based on market price was 9.67%. For the same period, the Terranova U.S. Quality Momentum Index returned 10.17%. Tracking error largely reflected the Fund’s expense ratio and trading and management costs.

Positive contributors to Fund performance included positions in the financials, information technology, and consumer discretionary sectors. Arch Capital Group, Broadcom, and D.R. Horton were the largest contributors for the fiscal year.

Specific names in the consumer discretionary, information technology, consumer staples, and health care sectors detracted from Fund performance. The largest negative contributors were Tesla, Enphase Energy, and Advanced Micro Devices. The Fund no longer holds Enphase Energy at the fiscal year end.

The preceding information is the opinion of the investment adviser. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Statements of fact are from sources considered reliable, but the investment adviser makes no representation or warranty as to their completeness or accuracy. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.

Performance as of 7/31/2023

Average Annual Total Return

Fund
Net Asset Value

Fund
Market Price

Terranova U.S. Quality
Momentum Index
(1)

1 Year

9.72%

9.67%

10.17%

Since Inception(2)

7.32%

7.32%

7.76%

  

(1)The Terranova U.S. Quality Momentum Index is an equally weighted index designed to provide diversified exposure to quality momentum large-cap equities listed in the United States. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

(2)Commencement of operations on November 17, 2020.

Performance data quoted represents past performance and past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. For the most current month-end performance data please visit www.virtusetfs.com or call toll free (800) 243-4361. Market price returns are based on the mid-point of the highest bid and lowest offer for Fund shares as of the scheduled close of regular trading on the Nasdaq Stock Market (“Nasdaq”), ordinarily 4:00 p.m. Eastern time, on each day during which the Nasdaq is open for trading, and do not represent the returns an investor would receive if shares were traded at other times.

Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.

Momentum Factor Investing: Momentum investing is subject to the risk that the securities may be more volatile than the market as a whole. There may be periods when the momentum style of investing is out of favor and therefore, the investment performance of the portfolio may suffer.

18

Management’s Discussion of Fund Performance (unaudited) (continued)

July 31, 2023

Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the underlying Index may result in the portfolio holding securities regardless of market conditions or their current or projected performance. This could cause the portfolio’s returns to be lower than if the portfolio employed an active strategy.

Momentum Factor Investing: Momentum investing is subject to the risk that the securities may be more volatile than the market as a whole. There may be periods when the momentum style of investing is out of favor and therefore, the investment performance of the portfolio may suffer.

Quality Factor Investing Risk: Investing based on a quality factor is subject to the risk that the past performance of these companies’ securities does not continue or that the returns on a quality style of investing are less than returns on other styles of investing or the overall stock market .

Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track.The costs of owning the ETF may exceed the cost of investing directly in the underlying securities.

Market Price/NAV: Shares of ETFs often trade at a discount to their net asset value, which may increase investors’ risk of loss. At the time of sale, an investor’s shares may have a market price that is above or below the Fund’s NAV.

No Guarantee: There is no guarantee that the Fund will meet its objective.

Prospectus: For additional information on risks, please see the Fund’s prospectus. The Fund may not be suitable for all investors.

Value of a $10,000 Investment Since Inception at Net Asset Value

The chart above represents historical performance of a hypothetical investment of $10,000 over the life of the Fund, assuming reinvestment of distributions. Past performance does not guarantee future results.

Virtus Terranova U.S. Quality Momentum ETF (continued)

19

Shareholder Expense Examples (unaudited)

 

We believe it is important for you to understand the impact of costs on your investment. All funds have operating expenses. As a shareholder of the Virtus Duff & Phelps Clean Energy ETF, Virtus Newfleet ABS/MBS ETF, Virtus Newfleet High Yield Bond ETF, Virtus Seix Senior Loan ETF, Virtus Stone Harbor Emerging Markets High Yield Bond ETF and Virtus Terranova U.S. Quality Momentum ETF (each, a “Fund”) you may incur two types of costs: (1) transaction costs, which include brokerage commissions that you pay when purchasing or selling shares of the Fund; and (2) ongoing costs, which include advisory fees and other fund expenses, if any. The following example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Fund and to compare these costs with the ongoing costs of investing in other funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held throughout the entire period (February 1, 2023 to July 31, 2023).

Actual expenses

The first line under each Fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your Fund under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes

The second line under each Fund in the table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line under each Fund in the table is useful in comparing ongoing Fund costs only and will not help you determine the relative total costs of owning different funds.

In addition, if these transactional costs were included, your costs would have been higher.

Beginning
Account
Value 2/01/23

Ending
Account
Value 7/31/23

Annualized
Expense
Ratios
(2)

Expenses
Paid During
the Period
(3)

Virtus Duff & Phelps Clean Energy ETF

Actual

$1,000.00

$902.70

0.59%

$2.78

Hypothetical(1)

$1,000.00

$1,021.87

0.59%

$2.96

Virtus Newfleet ABS/MBS ETF

Actual

$1,000.00

$1,022.40

0.39%

$1.96

Hypothetical(1)

$1,000.00

$1,022.86

0.39%

$1.96

Virtus Newfleet High Yield Bond ETF

Actual

$1,000.00

$1,031.20

0.49%

$2.47

Hypothetical(1)

$1,000.00

$1,022.36

0.49%

$2.46

Virtus Seix Senior Loan ETF

Actual

$1,000.00

$1,045.50

0.59%

$2.99

Hypothetical(1)

$1,000.00

$1,021.87

0.59%

$2.96

Virtus Stone Harbor Emerging Markets High Yield Bond ETF

Actual

$1,000.00

$1,023.10

0.59%

$2.96

Hypothetical(1)

$1,000.00

$1,021.87

0.59%

$2.96

Virtus Terranova U.S. Quality Momentum ETF

Actual

$1,000.00

$1,056.00

0.29%

$1.48

Hypothetical(1)

$1,000.00

$1,023.36

0.29%

$1.45

  

(1)Assuming 5% return before expenses.

(2)Annualized expense ratios reflect expenses net of waived fees or reimbursed expenses, if applicable.

(3)Expenses are calculated using each Fund’s annualized expense ratio, multiplied by the average account value for the period, multiplied by 181/365 (to reflect the six-month period).

Schedule of Investments — Virtus Duff & Phelps Clean Energy ETF

July 31, 2023

The accompanying notes are an integral part of these financial statements.

20

Security Description

Shares

Value

COMMON STOCKS - 95.1%

 

Consumer Staples - 1.2%

Darling Ingredients, Inc.*

531

$36,772

 

Energy - 2.0%

EnLink Midstream LLC*

3,430

 39,788

Green Plains, Inc.*

690

 24,502

Total Energy

 64,290

 

Industrials - 20.5%

Array Technologies, Inc.*

2,440

 46,482

Bloom Energy Corp. Class A*

1,990

 35,542

Chart Industries, Inc.*

270

 49,183

Fluence Energy, Inc.*

508

 14,854

Plug Power, Inc.*

9,542

 125,191

Prysmian SpA (Italy)

1,398

 55,720

Shoals Technologies Group, Inc. Class A*

2,240

 58,150

Sungrow Power Supply Co., Ltd.
Class A (China)

2,000

 31,203

Sunrun, Inc.*

2,652

 50,335

Vestas Wind Systems A/S (Denmark)*

4,964

 133,039

Xylem, Inc.

395

 44,536

Total Industrials

 644,235

 

Information Technology - 25.4%

Canadian Solar, Inc. (Canada)*

785

 28,386

Enphase Energy, Inc.*

971

 147,427

First Solar, Inc.*

1,318

 273,353

JA Solar Technology Co., Ltd. Class A (China)

8,820

 41,035

LONGi Green Energy Technology Co., Ltd.
Class A (China)

7,000

 29,237

Meyer Burger Technology AG (Switzerland)*

101,398

 61,103

SolarEdge Technologies, Inc.*

831

 200,653

Xinyi Solar Holdings Ltd. (China)

16,000

 17,233

Total Information Technology

 798,427

 

Materials - 1.6%

MP Materials Corp.*

2,154

 51,373

 

Utilities - 44.4%

AES Corp. (The)

2,979

 64,436

Alliant Energy Corp.

1,280

 68,787

Atlantica Sustainable Infrastructure
PLC (Spain)

1,213

 29,258

China Longyuan Power Group Corp. Ltd.
Class H (China)

41,000

 39,376

Clearway Energy, Inc. Class C

2,685

 70,911

Consolidated Edison, Inc.

1,060

 100,552

Constellation Energy Corp.

779

 75,290

Dominion Energy, Inc.

850

 45,517

EDP - Energias de Portugal SA (Portugal)

25,892

 120,991

EDP Renovaveis SA (Spain)

2,457

 46,925

Encavis AG (Germany)*

2,751

 46,112

Fortum OYJ (Finland)

6,133

 83,010

Iberdrola SA (Spain)

15,838

 197,735

NextEra Energy, Inc.

1,070

 78,431

Orsted AS (Denmark)(1)

1,776

 154,922

Security Description

Shares

Value

COMMON STOCKS (continued)

 

Utilities (continued)

RWE AG (Germany)

998

$42,938

SSE PLC (United Kingdom)

1,581

 34,198

Verbund AG (Austria)

370

 30,654

Xcel Energy, Inc.

1,106

69,379

Total Utilities

 1,399,422

 

Total Common Stocks

(Cost $3,058,887)

 2,994,519

 

PREFERRED STOCK - 0.9%

 

Utilities - 0.9%

Cia Energetica de Minas Gerais, 8.91% (Brazil)

(Cost $30,128)

11,300

 30,277

 

TOTAL INVESTMENTS - 96.0%

(Cost $3,089,015)

3,024,796

Other Assets in Excess of Liabilities - 4.0%

124,485

Net Assets - 100.0%

$3,149,281

 

*Non-income producing security.

(1)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid. At July 31, 2023, the aggregate value of these securities was $154,922, or 4.9% of net assets.

Portfolio Composition

July 31, 2023

Asset Allocation as of 07/31/2023 (based on net assets)

 

Utilities

45.3

%

Information Technology

25.4

%

Industrials

20.5

%

Energy

2.0

%

Materials

1.6

%

Consumer Staples

1.2

%

Other Assets in Excess of Liabilities

4.0

%

Total

100.0

%


Schedule of Investments — Virtus Duff & Phelps Clean Energy ETF (continued)

July 31, 2023

The accompanying notes are an integral part of these financial statements.

21

The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of July 31, 2023.

Level 1

Level 2

Level 3

Total

Asset Valuation Inputs 

Common Stocks

$2,994,519

$

$

$2,994,519

Preferred Stock

 30,277

 30,277

Total

$3,024,796

$

$

$3,024,796

Schedule of Investments — Virtus Newfleet ABS/MBS ETF

July 31, 2023

The accompanying notes are an integral part of these financial statements.

22

Security Description

Principal

Value

ASSET BACKED SECURITIES - 57.6%

 

ACC Auto Trust, Class C, Series 2021-A, 3.79%, 04/15/27(1)

$460,000

$445,993

ACC Trust, Class C, Series 2021-1, 2.08%, 12/20/24(1)

 104,806

 103,363

ACC Trust, Class C, Series 2022-1, 3.24%, 10/20/25(1)

 190,000

 182,156

Achv ABS Trust, Class B, Series 2023-3PL, 7.17%, 08/19/30(1)

 200,000

 200,068

Adams Outdoor Advertising LP, Class A2,
Series 2023-1, 6.97%, 07/15/53
(1)

 260,000

 259,946

American Credit Acceptance Receivables Trust, Class E, Series 2022-1, 3.64%, 03/13/28(1)

 160,000

 145,102

Aqua Finance Trust, Class C, Series 2019-A, 4.01%, 07/16/40(1)

 103,167

 91,042

Avis Budget Rental Car Funding AESOP LLC, Class D, Series 2021-2A, 3.04%, 09/22/25(1)

 270,000

 253,828

BHG Securitization Trust, Class A, Series 2021-A, 1.42%, 11/17/33(1)

 214,878

 200,911

Business Jet Securities LLC, Class A, Series 2021-1A, 2.16%, 04/15/36(1)

 68,422

 62,512

BXG Receivables Note Trust, Class A, Series 2022-A, 4.12%, 09/28/37(1)

 81,641

 77,437

Cajun Global LLC, Class A2, Series 2021-1, 3.93%, 11/20/51(1)

 215,050

 184,557

Carvana Auto Receivables Trust, Class D, Series 2021-N3, 1.58%, 06/12/28

 310,000

 291,475

CFMT Issuer Trust, Class A, Series 2021-GRN1, 1.10%, 03/20/41(1)

 35,418

 33,037

CLI Funding VI LLC, Class A, Series 2020-1A, 2.08%, 09/18/45(1)

 88,563

 77,188

CPS Auto Receivables Trust, Class E, Series 2019-D, 3.86%, 10/15/25(1)

 65,000

 63,884

Dext ABS LLC, Class A, Series 2020-1, 1.46%, 02/16/27(1)

 98

 98

Diamond Resorts Owner Trust, Class C, Series 2019-1A, 4.02%, 02/20/32(1)

 148,438

 140,259

FAT Brands Royalty LLC, Class A2, Series 2021-1A, 4.75%, 04/25/51(1)

 70,000

 64,441

FHF Trust, Class A2, Series 2023-1A, 6.57%, 06/15/28(1)

 25,000

 24,782

GLS Auto Receivables Issuer Trust, Class D, Series 2019-4A, 4.09%, 08/17/26(1)

 120,000

 116,976

GLS Auto Receivables Issuer Trust, Class D, Series 2022-2A, 6.15%, 04/17/28(1)

 135,000

 133,336

Hertz Vehicle Financing III LLC, Class C,
Series 2022-1A, 2.63%, 06/25/26
(1)

 140,000

 128,825

Hertz Vehicle Financing LLC, Class D,
Series 2022-4A, 6.56%, 09/25/26
(1)

 130,000

 123,649

HIN Timeshare Trust, Class C, Series 2020-A, 3.42%, 10/09/39(1)

 87,253

 79,958

Hotwire Funding LLC, Class C, Series 2021-1, 4.46%, 11/20/51(1)

 325,000

 270,949

Lendbuzz Securitization Trust, Class A2, Series 2023-2A, 7.09%, 10/16/28(1)

 129,000

 128,213

Lobel Automobile Receivables Trust, Class B, Series 2023-1, 7.05%, 09/15/28(1)

 130,000

 128,010

Security Description

Principal

Value

ASSET BACKED SECURITIES (continued)

 

Mariner Finance Issuance Trust, Class A,
Series 
2019-AA, 2.96%, 07/20/32
(1)

$11,522

$11,456

Mariner Finance Issuance Trust, Class A,
Series 2020-AA, 2.19%, 08/21/34
(1)

260,000

250,722

Marlette Funding Trust, Class B, Series 2023-2A, 6.54%, 06/15/33(1)

 128,000

 127,486

Mercury Financial Credit Card Master Trust, Class A, Series 2023-1A, 8.04%, 09/20/27(1)

 486,000

 489,265

NBC Funding LLC, Class A2, Series 2021-1, 2.99%, 07/30/51(1)

 297,750

 254,992

Octane Receivables Trust, Class B, Series 2021-1A, 1.53%, 04/20/27(1)

 50,000

 46,594

Oportun Funding XIV LLC, Class B, Series 2021-A, 1.76%, 03/08/28(1)

 226,583

 215,941

Oscar US Funding XII LLC, Class A4, Series 2021-1A (Japan), 1.00%, 04/10/28(1)

 120,000

 111,562

Planet Fitness Master Issuer LLC, Class A2II, Series 2018-1A, 4.67%, 09/05/48(1)

 276,225

 264,919

Taco Bell Funding LLC, Class A23, Series 2016-1A, 4.97%, 05/25/46(1)

 286,700

 276,678

Tricolor Auto Securitization Trust, Class D, Series 2022-1A, 5.38%, 01/15/26(1)

 465,000

 450,991

Upstart Securitization Trust, Class A, Series 2022-2, 4.37%, 05/20/32(1)

 176,128

 174,416

Upstart Securitization Trust, Class B, Series 2021-3, 1.66%, 07/20/31(1)

 225,000

 217,757

Veros Auto Receivables Trust, Class B, Series 2021-1, 1.49%, 10/15/26(1)

 300,000

 292,122

VFI ABS LLC, Class D, Series 2022-1A, 6.68%, 11/26/29(1)

 100,000

 94,678

ZAXBY’S Funding LLC, Class A2, Series 2021-1A, 3.24%, 07/30/51(1)

 151,900

 126,471

Total Asset Backed Securities

(Cost $7,766,603)

7,418,045

 

MORTGAGE BACKED SECURITIES - 40.0%

 

Commercial Mortgage Backed Securities - 9.9%

BPR Trust, Class A, Series 2021-KEN, 6.25%, (SOFR + 1.36%), 02/15/29(1)(2)

 375,000

 369,155

BPR Trust, Class A, Series 2022-OANA, 7.12%, (SOFR + 1.90%), 04/15/37(1)(2)

 265,000

 259,639

Bx Trust 2018-Gw, Class B, Series 2018-GW, 6.54%, (SOFR + 1.32%), 05/15/35(1)(2)

 165,000

 163,267

COMM Mortgage Trust, Class D, Series 2012-CR2, 5.04%, 08/15/45(1)(2)(3)

 8,470

 8,078

Extended Stay America Trust, Class C,
Series 2021-ESH, 7.04%, (SOFR + 1.81%), 07/15/38
(1)(2)

 220,989

 216,497

Galton Funding Mortgage Trust 2017-1, Class A23, Series 2018-1, 3.50%, 11/25/57(1)(2)(3)

 120,450

 108,056

KNDL Mortgage Trust, Class A, Series 2019-KNSQ, 6.22%, (SOFR + 1.00%),
05/15/36
(1)(2)

 100,000

 99,587

Stack Infrastructure Issuer LLC, Class A2, Series 2019-1A, 4.54%, 02/25/44(1)

 47,699

 47,064

Total Commercial Mortgage Backed Securities

 1,271,343 

 


Schedule of Investments — Virtus Newfleet ABS/MBS ETF (continued)

July 31, 2023

The accompanying notes are an integral part of these financial statements.

23

Security Description

Principal

Value

MORTGAGE BACKED SECURITIES (continued)

 

Residential Mortgage Backed Securities - 30.1%

Angel Oak Mortgage Trust, Class A2, Series 2021-3, 1.31%, 05/25/66(1)(2)(3)

$62,562

$51,384

BRAVO Residential Funding Trust, Class A1, Series 2021-A, 1.99%, 10/25/59(1)(4)

 219,816

 211,064

CAFL Issuer LLC, Class A1, Series 2021-RTL1, 2.24%, 03/28/29(1)(4)

 150,000

 139,464

Cascade MH Asset Trust, Class A1, Series 2021-MH1, 1.75%, 02/25/46(1)

 89,856

 76,743

COLT Mortgage Loan Trust, Class A1, Series 2021-2R, 0.80%, 07/27/54(1)

 51,195

 43,906

CoreVest American Finance Trust, Class A, Series 2020-3, 1.36%, 08/15/53(1)

 116,381

 105,252

Ellington Financial Mortgage Trust, Class A1, Series 2020-1, 2.01%, 05/25/65(1)(2)(3)

 168,524

 161,410

Ellington Financial Mortgage Trust, Class A1, Series 2020-2, 1.18%, 10/25/65(1)(2)(3)

 46,049

 41,319

Ellington Financial Mortgage Trust, Class A2, Series 2021-1, 1.00%, 02/25/66(1)(2)(3)

 45,838

 38,212

FirstKey Homes Trust, Class D, Series 2021-SFR1, 2.19%, 08/17/38(1)

 130,000

 112,650

Intown Mortgage Trust, Class A, Series 2022-STAY, 7.71%, (SOFR + 2.49%), 08/15/39(1)(2)

 170,000

 170,518

JPMorgan Trust, Class A2, Series 2015-5, 5.97%, 05/25/45(1)(2)(3)

 342,255

 338,430

LHOME Mortgage Trust, Class A1, Series 2021-RTL2, 2.09%, 06/25/26(1)(4)

 100,000

 98,322

MetLife Securitization Trust, Class A1A, Series 2019-1A, 3.75%, 04/25/58(1)(2)(3)

 123,202

 117,975

New Residential Mortgage Loan Trust, Class A3, Series 2017-2A, 4.00%, 03/25/57(1)(2)(3)

 29,059

 27,248

New Residential Mortgage Loan Trust, Class A1, Series 2021-NQ2R, 0.94%,
10/25/58
(1)(2)(3)

 37,687

 33,741

Newrez Warehouse Securitization Trust, Class B, Series 2021-1, 6.31%, (1-Month USD LIBOR + 0.90%), 05/25/55(1)(2)

 138,667

 137,831

Progress Residential Trust, Class A, Series 2020-SFR3, 1.29%, 10/17/27(1)

 99,280

 89,869

Progress Residential Trust, Class B, Series 2019-SFR3, 2.57%, 09/17/36(1)

 265,000

 254,198

Progress Residential Trust, Class C, Series 2021-SFR1, 1.56%, 04/17/38(1)

 100,000

 87,996

PRPM LLC, Class A1, Series 2021-2, 2.12%, 03/25/26(1)(2)(3)

 82,321

 78,211

PRPM LLC, Class A1, Series 2021-3, 1.87%, 04/25/26(1)(4)

 66,877

 62,804

PRPM LLC, Class A1, Series 2021-RPL1, 1.32%, 07/25/51(1)(4)

 101,199

 88,631

Residential Mortgage Loan Trust, Class A1, Series 2020-1, 2.38%, 01/26/60(1)(2)(3)

 13,888

 13,205

SG Residential Mortgage Trust, Class A1, Series 2019-3, 2.70%, 09/25/59(1)(2)(3)

 2,405

 2,337

SG Residential Mortgage Trust, Class A3, Series 2021-1, 1.56%, 07/25/61(1)(2)(3)

 32,508

 25,190

Star Trust, Class A1, Series 2021-1, 1.22%, 05/25/65(1)(2)(3)

 136,111

 117,349

Security Description

Principal

Value

MORTGAGE BACKED SECURITIES (continued)

 

Residential Mortgage Backed Securities (continued)

Starwood Mortgage Residential Trust, Class A1, Series 2020-1, 2.28%, 02/25/50(1)(2)(3)

$60,983

 $56,686

Towd Point HE Trust, Class M1, Series 2021-HE1, 1.50%, 02/25/63(1)(2)(3)

26,609

25,061

Tricon American Homes Trust, Class B, Series 2020-SFR2, 1.83%, 11/17/39(1)

 130,000

 110,419

VCAT LLC, Class A1, Series 2021-NPL5, 1.87%, 08/25/51(1)(4)

 66,973

 62,239

VCAT LLC, Class A1, Series 2021-NPL4, 1.87%, 08/25/51(1)(4)

 177,882

 166,116

VCAT LLC, Class A1, Series 2021-NPL6, 1.92%, 09/25/51(1)(4)

 100,882

 93,135

Verus Securitization Trust, Class A1, Series 2021-R2, 0.92%, 02/25/64(1)(2)(3)

 50,740

 43,881

Verus Securitization Trust, Class A1, Series 2020-4, 1.50%, 05/25/65(1)(4)

 130,711

 119,928

Verus Securitization Trust, Class A1, Series 2021-3, 1.05%, 06/25/66(1)(2)(3)

 236,062

 198,781

Verus Securitization Trust, Class A1, Series 2023-1, 5.85%, 12/25/67(1)(4)

 138,799

 137,326

Visio Trust, Class A2, Series 2019-2, 2.92%, 11/25/54(1)(2)(3)

 25,227

 23,895

Visio Trust, Class A1, Series 2020-1R, 1.31%, 11/25/55(1)

 130,519

 116,049

Total Residential Mortgage Backed Securities

 3,878,775 

Total Mortgage Backed Securities

(Cost $5,384,417)

 5,150,118 

 

CORPORATE BOND - 2.2%

 

Industrials - 2.2%

Alaska Airlines Pass-Through Trust, Class A, Series 2020-1, 4.80%, 08/15/27(1)

(Cost $293,639)

 297,491

 288,953

 

TOTAL INVESTMENTS - 99.8%

(Cost $13,444,659)

12,857,116 

Other Assets in Excess of Liabilities - 0.2%

28,808

Net Assets - 100.0%

$12,885,924 

 

(1)Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid. At July 31, 2023, the aggregate value of these securities was $12,565,641, or 97.5% of net assets.

(2)Variable rate instrument. The interest rate shown reflects the rate in effect at July 31, 2023.

(3)Adjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions.

(4)Represents step coupon bond. Rate shown reflects the rate in effect as of July 31, 2023.

Abbreviations:

LIBOR — London InterBank Offered Rate

SOFR — Secured Overnight Financing Rate

USD —  United States Dollar


Schedule of Investments — Virtus Newfleet ABS/MBS ETF (continued)

July 31, 2023

The accompanying notes are an integral part of these financial statements.

24

Portfolio Composition

July 31, 2023

Asset Allocation as of 07/31/2023 (based on net assets)

 

Asset Backed Securities

57.6

%

Mortgage Backed Securities

40.0

%

Corporate Bond

2.2

%

Other Assets in Excess of Liabilities

0.2

%

Total

100.0

%

The following table summarizes valuation of the Fund’s investments under the fair value hierarchy levels as of July 31, 2023.

Level 1

Level 2

Level 3