When your core business is struggling, you double down on what's working. That's exactly what Virtus Investment Partners Inc (VRTS) is doing right now.

Last week, the firm launched the Virtus Emerging Markets Dividend ETF (VEM), an actively managed fund focused on dividend-paying companies across developing economies. The timing is interesting—the launch came just days before Virtus reported Q4 results that painted a picture of a business in transition.

AI Meets Dividend Hunting

The new ETF isn't your typical index tracker. It combines AI-driven sentiment analysis with a quantitative stock-selection model to pick opportunities within the MSCI Emerging Markets Index universe. Right now, the fund is leaning heavily into financials and information technology. Taiwan Semiconductor Manufacturing Co Ltd (TSM) holds the top spot in the portfolio—a logical choice for a strategy chasing both income and growth in emerging markets.

The launch reflects broader investor appetite for income-oriented strategies, especially ones that look beyond developed markets for yield and diversification opportunities.

The ETF Business Is Booming While Everything Else Bleeds

Virtus reported its Q4 results for the quarter ended December 31, and the numbers tell two very different stories. President and CEO George Aylward pointed to quality-focused equity strategies—which represent roughly half of total assets under management—as being decidedly out of favor with investors. That led to substantial net outflows.

But here's the bright spot: ETF assets climbed to approximately $5.2 billion, up about $500 million from the previous quarter and a whopping 72% year-over-year. The growth came from consistent net inflows and new product launches. Virtus introduced three actively managed ETFs during the quarter and has plans for several more launches over the next six months.

The Bigger Picture Looks Messier

Total assets under management stood at roughly $159 billion at year-end, down from $169 billion in the prior quarter. Net outflows hit $8.1 billion, driven primarily by those struggling equity strategies. Total sales dropped to $5.3 billion from $6.3 billion. Adjusted earnings per share slipped to $6.50 from $6.69, and operating margin ticked down to 32.4%.

Those aren't catastrophic numbers, but they're not exactly confidence-inspiring either.

Diversification Through Acquisitions

Virtus isn't just betting on ETFs to turn things around. The firm is expanding aggressively into alternative assets. Management announced a pending majority acquisition of private credit manager Keystone National Group and a minority investment in venture growth manager Crescent Cove.

The firm expects fee rates to stay in the low-40-basis-point range initially, with potential upside once the Keystone transaction gets fully integrated.

The emerging markets dividend ETF is part of a larger strategic shift toward actively managed ETFs and alternative strategies—areas management believes are essential for offsetting equity outflows and driving future growth. Whether that bet pays off will depend on how quickly investor sentiment shifts back toward active management and quality strategies.