Bond returns were mixed in the quarter. Long-term Treasury interest rates declined to their lowest levels in more than one year but rose above their late August lows in September. Short- and intermediate-term Treasury note yields increased as investors began to anticipate the onset of Federal Reserve rate hikes. Long-term Treasuries did well, but agency mortgage-backed, asset-backed, and corporate securities were mostly flat.
The U.S. Bond Enhanced Index Fund returned 0.25% in the quarter compared with 0.17% for the Barclays U.S. Aggregate Bond Index and −0.07% for the Lipper Core Bond Funds Average. For the 12 months ended September 30, 2014, the fund returned 4.19% versus 3.96% for the Barclays U.S. Aggregate Bond Index and 4.32% for the Lipper Core Bond Funds Average. The fund's average annual total returns were 4.19%, 4.06%, and 4.58% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.30% as of its fiscal year ended October 31, 2013.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The U.S. Bond Enhanced Index Fund charges a 0.5%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
Selection among investment-grade corporate bonds was the largest contributor to relative performance. Our conservative positioning helped as increased supply caused a widening in credit spreads (the additional yield offered by riskier securities). Our overweight allocation to corporates weighed on performance, however, due to heavy new issuance that outpaced even robust demand. Security selection among mortgage-backed securities also contributed well, as we have limited our holdings of the low-coupon issues that are seeing less demand from the Federal Reserve as part of its dwindling asset purchase program.
Our objective will remain to closely track the performance of the Barclays U.S. Aggregate Bond Index after fees, but we will attempt to compensate for fund expenses by seeking modest additional return, mainly through small variations in sector weightings. We will also employ what is referred to as "curve positioning" or "duration management," which are adjustments in the mix of maturities of our holdings based on our view of interest rates. Currently, we are invested in intermediate-term issues, which reflects our belief that near-term rate increases related to Fed policy normalization will be most concentrated in this part of the yield curve.