Bonds performed well in the second quarter, as investor demand for safe havens boosted the prices of high-quality government bonds such as U.S. Treasuries, driving their yields lower. (Bond prices and yields move in opposite directions.) However, U.S. Treasury rates remained meaningfully higher than yields on other high-quality global sovereign debt, attracting investors into the U.S. government bond market. Investment-grade corporate bonds posted healthy returns. New issuance of asset-backed securities was relatively light, and demand for high-quality bonds offering incremental yield over Treasuries supported the segment.
The U.S. Bond Enhanced Index Fund returned 2.50% in the quarter compared with 2.21% for the Barclays U.S. Aggregate Bond Index and 2.32% for the Lipper Core Bond Funds Average. For the 12 months ended June 30, 2016, the fund returned 5.98% versus 6.00% for the Barclays U.S. Aggregate Bond Index and 4.95% for the Lipper Core Bond Funds Average. The fund's average annual total returns were 5.98%, 3.74%, and 5.14% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.30% as of its fiscal year ended October 31, 2015.
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.
The portfolio is designed for investors who want to benefit from broad exposure to investment-grade bonds. Its objective is to closely track the performance of the Barclays U.S. Aggregate Bond Index after fees, but we attempt to compensate for portfolio expenses by seeking modest additional returns through small variations in sector weightings. To a lesser extent, typically, we also employ what is referred to as duration management, or adjustments in the mix of maturities of holdings based on our view on the direction of interest rates.
We continue to think that the pace of Federal Reserve rate hikes will be measured and gradual relative to historical cycles of monetary policy tightening. At the long-term end of the yield curve, the presence of large institutional buyers and the attractive valuations of U.S. Treasuries relative to other developed markets sovereign debt could temper a rise in yields. In this volatile, changing fixed income environment, we will continue to prudently apply some active management techniques to try to generate incremental gains relative to the passive benchmark index. Our analysts have been able to find select opportunities for risk-adjusted returns within their areas of focus.