Heightened concerns about slowing growth in China and ongoing uncertainty about the timing of the Federal Reserve's first interest rate hike since 2006 created considerable volatility in U.S. Treasuries during the quarter. Treasuries enjoyed strong demand in August after China's unexpected devaluation of its yuan set off a flight to quality and again in September when the U.S. Federal Reserve kept interest rates on hold.
The U.S. Bond Enhanced Index Fund returned 1.09% in the quarter compared with 1.23% for the Barclays U.S. Aggregate Bond Index and 0.54% for the Lipper Core Bond Funds Average. For the 12 months ended September 30, 2015, the fund returned 2.63% versus 2.94% for the Barclays U.S. Aggregate Bond Index and 1.74% for the Lipper Core Bond Funds Average. The fund's average annual total returns were 2.63%, 3.03%, and 4.60% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.30% as of its fiscal year ended October 31, 2014.
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 of interest rates. Underperformance was the result of an overweight to investment-grade corporate bonds, which weighed on performance as heavy issuance pushed spreads wider, and an underweight to U.S Treasuries, which were solid performers amid the risk-off sentiment of the quarter.
Although the timing of a Fed rate increase is uncertain, and could come as soon as December, we anticipate that the pace of rate hikes will be measured relative to historical cycles of monetary policy tightening. We expect an uptick in fixed income market volatility up to and around the time of the Fed's rate liftoff, but we don't anticipate a major liquidity crunch. Against this backdrop of uncertainty, investors may be well served by the highly diversified approach of an index bond portfolio.