Intermediate- and long-term U.S. Treasury yields decreased sharply in the first quarter, as risk aversion at the beginning of the year benefited safe-haven securities. (Bond prices and yields move in opposite directions.) Yields on long-term Treasuries finished at their lowest quarter-end levels since 2012's first quarter. The early-year volatility in global financial markets seemed to convince the Federal Reserve to delay interest rate hikes despite signs of increasing health in the U.S. economy, including a strong labor market. Investment-grade corporate bonds produced solid returns for the quarter after recovering from selling pressure at the beginning of the year. Mortgage-backed securities posted small gains as decent demand from domestic and foreign buyers offset above-average levels of new supply.
The U.S. Bond Enhanced Index Fund returned 2.91% in the quarter compared with 3.03% for the Barclays U.S. Aggregate Bond Index and 2.71% for the Lipper Core Bond Funds Average. For the 12 months ended March 31, 2016, the fund returned 1.64% versus 1.96% for the Barclays U.S. Aggregate Bond Index and 0.92% for the Lipper Core Bond Funds Average. The fund's average annual total returns were 1.64%, 3.69%, and 4.85% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 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 think that the pace of Fed rate increases will be measured relative to historical cycles of monetary policy tightening. With the Fed likely to act very gradually, the transition to higher rates may not be as painful as some fear. 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. After the strong rebound in riskier asset classes in late February and March, we are more cautious about adding risk to the portfolio.