U.S. Treasuries posted their first quarterly loss since 2013 as fears of an imminent Federal Reserve rate increase outweighed demand for safe-haven assets as Greece moved toward default. (Bond prices and yields move in opposite directions.) Investment-grade corporate bonds underperformed Treasuries to post considerable losses. Heavy issuance continued to weigh on the investment-grade corporate bond market, with the supply of new bonds largely driven by merger and acquisition funding needs. As one of the few fixed income sectors that avoided posting losses for the quarter, high yield corporate bonds benefited from their relatively low sensitivity to interest rate changes.
The New Income Fund returned −1.75% in the quarter compared with −1.68% for the Barclays U.S. Aggregate Bond Index and −1.64% for the Lipper Core Bond Funds Average. For the 12 months ended June 30, 2015, the fund returned 1.26% versus 1.86% for the Barclays U.S. Aggregate Bond Index and 1.12% for the Lipper Core Bond Funds Average. The fund's average annual total returns were 1.26%, 3.40%, and 4.63% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.63% as of its fiscal year ended May 31, 2014.
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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.
Our investment approach is built on the foundation of a strong global research platform, which informs both our bottom-up selection of individual securities and our top-down decisions about sector allocations and yield curve positioning. We seek to add value in a number of ways for unitholders and to enhance returns in a range of market environments, while maintaining a highly diversified portfolio that can offer some downside protection. Security selection provided the biggest boost to returns in the period, while the portfolio's sector allocation detracted. Holdings in non-U.S. bonds detracted, but we compensated for this somewhat by the portfolio's currency positioning.
We expect continued interest rate volatility over the next few months. Current economic data suggest that the Fed remains on track to raise interest rates by the end of the year, as Fed Chair Yellen herself has noted. In addition, deflation fears have diminished globally, which has recently been seen in the sharp rise in German bond yields. For this reason, we are maintaining a short duration posture but are also limiting our exposure to the short-term securities at the front end of the yield curve. We are also keeping a close eye on liquidity conditions in the market. If rates spike and cause a fall in bond prices, the bond market could see outflows, temporarily putting a strain on more thinly traded issues. Such volatility, however, will likely offer the opportunity to add particular securities at highly attractive prices. We will continue to rely on the careful work of our global team of analysts to help sift out the individual securities where the risk/reward trade-off holds the most promise.