High-quality domestic bonds produced positive returns, benefiting from increased demand due to global equity market declines and growth concerns, as well as the Fed's delay in raising short-term rates. The Fed, which kept the fed funds target rate in the 0.00% to 0.25% range established in late 2008, continues to anticipate that it will begin to raise short-term rates in the months ahead. In the investment-grade universe, long-term Treasuries and municipal bonds performed best, as long-term rates declined. Mortgage-backed securities also did well, but corporate bonds lagged with slight gains. High yield bond prices fell amid weakness among energy and metals and mining companies and as investors generally favored lower-risk fixed income securities. Bank or "leveraged" loans, which have less exposure to commodities, held up better than high yield issues.
The New Income Fund returned 0.77% 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 1.93% 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 1.93%, 3.00%, and 4.76% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.60% as of its fiscal year ended May 31, 2015.
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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.
The portfolio's 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 shareholders and enhance returns in a range of market environments, while maintaining a highly diversified portfolio that can offer some downside protection. Our allocation to high yield bonds and underweight to Treasuries weighed on relative returns in the period.
Regardless of exactly when the Federal Reserve hikes policy rates, we expect the anticipation of a rate hike will push rates higher, particularly at the shorter end of the yield curve. Longer-term rates could remain relatively low as long as inflation expectations remain subdued and global demand for Treasuries remains strong. The divergence in global central bank policies and other sources of uncertainty are likely to produce continued volatility in fixed income markets, thus opening opportunities to add particular securities at attractive prices. In recent months, credit sector spreads (the difference between the yield on a riskier security and that of a comparable-maturity Treasury) have broadly widened, leading to more interesting sector valuations than we have seen in some time. That said, we do not see a clear catalyst for spread tightening and expect security selection and interest rate management to play elevated roles in generating portfolio outperformance. Utilizing our global research and trading platforms, we continue to find select opportunities to add attractively valued, fundamentally sound securities within most sectors, such as corporates, commercial mortgage-backed securities, and asset-backed securities. As always, we carefully manage risk as we consider moves between sectors as well as individual securities.