High yield bonds outperformed versus most other fixed income asset classes in a period dominated by concerns about Fed policy and rising interest rates. Lower-quality (CCC rated) credits in the high yield market generated better returns than higher-quality (BB rated) bonds. Following a typical summer slowdown, junk bonds rallied in September, especially after the Fed's decision to continue its asset purchase plan at current levels-surprising most investors who had expected the Fed to begin tapering its asset purchase program. Additionally, sentiment improved as the threat of U.S. military action in Syria subsided.
The High Yield Fund returned 2.57% in the quarter compared with 2.39% for the Credit Suisse High Yield Index and 2.21% for the Lipper High Yield Funds Average. For the 12 months ended September 30, 2013, the fund returned 8.52% versus 7.21% for the Credit Suisse High Yield Index and 6.71% for the Lipper High Yield Funds Average. The fund's average annual total returns were 8.52%, 11.71%, and 8.22% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.74% as of its fiscal year ended May 31, 2013.
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 High Yield Fund charges a 2%
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.
Overall, the companies in the portfolio remain fundamentally sound and generated strong cash flow and earnings. The portfolio's largest industry exposures include energy, financials, and services. Credit selection was a strong driver of the portfolio's outperformance, especially in the services, airlines, and containers segments. Credit selection and an underweight allocation to high-risk, lower-quality holdings in the energy sector detracted. The portfolio also holds a modest allocation to equity-linked securities, which benefited results in the period. We continue to expand our investment opportunity set and have added high yield bonds issued by several European companies, which contributed to relative performance.
We remain optimistic on the prospects for the high yield market. Many of the companies in the portfolio are generating healthy free cash flow and a large portion of the recent new issuance has been refinancing related, leading to lower interest payment costs and a significant reduction in near-term maturities. Both of these factors should contribute to a low default rate environment. As always, our goal is to deliver high current income and attractive total returns over time while seeking to contain the volatility inherent in this market. We will continue our commitment to credit research and risk-conscious investing, which we believe is prudent for a portfolio that invests in a riskier area of the bond market.