High yield bonds posted strong returns and outperformed other fixed income sectors in the fourth quarter. Junk bond yields have remained historically low, but due to the strong demand for higher-yielding investments, new issuance set an annual record in 2013. While companies are benefiting from reducing their debt service costs and are pushing out the due dates on their borrowings, underwriters are capitalizing on the robust demand, making the terms on new offerings largely unfavorable for investors. As a result, we remain selective about the new issues that are bought and held.
The High Yield Fund returned 3.71% in the quarter compared with 3.45% for the Credit Suisse High Yield Index and 3.17% for the Lipper High Yield Funds Average. For the 12 months ended December 31, 2013, the fund returned 9.07% versus 7.53% for the Credit Suisse High Yield Index and 6.82% for the Lipper High Yield Funds Average. The fund's average annual total returns were 9.07%, 17.21%, and 8.00% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 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 generate strong cash flow and earnings. The largest industry exposures include energy, financials, and services. Credit selection was a strong performance driver, especially in airlines, energy, financials, and services, but credit selection in wireless communications and utilities hurt the portfolio comparison with the benchmark. We continue to expand our investment opportunity set and have added to allocations in bank loans and European high yield bonds. Our focus in the European market is on B rated bonds with relatively short maturities that yield more than comparable-quality U.S. issues.
In our view, high yield is still one of the best places to invest in the fixed income universe as demand for yield shows no sign of abating. Many of the companies in the portfolio are generating healthy free cash flow. 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.