The U.S. economy grew at 1.8% in the first half of the year and the effects of federal sequestration continued to weigh on growth in the third quarter. To support the economy, the Federal Reserve kept its fed funds target rate in the 0.00% to 0.25% range. The Federal Open Market Committee (FOMC) elected not to reduce the pace of asset purchases at the September 17-18 meeting. However, we still expect the first tapering by year-end and modest rate hikes at some point in mid-2015. The policy-setting FOMC sees the target fed funds rate at 1% at the end of 2015 and expects it to be at 2% a year later. This gradual removal of accommodation should allow for short-term bond yields to rise, which would mean more income for shareholders.
The Maryland Short-Term Tax-Free Bond Fund returned 0.55% in the quarter compared with 0.20% for the Lipper Short Municipal Debt Funds Average. For the 12 months ended September 30, 2013, the fund returned 0.03% versus −0.07% for the Lipper Short Municipal Debt Funds Average. The fund's average annual total returns were 0.03%, 1.62%, and 1.87% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.53% as of its fiscal year ended February 28, 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.
Given that the yield on virtually all short- and intermediate-term Maryland securities has fallen to very low levels, we opted to add to our holdings in longer-maturity state and local general obligations to generate additional current income. The shift benefited the portfolio's overall credit quality. However, we were careful not to increase the portfolio's interest rate risk as measured by the fund's weighted average maturity and duration characteristics. Revenue bonds continue to account for a large portion of the portfolio, and we intend to add to holdings in lower-rated categories if and when the opportunity presents itself. However, at this time, there is minimal availability in lower-rated Maryland credits.
Short-term Maryland bond yields remain at very low levels, anchored by the Fed's 0% interest policy. However, we believe that the market will begin to anticipate a change in the Fed's outlook, pushing up short-term rates sooner than expected. That said, we believe that tepid economic growth and benign inflation will keep the Fed from aggressively increasing short-term rates. As always, our unwavering focus is on providing tax-exempt income for Maryland residents while allowing only moderate fluctuation in principal.