The investment-grade corporate market delivered strong absolute performance for the first quarter on the back of increased risk appetite and global investor demand. Notably, the European Central Bank (ECB) announced in March an aggressive expansion to its quantitative easing program, increasing the size of its monthly asset purchase program and plans to broaden the asset purchases to include buying nonbank investment-grade corporate debt. In turn, European demand increased for U.S. investment-grade corporates as investors sought higher incremental yield with ECB policy likely to put downward pressure on domestic yields. In the second half of the quarter, rebounding oil and commodity prices, along with further stabilization in those markets, also helped bolster the high-grade corporate market by providing a more supportive environment for struggling industrial sectors.
The Corporate Income Fund returned 3.53% in the quarter compared with 3.97% for the Barclays U.S. Corporate Investment Grade Bond Index and 3.69% for the Lipper Corporate Debt Funds BBB-Rated Average. For the 12 months ended March 31, 2016, the fund returned 0.34% versus 0.92% for the Barclays U.S. Corporate Investment Grade Bond Index and −0.13% for the Lipper Corporate Debt Funds BBB-Rated Average. The fund's average annual total returns were 0.34%, 5.37%, and 5.69% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.62% as of its fiscal year ended May 31, 2015.
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Throughout the quarter, our strategy was to raise the overall credit quality of the portfolio in an effort to achieve an overall lower risk profile. The corporate debt rally in the second half of the quarter provided an opportunity to reduce exposure to European banks and longer-duration energy holdings. We believe the Brexit vote still represents a potential risk for banking names, and we opportunistically reduced exposure amid tighter spreads. After a notable run of good performance, we reduced the portfolio's exposure to the auto industry, which may be nearing a peak in its cycle. In terms of additions, we looked to add to non-energy industrial sectors, such as health care/pharmaceutical and telecommunication, and nonbank financials, such as insurance and real estate investment trusts (REITs). We believe these areas represent compelling opportunities for investment while being more insulated from commodity price movements, central bank policy changes, and Brexit.
Credit markets firmed as the first quarter ended as the industrial sectors rebounded and global demand saturated the high-grade corporate market. Still, corporate fundamentals are past peak in the U.S., and demand has been uneven and dependent on risk appetite and central bank policies. Despite their rebound, oil prices still trade at low historical levels, and investors remain more selective. Investor demand could face periodic challenges from widespread risk aversion if underwhelming global economic growth persists. Following a surprisingly dovish March FOMC meeting, we expect the Fed to be uniquely reactive and gradual in removing policy accommodation in the short term given the focus on global developments. Even though the Fed's pace of rate normalization is likely to be gradual, we believe the general direction of the Fed's tightening efforts will keep upward pressure on yields, particularly on the shorter end of the yield curve.