Investment-grade corporate bonds, which tend to move in tandem with Treasuries to a greater degree than high yield debt, benefited from a rally in Treasuries. Strong investor demand and a pickup in merger and acquisition activity also helped push returns higher. Credit spreads on investment-grade corporate bonds, which measure the additional yield that investors demand as compensation for holding a bond with credit risk versus a similar-maturity Treasury security, narrowed to 97 basis points near the end of the quarter, according to Barclays data. The last time that investment-grade credit spreads were below 100 basis points was in July 2007.
The Corporate Income Fund returned 3.09% in the quarter compared with 2.66% for the Barclays U.S. Corporate Investment Grade Bond Index and 2.94% for the Lipper Corporate Debt Funds BBB-Rated Average. For the 12 months ended June 30, 2014, the fund returned 8.82% versus 7.73% for the Barclays U.S. Corporate Investment Grade Bond Index and 7.85% for the Lipper Corporate Debt Funds BBB-Rated Average. The fund's average annual total returns were 8.82%, 8.85%, and 6.08% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.62% as of its fiscal year ended May 31, 2013.
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We maintained an overweight in real estate investment trusts in light of the positive risk/reward balance within the sector. We slightly reduced our exposure to media but were still able to find opportunities in the group. In the natural gas segment, we focused on energy infrastructure rather than direct commodity exposure. In transportation, we favor long-term railroad bonds and airline equipment trust certificates. We maintained a significant underweight in defensive industries, including health care/pharmaceutical securities, which carry unappealing valuations. In financials, we prefer larger U.S. banks over regional banks and banks domiciled outside the U.S. We continue to find value in BBB rated segments, especially in the industrials area.
Interest rates are likely to move higher in the coming months, but we believe the rise will occur in an orderly fashion. Therefore, we remain optimistic about our investment strategy. Changes are coming, but we do not think they will be unsettling enough to roil the fixed income markets or trigger an abnormal degree of volatility. We continue to search for value and seek out securities offering reasonable yields without taking on an inordinate level of risk. As always, our investment team continues its commitment to a risk-conscious, fundamentally based investment approach and long-term perspective.