U.S. Treasuries were volatile but finished with gains, marking the fifth consecutive quarter of positive returns for U.S. government debt. The Federal Reserve prepared markets for an eventual interest rate increase, which appears likely to take place sometime later in 2015. The European Central Bank expanded its asset purchase program to include sovereign bonds, driving yields on high-quality eurozone sovereign debt to historically low levels. The U.S. dollar's remarkable strength against many other currencies continued in the first quarter, dragging returns on most non-U.S. dollar-denominated debt into negative territory for U.S.-based investors. However, dollar-denominated emerging market bonds generated solid returns.
Global Multi-Sector Bond Fund returned 1.03% in the quarter compared with 1.76% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and 0.02% for the Lipper Global Income Funds Average. For the 12 months ended March 31, 2015, the fund returned 2.46% versus 6.60% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and −0.04% for the Lipper Global Income Funds Average. The fund's average annual total returns were 2.46%, 5.03%, and 8.11% for the 1-, 5-, and Since Inception (12/15/2008) periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.84% as of its fiscal year ended May 31, 2014.
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 portfolio maintains a broad risk "barbell" consisting of allocations to riskier sectors such as high yield bonds, emerging market debt, and leveraged loans as well as to high-quality securities (including U.S. Treasuries) that serve as a defensive anchor and a source of portfolio liquidity if needed to take advantage of market opportunities. In the current environment, no particular sector stands out as offering particularly compelling relative value, so security and currency selection is crucial and we rely on our analysts to provide ideas to generate incremental returns. We kept the portfolio's overall duration (a measure of sensitivity to interest rate changes) shorter than the duration of the benchmark. This conservative duration positioning should help relative performance in a rising interest rate environment.
Although the Fed is on track to likely tighten monetary policy later this year, we think that the ultra-low yields on European and Japanese government debt will help temper any increase in intermediate- and longer-term U.S. Treasury yields. We anticipate that the U.S. dollar's strength against developed market currencies will moderate near current levels, although many emerging market currencies will likely continue to struggle. The divergence in central bank policies between countries and regions that will move to raise rates relatively soon, such as the U.S. and the UK, and those that will likely remain accommodative (Japan and the eurozone) could lead to more opportunities to find relative value. In this environment, we believe that our strength in bottom-up, fundamental research on countries and individual securities will allow us to generate solid long-term performance.