The Federal Reserve raised the federal funds target rate range by 0.25 percentage points in December. Investors widely expected the rate increase and had begun selling shorter-term Treasuries in advance of the Fed's move, pushing yields higher. At the beginning of December, the European Central Bank announced that it would cut its deposit rate and extend its asset purchase program by six months, but investors had been expecting the central bank to be even more aggressive in expanding its monetary accommodation. Eurozone sovereign bonds sold off on the news. Commodity prices continued to fall, weighing on U.S. high yield bonds. Although the performance of individual currencies of developing countries varied widely, emerging market currencies as a whole declined modestly against the U.S. dollar. The euro lost ground versus the dollar, while the yen finished the quarter little changed.
The Global Multi-Sector Bond Fund returned 1.08% in the quarter compared with 0.05% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and −0.82% for the Lipper Global Income Funds Average. For the 12 months ended December 31, 2015, the fund returned −0.04% versus 0.58% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and −3.34% for the Lipper Global Income Funds Average. The fund's average annual total returns were −0.04%, 3.40%, and 7.05% for the 1-, 5-, and Since Inception (12/15/2008) periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.82% as of its fiscal year ended May 31, 2015.
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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.
With potentially more Fed tightening and volatility on the horizon, we have positioned the portfolio with a relatively lower level of risk than in the past. We made noteworthy reductions in the fund's exposure to emerging market currencies and high yield bonds in favor of global government debt. Security and currency selection is crucial, and we rely on our analysts to provide ideas to generate incremental returns. We made tactical adjustments to the portfolio's regional duration positioning over the quarter as global central banks either met or fell short of the market's expectations for changes in monetary policy, but the fund's overall duration was longer than that of the benchmark at the end of December. (Duration is a measure of sensitivity to changes in interest rates.)
With no particular sectors currently offering high-conviction relative value, we anticipate that the bulk of the portfolio's returns in 2016 will come from tactical moves as well as security selection within sectors. The plethora of global risks, including uncertainty around global growth, commodities, economic policies, and geopolitical pressures, will likely result in additional periods of elevated volatility. Given this outlook, we will continue to focus on liquidity, which tends to be undervalued in uncertain market environments. The portfolio currently maintains ample allocations to more-liquid sectors, such as global developed market sovereigns and agency mortgage-backed securities, which may allow us to take tactical advantage of attractive valuations where we see them to add value to the fund.