Relatively upbeat news about the global economy and a growing appetite for riskier assets led to a modest overall loss for investment-grade bonds in the first quarter. Longer-term Treasury bond prices fell and yields rose as favorable economic data lessened their appeal as a perceived safe haven. High yield bonds benefited from robust capital markets activity, including record new issue volume and strong demand for high yield debt despite historically low yields. Mortgage-backed securities recorded a modest loss but performed a bit better than the overall investment-grade market. Higher MBS yields appear to be starting to lure some private buyers back into the market alongside the Federal Reserve. Bonds from overseas markets saw steeper losses. Falling currencies relative to the U.S. dollar weighed on bonds from developed markets, while a rise in risk aversion hampered emerging markets debt.
The Strategic Income Fund returned 1.04% in the quarter compared with 0.27% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and −0.57% for the Lipper Global Income Funds Average. For the 12 months ended March 31, 2013, the fund returned 7.41% versus 5.40% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and 5.00% for the Lipper Global Income Funds Average. The fund's 1-year and Since Inception (12/15/2008) average annual total returns were 7.41% and 10.94%, respectively, as of March 31, 2013. The fund's expense ratio was 0.94% as of its fiscal year ended May 31, 2012.
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.
Benchmark Definitions
The fund's holdings of high yield bonds and bank loans, neither of which is held in the benchmark, lifted relative results as investors gravitated to securities offering larger coupons and less interest rate risk. A modest exposure to convertible securities added value as this sector benefited from its high correlation with stocks, which rallied over the quarter. The fund's selection of emerging markets corporate debt and MBS holdings also boosted relative performance amid demand for higher yields and positive data on the U.S. housing market. Finally, interest rate management and foreign currency positions aided relative returns. The fund has currency exposure to developed and emerging markets including Mexico, Hungary, Poland, and South Africa.
We believe fiscal tightening will restrain the U.S. economy in the near term, but private sector strengthening will limit its impact and sustain growth. Political debate over raising the debt ceiling will likely generate market volatility and keep interest rates range-bound in the coming months. We anticipate that lawmakers will reach a small-scale fiscal agreement and rates will gradually move higher. Additionally, we expect the Fed will start tapering asset purchases in this year's second half if the job market continues to improve. Outside the U.S, we believe Europe will emerge from recession this year but struggle with structural problems and political uncertainty. Emerging markets' performance will become more differentiated, in contrast to previous periods when major developing countries simultaneously experienced strong, uninterrupted growth. Valuations in most fixed income sectors appear to be expensive but are supported by strong demand and low supply. Given the uncertain near-term environment, we believe that a diversified portfolio supported by intensive credit research and a consistent, risk-aware investment process will help produce good returns over the long term.
Feedback