Improving economic growth in the eurozone and the U.S., stabilization in oil prices, and a weaker U.S. dollar all contributed to yield increases on core eurozone government and U.S. Treasury bonds. The Treasury yield curve steepened as longer-term yields climbed more than shorter-term rates. While the Federal Reserve did not raise interest rates at its June policy meeting, generally strong U.S. economic data indicated that the central bank may begin to tighten monetary policy before the end of the year. Higher yielding, shorter duration assets outperformed U.S. investment-grade corporate bonds. Emerging market bonds generated positive returns according to Barclays indexes, with debt issued by corporations in developing countries faring better than emerging market sovereigns. The U.S. dollar lost ground against the euro but gained against the yen.
The Global Multi-Sector Bond Fund returned −0.23% in the quarter compared with −1.89% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and −1.78% for the Lipper Global Income Funds Average. For the 12 months ended June 30, 2015, the fund returned −0.56% versus 2.23% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and −4.04% for the Lipper Global Income Funds Average. The fund's average annual total returns were −0.56%, 4.71%, and 7.75% for the 1-, 5-, and Since Inception (12/15/2008) periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.84% as of its fiscal year ended May 31, 2014.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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With Fed tightening on the horizon, we have positioned the portfolio defensively by trimming exposure to emerging market corporates and dollar-denominated sovereigns while increasing holdings of developed-market government bonds. We continue to hold meaningful allocations to high yield bonds and emerging market local bonds for income and appreciation potential. Security and currency selection is crucial, and we rely on our analysts to provide ideas to generate incremental returns. We tactically increased the portfolio's overall duration (a measure of sensitivity to changes in interest rates) as yields rose, but our exposure to short-maturity rates is still low because of our expectation for future Fed rate increases.
The monetary policies of the world's major central banks will likely continue to dominate the global interest rate environment. While the central banks of the eurozone and Japan are aggressively purchasing assets in an effort to stimulate economic growth, the Fed's move toward tightening monetary policy should eventually create an upward bias for U.S. interest rates. This divergence in central bank policies, along with the uncertainty inherent in the Greece situation, could lead to increased volatility in global fixed income markets as well as more relative value opportunities. The portfolio currently maintains ample allocations to more-liquid sectors, such as Treasuries and agency mortgage-backed securities, which will allow us to capitalize on short-term dislocations.