The UK's late-June vote to leave the European Union took financial markets by surprise and extended a rally in safe-haven government bonds from developed markets, driving their already-low (or negative) yields even lower. (Bond prices and yields move in opposite directions.) At the same time, the Federal Reserve's perceived dovishness supported fixed income securities with credit risk. In addition, the price of Brent crude oil, the worldwide benchmark, climbed above $50 per barrel after starting the quarter at about $36, benefiting high yield and emerging markets bonds. The Japanese yen gained over 9% against the U.S. dollar, while the euro fell about 2.5%. Emerging market currencies were mixed versus the dollar.
The Global Multi-Sector Bond Fund returned 3.12% in the quarter compared with 2.19% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and 2.39% for the Lipper Global Income Funds Average. For the 12 months ended June 30, 2016, the fund returned 5.60% versus 5.71% for the Barclays Global Aggregate ex Treasury Bond USD Hedged Index and 4.38% for the Lipper Global Income Funds Average. The fund's average annual total returns were 5.60%, 4.24%, and 7.46% for the 1-, 5-, and Since Inception (12/15/2008) periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.82% as of its fiscal year ended May 31, 2015.
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.
With potentially more volatility on the horizon, we have kept the portfolio positioned with a relatively low level of risk compared with the past. Security and currency selection remain crucial, and we rely on our analysts to provide ideas to generate incremental returns. At the end of the quarter, the portfolio's duration was slightly shorter than that of the benchmark as a result of the very low yields in many markets. (Duration is a measure of sensitivity to changes in interest rates.) We were underweight duration in developed markets and overweight duration in selected emerging markets. The portfolio was positioned to benefit from strengthening in the U.S. dollar for much of the quarter. Near the end of the period, we began to build small new positions in select emerging market currencies.
Despite the relatively mild risk-off initial reaction to Brexit, the fallout from the UK vote could still weigh on global markets. There is also the risk that another downturn in oil prices, an abrupt slowdown in China's economic growth, or even a global recession could trigger selling pressure. With no particular sectors currently offering high-conviction relative value, we maintain a balanced portfolio and anticipate that security selection within sectors will generate the bulk of the portfolio's excess returns. However, the portfolio currently maintains ample allocations to higher-liquidity sectors, such as global developed market sovereigns and agency mortgage-backed securities, which may allow us to add value to the fund by taking tactical advantage of attractive valuations as they arise.