A seemingly more hawkish tone from the Federal Reserve weighed on bond prices in the first quarter, as worries grew that the Fed might begin to scale back its latest quantitative easing program, or "QE3." The prospect of an earlier-than-expected end to the QE3 program, which has included large amounts of mortgage-backed securities (MBS), weighed particularly on the market for GNMAs and other MBS. Additionally, Asian investors, who normally provide fairly consistent demand for GNMA securities, were largely absent from the market in the first quarter due to seasonal factors such as profit taking. Appetite for MBS marginally improved into quarter-end, however, as higher yields began to attract some private investors back to the market alongside the Federal Reserve. The supply of new securities from mortgage originators has also been lighter than normal, making for a better technical backdrop.
The Summit GNMA Fund returned −0.07% in the quarter compared with −0.21% for the Barclays U.S. GNMA Index and −0.03% for the Lipper GNMA Funds Average. For the 12 months ended March 31, 2013, the fund returned 2.14% versus 1.80% for the Barclays U.S. GNMA Index and 1.97% for the Lipper GNMA Funds Average. The fund's average annual total returns were 2.14%, 5.25%, and 4.63% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.61% as of its fiscal year ended October 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.
Security selection was the single largest factor boosting relative performance during the first quarter. A large underweight to lower-coupon bonds benefited performance most, as hints that the Fed may end its large-scale asset program earlier than anticipated hurt this segment. Even a tapered decrease in purchases in the second half of 2013 would put technical pressure on the market as demand from the Fed was removed. Our slightly above-average exposure to changes in interest rates marginally detracted from performance as long-term rates increased during the quarter.
With valuations stretched in many fixed income sectors, we believe the importance of careful research into individual securities is more important than ever. In addition, the Federal Reserve's current accommodative policy may lead to a lower return environment for fixed income investors persisting for some time. Nevertheless, we are confident that we will be able to work with our extensive staff of analysts to seize opportunities as they become available.