Short-term debt posted positive absolute returns as represented by the Barclays 1-3 Year Government\Credit Index. During the second quarter, interest rates fell notably along the Treasury yield curve. Intermediate- and longer-dated bonds outperformed shorter maturities as short-term rates were little changed, while longer-term U.S. Treasury yields decreased. Domestic Treasury yields remain meaningfully higher relative to other high-quality global sovereign debt, resulting in steady demand for U.S debt from foreign investors seeking yield. Corporate bonds were also well supported by the firmer commodity prices, technical support, and accommodative central bank policies.
The Short-Term Bond Fund returned 0.81% in the quarter compared with 0.67% for the Barclays 1−3 Year U.S. Government/Credit Bond Index. For the 12 months ended June 30, 2016, the fund returned 1.53% versus 1.59% for the Barclays 1−3 Year U.S. Government/Credit Bond Index. The fund's average annual total returns were 1.53%, 1.21%, and 2.92% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.52% 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.
The Short-Term Bond Fund uses the Barclays 1-3 Year Government\Credit Index, which does not hold securitized sectors, including mortgage-backed, commercial mortgage-backed and asset-backed securities, which are held in the portfolio. We will typically underweight Treasury securities in order to build incremental yield and spread into the portfolio taking out-of-benchmark exposure in the securitized sector and by overweighting investment-grade corporates.
Given the increase in uncertainty, we are cautious about adding risk. While corporate fundamentals have passed their peak in the U.S., investor demand remains strong on the back of continued easy monetary policy from central banks. While we expect U.S. rates to stay lower for longer, we believe that Brexit will remain a headwind to the market as more details about the execution of the plan come into focus. That said, there will certainly be winners and losers, which will create opportunities for our credit analysts to exploit.