U.S. stocks rose modestly for the quarter as a strong rally in the latter half of the period erased earlier losses. Worries that a slowing global economy might drag the U.S. down caused markets to get off to a poor start in 2016. However, market sentiment rebounded in mid-February amid higher oil prices and improved U.S. economic data. Domestic fixed income securities produced positive returns, as intermediate- and long-term Treasury yields declined. High yield bonds produced good returns amid reduced risk aversion and rebounding commodity prices in the latter part of the quarter. Government bonds in developed non-U.S. countries produced strong returns, as did emerging markets debt.
The Spectrum Income Fund returned 3.68% in the quarter compared with 3.03% for the Barclays U.S. Aggregate Bond Index and 1.41% for the Lipper Multi-Sector Income Funds Average. For the 12 months ended March 31, 2016, the fund returned 0.73% versus 1.96% for the Barclays U.S. Aggregate Bond Index and −1.69% for the Lipper Multi-Sector Income Funds Average. The fund's average annual total returns were 0.73%, 4.08%, and 5.41% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2015.
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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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We have a neutral position in dividend-paying stocks versus bonds. Equity markets rallied from their mid-February lows, but earnings growth has fallen. As a result, valuations are modestly above historical averages with less support from earnings and revenue growth and declining margins. We moved to a modest overweight to high yield relative to investment-grade bonds as wider spreads present a favorable long-term buying opportunity. We moved to a modest overweight to emerging market bonds relative to U.S. investment-grade bonds based upon attractive yield levels and reduced expectations for higher U.S. interest rates.
Our global growth expectations remain modest as weak global trade and lower commodity prices weigh on global economies. The U.S. Federal Reserve downgraded its economic growth and inflation expectations for 2016, while remaining committed to interest rate policy normalization at a "gradual" pace. Central bank policies in Europe, Japan, and some emerging markets continue to diverge from the U.S. as they implement quantitative easing measures and negative interest rates to stimulate growth. Key risks to global markets include the impacts of global monetary policy actions, including the potential adverse consequences of negative interest rates on banking sector profitability, increased currency volatility, and political and policy uncertainties facing many countries already weighed down by weaker growth.