Bond returns were broadly positive during the quarter. U.S. investment-grade bonds rose as Treasuries rallied, driven by sluggish global growth, accommodative monetary policies worldwide, and expectations of fewer Federal Reserve interest rate increases this year than anticipated. High yield bonds advanced as commodity prices rebounded. Bonds in developed international markets advanced strongly, aided by expectations that global growth would decelerate because of Brexit and that policymakers would respond with additional monetary and fiscal stimulus. Emerging markets bonds also produced strong returns, with local currency bonds outperforming dollar-denominated debt. Large-cap dividend-paying stocks rose as investors searched for yield.
The Spectrum Income Fund returned 3.16% in the quarter compared with 2.21% for the Barclays U.S. Aggregate Bond Index and 2.82% for the Lipper Multi-Sector Income Funds Average. For the 12 months ended June 30, 2016, the fund returned 4.68% versus 6.00% for the Barclays U.S. Aggregate Bond Index and 1.75% for the Lipper Multi-Sector Income Funds Average. The fund's average annual total returns were 4.68%, 4.39%, and 5.73% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 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.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
We pared our high yield allocation back to neutral following a rally in high yield fueled by a rebound in commodity prices affecting a large proportion of high yield bond issuers. We believe the current credit cycle is showing signs of aging amid increasing leverage, weakening corporate profits, and rising default rates. We have a neutral position in dollar-denominated emerging markets bonds versus U.S. investment-grade debt. After their recent rally, emerging markets bonds appear fairly valued. There is considerable disparity, however, between emerging markets countries in their fiscal positions, political stability, and progress toward reforms, with the potential for an extended period of low commodity prices to further the divide.
We expect global economic growth to be modest and uneven. Developed markets are expanding modestly, while major emerging markets are hampered by weak global growth. The Federal Reserve has adopted a "low and slow" approach to interest rate hikes, and their timing may be further affected as they evaluate Brexit's impact on U.S. and global growth rates. Key risks to global markets include the cascading and uncertain impacts of Brexit and divergent global monetary policies, including the potentially adverse consequences of negative interest rates and currency volatility. Political and policy uncertainties facing many countries pose additional concerns. However, we believe that the broad diversification and our ability to make tactical changes in the fund's allocations should help us generate attractive risk-adjusted returns in an uncertain market environment.