U.S. bonds generated mixed results in the three-month period. The Federal Reserve refrained from raising short-term rates, but we expect rate increases to begin later this year. Bonds in developed non-U.S. markets declined in dollar terms. In the investment-grade market, the yield on the benchmark 10-year Treasury note climbed to 2.35%, while corporate debt declined modestly. The high yield market recovered somewhat from energy-related weakness late in 2014 and outpaced investment-grade issues, supported by a bounce in oil prices, moderate levels of new issuance, and lower sensitivity to rising interest rates.
The Spectrum Income Fund returned −0.74% in the quarter compared with −1.68% for the Barclays U.S. Aggregate Bond Index and −0.42% for the Lipper Multi-Sector Income Funds Average. For the 12 months ended June 30, 2015, the fund returned −1.20% versus 1.86% for the Barclays U.S. Aggregate Bond Index and −0.36% for the Lipper Multi-Sector Income Funds Average. The fund's average annual total returns were −1.20%, 5.69%, and 5.54% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.67% as of its fiscal year ended December 31, 2014.
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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.
Investments in diversifying sectors not represented in the benchmark, most notably high yield bonds, dividend-paying stocks, emerging markets dollar-denominated bonds, and non-U.S. dollar-denominated bonds were the primary drivers of relative outperformance. Tactical decisions slightly contributed to relative performance. The tactical underweight to long-term Treasury bonds aided results as long-term interest rates rose throughout the quarter. Security selection was relatively even for the period. While the High Yield Bond Fund and the Emerging Markets Bond Fund outperformed their style-specific benchmarks, the Equity Income Fund underperformed its style-specific benchmark.
Global growth is likely to progress at a modest pace over the coming months amid continuing accommodative monetary policies from central banks, although we expect the Fed to begin raising rates sometime later this year. We believe that modest global growth coupled with geopolitical uncertainty underscore the value of the Spectrum Funds' broadly diversified portfolios.