U.S. bond returns were mostly positive, as high-quality issues appreciated but lower-quality bonds declined. The Federal Reserve ended its asset purchase program in October 2014 and indicated it would be "patient" with regard to raising short-term interest rates. Developed non-U.S. bonds declined in dollar terms due to a notably stronger dollar. Eurozone bonds fell amid expectations that the European Central Bank will expand its asset purchase program. Bonds also fell in Japan as the Bank of Japan decided to expand its stimulus efforts. High yield bonds declined, primarily due to risk aversion and the impact of falling oil prices. Emerging market bonds also declined during the period, driven by the depreciation of most emerging market currencies against the dollar.
The Spectrum Income Fund returned 0.02% in the quarter compared with 1.79% for the Barclays U.S. Aggregate Bond Index and −0.46% for the Lipper Multi-Sector Income Funds Average. For the 12 months ended December 31, 2014, the fund returned 3.88% versus 5.97% for the Barclays U.S. Aggregate Bond Index and 3.03% for the Lipper Multi-Sector Income Funds Average. The fund's average annual total returns were 3.88%, 6.13%, and 5.60% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2013.
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 Spectrum Income Fund invests for high current income primarily through a range of domestic fixed income classes and quality styles, but it can hold income-oriented stocks as well. Non-benchmark diversifying sectors, notably non-U.S., high yield, and emerging market bonds detracted from performance as these sectors lagged the fund's fixed income benchmark. Inclusion of dividend-paying equities as a diversifying sector contributed to relative performance. Stock selection weighed on relative returns as the Equity Income and New Income Funds underperformed their style-specific benchmarks. An underweight to long-term Treasury bonds detracted from performance as long-term interest rates fell. However, an underweight to non-U.S. bonds contributed as non-U.S. dollar bond returns lagged U.S. investment-grade bonds as the dollar strengthened. With the prospect of steadily improving growth in the U.S. and the potential for higher interest rates as the Fed looks to begin raising interest rates later this year, we favor investment grade over nondollar bonds and high yield over investment-grade bonds.
We have modest expectations for global growth in the coming months. While central bank monetary policies remain accomodative, the U.S. Federal Reserve is expected to begin to normalize interest rates in mid-2015 as the economy continues to gradually improve. However, the European Central Bank, Bank of Japan, and People's Bank of China are embarking on more stimulus actions. Slow growth and deflation worries, among others, weigh on European growth. In Japan, growth and inflation are pressured by the impact of last April's sales tax increase, stubbornly low real wages, and lack of progress on structural reforms. Slowing growth in China, Brazil, and other emerging markets weighs on global trade.