U.S. bonds generated positive returns amid weak inflation readings and decelerating economic growth. Developed non-U.S. bonds produced negative returns in dollar terms, driven by the dollar appreciating against most currencies, which outstripped the returns made from the overall decline of yields in key government bond markets, such as the eurozone. High yield bonds outperformed high-quality issues as investors once again favored their attractive yields following the oil-related high yield market weakness late last year. Emerging markets bonds were mixed. Generally, bonds denominated in local currencies declined in dollar terms; dollar-denominated debt registered gains.
The Spectrum Income Fund returned 0.85% in the quarter compared with 1.61% for the Barclays U.S. Aggregate Bond Index and 1.45% for the Lipper Multi-Sector Income Funds Average. For the 12 months ended March 31, 2015, the fund returned 2.40% versus 5.72% for the Barclays U.S. Aggregate Bond Index and 2.35% for the Lipper Multi-Sector Income Funds Average. The fund's average annual total returns were 2.40%, 5.72%, and 5.77% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2013.
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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.
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. Underperformance was due primarily to the inclusion of non-benchmark diversifying sectors, notably non-U.S. bonds, dividend-paying stocks, and emerging markets local currency bonds as these sectors lagged the fund's fixed income benchmark. Our inclusion of high yield bonds, however, contributed to relative performance. Our decision to underweight non-U.S. bonds relative to U.S. investment-grade bonds also contributed as the asset class lagged due to the strong U.S. dollar. However, our underweight to long-maturity Treasury bonds hurt results as long-term interest rates declined. We increased our overweight to high yield relative to investment-grade bonds based on attractive yields, lower-duration profile, and less sensitivity to rising rates. We reduced our underweight to nondollar bonds relative to U.S. investment-grade bonds due to a strengthening U.S. dollar, which weighed heavily on nondollar bonds.
Central bank monetary policies should continue to diverge as the U.S. Federal Reserve begins to normalize interest rate policy sometime in 2015, Europe and Japan deepen quantitative easing to spur inflation and growth, and many emerging markets countries lower interest rates. Moderate growth in the U.S. should continue as the recovery advances, albeit slowly. In developed non-U.S. markets, we expect growth to improve as fiscal headwinds diminish, the credit environment mends, energy costs wane, and the euro weakens. However, growth among emerging markets is likely to decline, weighed down by China's move to a consumer-focused economy and sanction-fueled economic woes in Russia.