High-quality U.S. bonds produced positive returns, benefiting from increased demand resulting from global equity market declines, global growth concerns, and the Federal Reserve's delay in raising short-term rates. Long-term Treasuries and municipal bonds performed best as long-term rates declined. Mortgage-backed securities also did well, but corporate bonds lagged, producing only slight gains. High yield bond prices fell amid weakness in energy and metals and mining companies and as investors generally favored lower-risk fixed income securities. Bank, or "leveraged," loans, which have less exposure to commodities, held up better than high yield issues. U.S. stocks declined in line with the drop in global equity markets and lower commodity prices, which fueled demand for safe-haven assets.
The Spectrum Income Fund returned −2.50% in the quarter compared with 1.23% for the Barclays U.S. Aggregate Bond Index and −2.20% for the Lipper Multi-Sector Income Funds Average. For the 12 months ended September 30, 2015, the fund returned −2.37% versus 2.94% for the Barclays U.S. Aggregate Bond Index and −1.50% for the Lipper Multi-Sector Income Funds Average. The fund's average annual total returns were −2.37%, 4.01%, and 5.19% for the 1-, 5-, and 10-year periods, respectively, as of September 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.
For the three-month period ended September 30, 2015, the Spectrum Income Fund underperformed the Barclays U.S. Aggregate Bond Index. Our inclusion of diversifying sectors detracted the most from relative performance. Most notably, dividend-paying equities, high yield bonds, emerging market bonds, and emerging market local currency bonds all underperformed the Barclays U.S. Aggregate Bond Index for the period. Security selection in the dividend-paying equity portfolio also weighed on relative results as the portfolio underperformed its style-specific benchmark. There were no notable contributors to relative performance for the quarter.
As the prospects for higher relative interest rates supporting the U.S. dollar moderate, we have removed our underweight to nondollar bonds relative to U.S. investment-grade bonds and are now neutral. At the same time, we reduced our overweight to high yield relative to investment-grade bonds given the advanced stage of the credit cycle coupled with a backdrop of increased uncertainty about global growth and Fed policy. We are neutral emerging market bonds relative to U.S. investment-grade bonds based on muted growth expectations, potential for further currency weakness, and near-term risk related to the start of Federal Reserve interest rate policy normalization. Increased volatility and broad market correction have resulted in lower equity valuations. While valuations still remain above historical averages with less support from earnings growth across multiple measures, underlying fundamentals across most sectors remain solid, and the continuing U.S. expansion should be supportive. Our global growth expectations remain modest over the next several quarters, however.