Money market and short-term bond yields remained very low in the first quarter of 2013, as the Federal Reserve kept the fed funds target rate in the 0.00% to 0.25% range established in late 2008. The Fed plans to keep interest rates very low at least as long as the national unemployment rate remains above 6.5% and inflation is projected to be no more than 2.5% in the next 12 to 24 months. To help suppress interest rates and support the economic recovery, the central bank started monthly purchases of $45 billion in Treasuries at the beginning of the year. Under a plan that started last September, the Fed is continuing to purchase $40 billion in agency mortgage-backed securities every month until the labor market outlook improves substantially.
The Ultra Short-Term Bond Fund returned 0.08% in the quarter compared with 0.08% for the Barclays Short-Term Government/Corporate Index. The Since Inception (12/03/2012) total return was 0.08% as of March 31, 2013. The fund's expense ratio was 0.61% as estimated on the fund's inception date, December 3, 2012.
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.
Benchmark Definitions
Our goal is to maintain a highly diversified portfolio that seeks to limit price fluctuations while offering an attractive risk-adjusted yield relative to our benchmark and to money market portfolios. (Diversification cannot assure a profit or protect against loss in a declining market.) Our current strategy is to maintain a strategic underweight to Treasury securities while overweighting corporates and having some exposure to asset-backed securities. This allows us to build a yield cushion relative to our benchmark and to capture incremental yield among very short-term bonds. We are currently seeking favorably priced securities with floating (rather than fixed) interest rates, which we believe offer significant protection from rising interest rates. Many of our corporate holdings are issued by banks, which are substantial issuers of ultra short-term bonds.
Given the unresolved eurozone sovereign debt crisis and the subpar nature of the U.S. economic recovery, our view is that the Fed is likely to leave its 0% interest rate policy in place for now. This, unfortunately, means that ultra short-term bond yields and returns are likely to remain very low for some time. However, the economy is strengthening, and we believe we are approaching an inflection point (or, rather, a time frame) in the next year or two when the Fed will begin to reduce its accommodative policies and eventually increase interest rates. We will remain inherently defensive in anticipation of this change.
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