The U.S. fixed income market produced positive absolute returns over the quarter. U.S. Treasuries and investment-grade corporate bonds fueled much of the outperformance as yields dropped significantly across the curve in the aftermath of the UK's vote to leave the European Union. Intermediate- and longer-dated bonds outperformed shorter maturities as short-term rates were little changed, while longer-term U.S. Treasury yields decreased. Domestic Treasury yields remain meaningfully higher relative to other high-quality global sovereign debt, resulting in steady demand for U.S. debt from foreign investors seeking yield. Corporate bonds were also well supported by firmer commodity prices, technical support, and accommodative central bank policies.
The Ultra Short-Term Bond Fund returned 0.69% in the quarter compared with 0.24% for the Barclays Short-Term Government/Corporate Index. For the 12 months ended June 30, 2016, the fund returned 1.19% versus 0.59% for the Barclays Short-Term Government/Corporate Index. The fund's 1-year and Since Inception (12/03/2012) average annual total returns were 1.19% and 0.65%, respectively, as of June 30, 2016. The fund's expense ratio was 0.45% as of its fiscal year ended May 31, 2015.
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 portfolio is positioned at the low end of its duration range, which has proved beneficial when Treasury yields rally. We have been adding marginally to oil majors and adding to industrials at the expense of financials. Overall, our overweight to investment-grade corporate bonds and our corresponding underweight to Treasuries has helped performance.
Given the increase in uncertainty, we are cautious about adding risk. While corporate fundamentals have passed their peak in the U.S., investor demand remains strong on the back of continued easy monetary policy from central banks. While we expect U.S. rates to stay lower for longer, we believe that Brexit will remain a headwind to the market as more details about the execution of the plan come into focus. With that said, there will certainly be winners and losers, which will create opportunities for our credit analysts to pursue.