Government bonds from non-U.S. developed markets rallied strongly as both the European Central Bank (ECB) and the Bank of Japan (BoJ) supplemented their stimulus efforts by cutting some lending rates into negative territory and increasing the size of quantitative easing programs. The German 10-year note's yield decreased to nearly 0.10%, while the yield on Japan's 10-year note fell below the level of the BoJ's negative deposit rate. The U.S. dollar weakened against the euro and the yen, breaking a long trend of greenback strength, boosting returns on eurozone and Japanese sovereign debt in dollar terms. Many emerging markets currencies appreciated sharply against the U.S. dollar.
The International Bond Fund returned 8.22% in the quarter compared with 8.26% for the Barclays Global Aggregate ex USD Bond Index and 5.23% for the Lipper International Income Funds Average. For the 12 months ended March 31, 2016, the fund returned 5.62% versus 6.69% for the Barclays Global Aggregate ex USD Bond Index and 1.29% for the Lipper International Income Funds Average. The fund's average annual total returns were 5.62%, 0.20%, and 3.46% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.83% as of its fiscal year ended December 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 International Bond Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The portfolio's overall duration was slightly shorter than that of the benchmark, reflecting our view that yields on high-quality government bonds could rise as markets refocus on the possibility of more rate hikes from the Federal Reserve. (Duration is a measure of sensitivity to changes in interest rates.) After increasing the fund's exposure to emerging markets and segments with higher levels of credit risk in late January, we reduced the portfolio's risk level toward the end of the quarter by adding high-quality sovereign debt from countries including Australia and reducing exposure to emerging markets currencies. We also added several hedges against the risk of the UK exiting the EU, including a position that would benefit if the British pound falls against the U.S. dollar.
We think that the strong rebound in riskier asset classes in the second half of the first quarter has largely run its course. Investors may realize that the underlying worries from the beginning of 2016 (China's economic slowdown, the potential for further weakness in commodity prices, and the possibility of more Fed rate increases) haven't gone away. In addition, markets may currently be too sanguine about June's referendum in the UK on leaving the European Union (EU). We anticipate that UK voters will opt to stay in the EU, but the possibility of a vote to leave will likely trigger higher market volatility.