Money market yields have continued to remain very low through the second quarter of 2015. Yields were contained by the Federal Reserve's commitment to keep the fed funds target rate in the 0.00% to 0.25% range as it tapered its asset purchases throughout 2014 and concluded its quantitative easing (QE) efforts last October. With QE now behind us, market participants are looking forward to when the central bank will begin raising short-term interest rates. For the first time in more than six years, higher rates are a real possibility, but the timing of the actual liftoff seems elusive.
The Ultra Short-Term Bond Fund returned 0.20% in the quarter compared with 0.08% for the Barclays Short-Term Government/Corporate Index. For the 12 months ended June 30, 2015, the fund returned 0.48% versus 0.23% for the Barclays Short-Term Government/Corporate Index. The fund's 1-year and Since Inception (12/03/2012) average annual total returns were 0.48% and 0.44%, respectively, as of June 30, 2015. The fund's expense ratio was 0.49% as of its fiscal year ended May 31, 2014.
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.
Despite a volatile backdrop in rates, the fund's strategy has not varied greatly during the past three months. Effective duration remained essentially unchanged, though some sector concentration changes were made. Corporate bond exposure is still the largest part of the portfolio, but we reduced it somewhat. We lowered our allocation to financial institutions in favor of higher-rated and higher-yielding structured finance bonds. Investments in asset-backed and commercial mortgage-backed securities each rose slightly. We also initiated exposure to agency commercial mortgage obligations by period-end. Sector selection was a major contributor to the fund's performance, but a somewhat defensive posture toward expected rate increases hurt performance to some degree.
We remain much where we were at the start of the period, closely monitoring the economy for signs that the Fed is about to raise interest rates. In general, our posture will skew toward the defensive. Still, we believe that the Fed, when it finally does tighten its policy, will do so carefully and slowly. A shift in its policy could be accompanied by increased market volatility, which may create some opportunities to improve yield without introducing significant duration risk. As always, our focus is on minimizing the fund's price volatility, while at the same time improving the income investors receive. As the Fed begins to move on rates, we also expect the price of the fund to change a bit, but the generally shorter-maturity nature of the portfolio should prove a safe haven in a potential storm of more volatile longer-term rates.