Calendar year 2013 saw the largest volume of corporate debt issuance in history. Both investment-grade and high-yield corporate issues continued to enjoy robust demand in the fourth quarter, with credit spreads tightening throughout. Driven by a search for yield in the low interest rate environment, investors continued to find corporate debt attractive. U.S. company balance sheets remain in good shape, with a record amount of cash. While leverage has been rising over the past year, record low interest rates have kept the cost at exceptionally low levels, providing investors with confidence that they will be repaid in a timely manner.
Against this backdrop, the Funds return of 0.75% outperformed the benchmark. The largest contribution to performance came from security selection, as Fund holdings appreciated significantly more than those held in the benchmark. Overweight positions in corporate bonds and commercial mortgage-backed securities along with underweights to residential mortgage-backed securities and U.S. Treasuries contributed significantly to the outperformance. The largest detractor from performance was the positioning of portfolio assets along the yield curve.
If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market, through shorter-term maturities, then this Fund may be right for you. It offers a diversified portfolio of bond securities invested primarily in U.S. investment-grade debt.
- Invest primarily in domestic investment-grade debt obligations with an average maturity, under normal circumstances, between one and three years.
- Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.
- Emphasize securities and types of securities (such as Treasury, agency, asset-backed, mortgage-related and corporate securities) that we believe have the potential to provide a favorable return.