High Yield Fixed Income
as of June 30, 2014
Fund Commentary
The high-yield corporate bond market posted positive performance in the quarter. A modest rally in U.S. Treasuries enabled more interest-rate-sensitive issues in the BB quality range to slightly outperform during the period. The market discounted weak first-quarter earnings and gross domestic product (GDP) as driven by unfavorable weather. The market also showed no reaction to a multitude of geopolitical headlines from Ukraine, Russia, Iraq and elsewhere. The Federal Reserve continued to reduce its asset purchase program, but markets were confident of continued supportive monetary policy. The most remarkable aspect of the quarter was the lack of volatility and the consistency of returns throughout the period.

The Fund’s return of 2.65% for the quarter exceeded the return of its benchmark. There was little differentiation across rating categories, but BB securities performed best, followed by CCC and B bonds. An overweight position in securities rated CCC enhanced performance, while an underweight in BB securities detracted. Overweight positions in supermarkets, banking and wirelines contributed to returns. Detractors included underweight positions in electric utilities and independent energy, along with an overweight to retailers.

Amid a stable economic environment, interest rate volatility continues to be the greatest potential source of market volatility going into the third quarter of 2014. However, the high-yield market continues to be supported by stable credit fundamentals, and its default rate remains low. Therefore, little price movement is anticipated, and returns are expected to be driven by coupon yields.
Investor Profile

If you are an aggressive investor seeking high current income and the potential for capital appreciation for a portion of your assets, you may find this Fund provides an attractive complement to a well-diversified portfolio. It is best suited for long-term investors willing to assume the additional risks associated with investing in high yield securities including above-average share price fluctuations.

  • Invest primarily in high-yielding, lower-rated corporate debt. Lower-rated debt is commonly referred to as "junk bonds."
  • Take steps to properly manage downside risk by maintaining a broadly diversified portfolio.
  • Rely on our extensive credit research capabilities in an effort to manage risk and minimize defaults.
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Not FDIC insured | May lose value | No bank guarantee

†Northern tax-exempt fixed income funds' and Northern High Yield Fixed Income Fund's Average Duration is calculated using the modified duration formula. Other Northern fixed income funds show the option-adjusted duration. Duration is a measure of a bond fund's sensitivity to changes in interest rates.

*Distribution rate and tax-equivalent distribution rate represent the annualization of the Fund's distributions for the prior month ending on the date shown, including capital gain distributions. The 30-day SEC yield and tax-equivalent 30-day SEC yield represent the annualization of the Fund's net investment income, excluding capital gain income. The tax-equivalent distribution rate and tax-equivalent 30-day SEC yield are based on an assumed tax rate of 47.9% for Arizona, 55.7% for California and 43.4% for national municipal funds.

**Per share paid out May 27 with a record date of May 23. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

Please carefully read the prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.

©2014 Northern Funds | Northern Funds are distributed by Northern Funds Distributors, LLC, not affiliated with Northern Trust.