The High Yield Fixed Income Funds fourth-quarter return of 3.56% was in line with the 3.57% return of its benchmark. Lower-quality securities performed best in the quarter, thus our overweight position in securities rated CCC and our underweight in those rated BB contributed to performance. Overweight positions in the supermarket and life insurance sectors, along with an underweight in electric utilities, also were additive to returns. Detractors included overweight positions in real estate investment trusts and underweights to the consumer finance and building materials sectors.
Given the stable economic environment, along with reduced expectations for negative political events, we believe that interest rate fluctuation could represent the largest source of market volatility in the months ahead. Our market continues to feature stable credit fundamentals and a low default rate, both of which can support high-yield bond valuations at their current levels.
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.