The Funds 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.
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.