Multi-Manager High Yield Opportunity
as of June 30, 2014
Fund Commentary
Declining government bond yields and subdued volatility have been the dominant high-yield market themes thus far in 2014. Greater uncertainty regarding the outlook for the global economy; heightened geopolitical risk from the conflict in Ukraine and the recent surge in sectarian violence in Iraq; and tensions between China and some of its neighbors, have had little effect on high-yield bonds. In fact, implied market volatility remains at historic lows and bond yields continue to be pressured downward. In the investment-grade segment, corporate bonds performed well during the second quarter, supported by strong investor demand and continued issuance. From a ratings perspective, BBB bonds outperformed AAA issues. Utilities outgained both industrials and financials for the quarter, returning 3.36%. BB-rated issues generated a total return of 2.65%, and slightly outperformed CCC-rated bonds, which produced a return of 2.42%. High-yield spreads narrowed by 20 basis points (0.20%), and their average yield closed the period at 5.72%.

For the second quarter, the Multi-Manager High Yield Opportunity Fund posted a return of 2.55%, compared with the BofA Merrill Lynch High Yield Master II Constrained Index return of 2.57%. The Fund’s exposure to emerging market issues contributed to results during the period.

Continuing the trend from last quarter, Loomis Sayles was again the strongest performer among the three sub-advisors. Its portfolio benefited from emerging market positions as well as convertible bond holdings. Sub-adviser Neuberger Berman detracted from relative return due to security selection in utilities and metals/mining, and an underweight to the banking sector.
Investor Profile

If you're looking for a total-return-oriented high yield fund that's designed to provide competitive performance in a broad range of market environments, you may want to consider the Multi-Manager High Yield Opportunity Fund. The highly diversified, multi-style Fund can invest in high yield corporate securities as well as foreign bonds, emerging markets, bank loans, convertibles, preferreds, mortgages, REITs, equities, munis and closed-end high yield funds. Despite the Fund's opportunistic investment strategy, it can be used as the primary high yield allocation in portfolios.

  • Strive to maintain a highly diversified, opportunistic investment strategy that can invest in high yield corporate securities as well as foreign bonds, emerging markets, bank loans, convertibles, preferreds, mortgages, REITs, equities, municipals and closed-end high yield funds.
  • Select complementary manager from a broad universe of investment managers.
  • Blend managers into a single fund in an effort to provide an attractive combination of risk and return.
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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.

*View investment term definitions

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.

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