Issuers in the investment-grade corporate bond market took advantage of tight credit spreads and declining interest rates to issue a record amount of debt for the first half of the year. The flood of new corporate supply was well received by investors, who continue to search for yield in the low-rate environment. Issuance in other investment-grade asset classes such as U.S. Treasuries, U.S. government agencies, mortgage-backed securities and asset-backed securities disappointed investor expectations. The large inflow of money into investment-grade strategies coupled with these supply shortfalls helped to keep interest rates low and credit spreads tight.
The Funds return of 2.09% for the quarter outperformed the benchmark. The Funds sector allocation and security selection were the largest contributors to performance. In particular, the Fund was overweight corporate bonds and commercial mortgage-backed securities, while underweighting U.S. Treasuries. The Funds yield curve positioning represented a minor detractor.
If you are a long-term, income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market while eliminating your exposure to non-investment grade debt then this Fund may be right for you. It offers a diversified portfolio of bond securities primarily invested in U.S. investment-grade debt.
- Invest primarily in domestic investment-grade debt obligations with an average maturity, under normal circumstances, between three and 15 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.