Treasury yields held fairly steady over the quarter, with the two-year Treasury yield increasing slightly from 0.42% to 0.46%, and the three-year opening and closing at 0.87%, despite interim volatility. Meanwhile, strong demand for tax-exempt municipals against limited new-issue supply caused tax-exempt issues to rally, with two- and three-year yields tightening 11 basis points (0.11%) and 14 basis points (0.14%), respectively. As a result, municipal yields versus Treasuries fell below a 65% ratio, enhancing the value of the crossover trade into corporate bonds.
The Fund posted a 0.14% return for the quarter versus the 0.15% for the benchmark. The Funds current strategy continues to target a duration near one year, primarily by using fixed-rate two- and three-year municipal bonds balanced by municipal floating-rate notes. Taxable corporate bonds are also utilized when their return after taxes exceeds the return on tax-exempt municipal bonds. Taxable bonds made up approximately 30% of the portfolio at quarter end.
If you're seeking an investment that may generate higher yields than money market funds with less volatility than short duration bond funds, this Fund may be appropriate for you. The Fund is intended for investors with an investment horizon of at least one year who are seeking to move a portion of their money market fund assets.
The Fund is not a money market fund, which maintains a $1.00 NAV, and the Fund's share price will fluctuate with its returns.
- Seek to provide investors in higher tax brackets more after-tax yield than a money market fund with potential for capital appreciation.
- Strive to maximize after-tax return by pursuing best net after-tax yield and total return opportunities in both taxable and tax-exempt securities.
- Strive to maintain a 6-18 month average maturity, under normal circumstances, with a maximum security maturity of three years. Also manage Fund in an effort to have an average portfolio quality of A or better, with all securities to be investment grade.