In the investment-grade corporate bond market, new issuance soared to an all-time first-quarter high as companies took advantage of tight credit spreads and declining interest rates. The flood of new supply was well received, as large inflows of cash into fixed-income funds provided managers with money that needed to be put to work. Strong demand helped corporate bond yield spreads tighten versus Treasuries even as the yield on the 10-year U.S. Treasury note fell 30 basis points (0.30%).
Against this backdrop, the Fund returned 0.45%, outperforming its benchmark. The largest contribution to performance came from security selection, as Fund holdings appreciated significantly more as a group than those held in the Index. Overweight positions in corporate bonds and commercial mortgage-backed securities, along with underweights to mortgages and U.S. Treasuries, also contributed significantly to performance. The Funds yield curve positioning represented the largest detractor from returns.
If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market, through shorter-term maturities, then this Fund may be right for you. It offers a diversified portfolio of bond securities invested primarily in U.S. investment-grade debt.
- Invest primarily in domestic investment-grade debt obligations with an average maturity, under normal circumstances, between one and three 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.