Multi-Manager High Yield Opportunity
as of March 31, 2014
Fund Commentary
During the first quarter of 2014, the high-yield bond market as measured by the BofA Merrill Lynch U.S. High Yield Master II Constrained Index produced a total return of 2.99%. BB-rated issues generated a total return of 3.15%, and outperformed issues rated B and CCC, which produced total returns of 2.79% and 3.06%, respectively. High-yield credit spreads, which ended 2013 at 400 basis points (4.0%), widened in January before tightening by quarter end to 377 basis points (3.77%). The largest compression in spreads occurred among B-rated issues in the Index. High-yield coupons declined during the first two months of the quarter only to rise during March; they ended the period at 5.33%, down 34 basis points (0.34%) from where they started the year. As was the case with spreads, the decline was driven by B-rated issues.

The Multi-Manager High Yield Opportunity Fund lagged the benchmark during the quarter with a return of 2.78%, compared with the benchmark return of 2.99%. The Fund’s overweight to CCC-rated securities added value during the quarter, while an underweight to BB detracted. Following a difficult 2013, emerging market debt rebounded in February and March. The Fund’s exposure to emerging market bonds contributed to results.

Two of the Fund’s three sub-advisers underperformed for the quarter. Loomis Sayles delivered the best results, outperforming by 71 basis points (0.71%). Both Neuberger Berman and DDJ lagged during the three-month period.
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.

Philosophy
  • 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 February 24 with a record date of February 21. 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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