Investment-grade and high-yield corporate issuers performed well in the quarter, as investors driven by their search for yield in the low interest rate environment continued to find corporate debt attractive. Business balance sheets remain in good shape, with record amounts of cash. While leverage has been rising over the past year, low rates have kept interest costs on corporate debt at very low levels. In turn, this has provided investors with comfort that they will be repaid in a timely manner.
The Fund returned 0.15% during the fourth quarter, outperforming the -0.14% return of the benchmark. The largest contribution to returns came from security selection, as the Funds holdings appreciated significantly more than those in the Index. Overweight positions in corporate bonds and commercial mortgage-backed securities, along with an underweight to mortgages and U.S. Treasuries, also made significant contributions to performance. The largest detractor from relative return came from our positioning along the yield curve.
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.