Incoming data was also supportive of higher rates. U.S. non-farm payrolls came in above expectations despite a partial government shutdown to start the quarter that impacted government employment and delayed the release of economic data, while the unemployment rate fell to 7.0%. Third-quarter Gross Domestic Product (GDP) growth was revised upward to 4.1%, well ahead of initial estimates of 3.6%, thanks to inventory growth and a boost in consumption. U.S. stocks closed a stellar year with another strong quarter to reach all-time highs, and prices of Treasury Inflation-Protected Securities (TIPs) reflected a rise in inflation expectations.
The Funds total return of -0.41% modestly underperformed its benchmark during the quarter. Our overweighting of mortgage-backed securities detracted slightly from overall performance, although we reduced the overweight during the quarter. The Funds positioning along the yield curve and its duration and corresponding interest rate sensitivity also had a marginally negative impact on performance.
If you're a conservative investor who prefers the income and quality offered by government securities, you may find this Fund attractive. It is best suited for income-oriented investors who prefer low risk.
- Invest primarily in securities issued or guaranteed by the U.S. government or by its agencies.
- Select high-quality securities with maturities, under normal circumstances, between two and five years, with risk exposure managed in an effort to achieve reasonable returns.
- Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.