The third quarter saw choppy markets, synchronized global growth and heightened geopolitical tension. North Korea launched its first intercontinental ballistic missile, and was met with threats from the U.S. administration and new economic sanctions. Despite geopolitical risks and stagnant fiscal progress, financial markets were stable as global growth moved higher. In August, volatility increased to its highest levels year-to-date, while speeches by central bank leaders left the markets awaiting further policy clarity. A severe hurricane season left widespread damage, skewing some economic data late in the quarter. High levels of investment-grade corporate supply, along with lingering concerns over the hurricanes and North Korea, brought risk asset valuations down to more reasonable levels late in the period, attracting buyers. The Republicans’ pivot toward tax reform further supported risk asset appreciation.
The Federal Reserve (Fed) met twice during the period, leaving rates unchanged, but importantly announced the beginning of its balance sheet reduction process. Short-term rates rose on strong economic data along with some hawkish rhetoric from the Fed regarding a potential December hike. The result was a buying opportunity in both mortgage-backed securities and longer-term investment grade corporates, which saw significant rallies in September.
The Fund provided a return of 1.17% for the third quarter. The Fund’s strategic overweight to sectors that trade at a yield spread relative to Treasuries and its conservative stance with respect to overall portfolio duration and corresponding interest rate sensitivity benefited performance. In addition, tactical overweights to mortgage-backed securities and bank issues within investment-grade corporates added value.
Not FDIC insured | May lose value | No bank guarantee
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