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Short Bond

as of 12/31/17

Fund Commentary

The fourth quarter closed with Equity markets at all-time highs, investment grade credit and high yield credit at decade-long tights, and the U.S. Treasury yield curve at the flattest levels since 2007. Volatility in the quarter stemmed from speculation surrounding the new Federal Reserve (Fed) Chair, tax reform legislation, and November's technical sell-off in investment grade risk assets due to significant oversupply. Ultimately the market's comfort with a familiar name taking the reins at the Fed, paired with the passage of tax reform helped push risk assets higher, while rising fed funds rate expectations and global demand for the yield offered by long dated U.S. Treasuries caused the yield curve to flatten.

The Fed raised its target rate to 1.25%-1.50% in December, while continuing to forecast three rate hikes in 2018. Short-term rates sold off, while long-term rates were contained by investor demand and lack of realized inflation. A strong earnings cycle, healthy economic fundamentals and the passage of U.S. tax cuts buoyed both equity and credit markets as the year closed at its highs.

The Fund returned -0.07% for the quarter, outperforming the -0.21% return of the benchmark. The Fund's neutral duration with a flattening bias, strategic overweight to investment grade credit and high yield credit, and tactical addition to risk assets during November's sell-off added value during the quarter.

Not FDIC insured | May lose value | No bank guarantee

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