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High Yield Fixed Income

as of 9/30/17

Fund Commentary

The high-yield market posted a strong return in the third quarter, as positive revenue and earnings growth for U.S. corporations provided support to valuations. Robust equity returns and a low volatility environment provided a positive tone to the market, as did a more favorable regulatory climate. Additionally, a 12% increase in the price of oil drove outsized gains in oil-related sectors. Challenging longer-term trends continued to pressure certain sectors, however. For example, a difficult retail environment weighed on the supermarket and consumer product sectors, while uncertainty regarding the Affordable Care Act represented a headwind for the healthcare sector. Despite underperformance in these areas, overall volatility for high-yield bonds was quite low during the quarter.

The Fund returned 2.67% for the quarter, exceeding the 1.98% return of the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index. Sector selection added value, highlighted by overweight positions in the refining, independent energy and metals industries. An overweight position in health care detracted from performance. The Fund’s positioning among the credit tiers had a mixed impact, with an overweight in top-performing CCC-rated issues somewhat offset by an underweight in BB issues and an overweight in single-B credits.

Domestic fiscal policy, shifts in the interest rate outlook and the direction of commodity prices remained areas of focus for the market entering the fourth quarter. In managing the Fund, we continue our efforts to take advantage of a supportive economic environment while seeking to manage security-specific credit risk.

Not FDIC insured | May lose value | No bank guarantee

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