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High Yield Fixed Income

as of 12/31/17

Fund Commentary

The high-yield market posted a positive return in the fourth quarter. Solid revenue and earnings growth continued to support valuations. Negative trends in certain sectors resulted in a brief and minor downturn in the middle of the quarter. However, the overall market remained firm. The weak period was driven by deteriorating secular trends in communications, cable and consumer products. However, 35 of 44 sectors exceeded the index return in the quarter. Volatility remained low and price movement was generally not driven by actual trading. The passing of a federal tax cut for 2018 provided further positive momentum to financial assets to end the quarter.

The Fund returned 1.11% for the quarter, outperforming the 0.47% return of the benchmark. Sector selection was the primary driver of returns, but credit quality impacted performance. The CCC-rated issues performed best, followed by CC to D-rated issues. There was little differentiation between the BB and B-rated securities, which lagged. The Fund was overweight CCC and B-rated securities and underweight BB-rated securities. Overweight positions in refining and banking, along with an underweight position in wirelines contributed to performance. Underweight positions in independent energy and electric utilities detracted from performance.

Continued progress on U.S. government policy objectives, monetary policy and commodity prices remained the primary drivers of returns going into the first quarter of 2018. The default rate is expected to remain low. In managing the Fund, we seek to take advantage of the supportive economic environment while managing security-specific credit risk.

Not FDIC insured | May lose value | No bank guarantee

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Please carefully read the prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.

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