Manager Commentary as of 12/31/2011
- The “flight to quality” exhibited during the third quarter reversed during the fourth quarter of 2011 leading to strong performance for high yield bonds. Investors moved back into higher risk assets despite continuing uncertainty within Europe and heightened concern over China’s ability to maintain its growth trajectory. Investors seemed reassured that policy steps and accommodative monetary actions that have been, or will be taken, on a global scale will serve to avert another financial crisis and prevent another recession in the U.S.
- The Westcore Flexible Income Fund’s 4.92% return for the fourth quarter fell short of the 5.62% return recorded by the Barclays Capital U.S. Corporate High Yield Ba Index. While the Fund’s exposure to “yield to call” bonds (higher quality bonds trading to a near-term call provision often possessing out-sized current yield) aided performance during the volatility experienced earlier in the year and was a positive contributor during the fourth quarter, that segment did underperform higher-risk market constituents in the quarter.
- In our view, U.S. economic growth will continue to be challenged by austerity measures, a stubbornly high unemployment rate and a sluggish housing market. We also believe that global risk factors will not dissipate any time soon and thus will continue to act as a headwind to any economic momentum which may surface domestically. Given the low growth, low yield environment, increased demand for higher quality, high yield issues could continue as investors seek securities that exhibit more limited volatility and offer attractive yield amidst global uncertainty.
- We believe the Fund is positioned to offer competitive yield over traditional core bond funds over a longer horizon, but with less downside risk and volatility than traditional high yield funds during periods of distress. Our process entails intensive credit analysis to evaluate yield versus risk through an entire business cycle and an overweight of higher-rated high yield issues is a logical result. Most importantly, we believe this strategy works over the long term for shareholders who want comparative yield potential versus other high yield funds, but who are a little more sensitive to volatility and capital preservation.
The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will vary, and shares, when redeemed, may be worth more or less than their original cost. To obtain current performance as of the most recent month-end, please call 800.392.CORE (2673) or visit the Performance tab.
The Westcore Flexible Income and Plus Bond Funds are subject to additional risk in that they may invest in high-yield/high-risk bonds and may be subject to greater levels of liquidity risk. Additionally, investing in bonds entails interest rate risk and credit risk.
The Manager Commentaries contain certain forward-looking statements about the factors that may affect the performance of the Funds in the future. These statements are based on Fund management’s predictions and expectations concerning certain future events and their expected impact on the Funds, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the Funds. Management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed.
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