Manager Commentary as of 6/30/2010
- New issue activity in the high yield market continued its impressive run through April, but slowed markedly over the last two months of the second quarter. Concerns over sovereign credit risk in Europe and its potential to upset the U.S. and global economic recovery led investors to move away from riskier assets. The resulting decrease in appetite for higher yielding securities, such as those targeted within the Westcore Flexible Income Fund, was exhibited through a stalling of the previously strong trend of capital flows into the high yield asset class towards the end of the quarter.
- Westcore Flexible Income Fund’s 0.30% return failed to match the 0.44% achieved by the Barclays Capital U.S. Corporate High Yield Ba Index in the second quarter. Exposure to lower rated offerings in the high yield space detracted slightly from performance while more U.S. Treasury sensitive investment grade issues outperformed the index during the quarter. The Fund was also adversely affected somewhat by exposure to the Gulf of Mexico oil spill through its energy holdings.
- Apart from a large energy allocation, the Fund maintained its overweighting of metals and mining and REIT’s. These core industry concentrations are illustrative of our focus on issuers with large tangible asset bases relative to their debt load. We feel that hard assets provide more flexibility in regards to dealing with re-financing issues and liquidity needs as they arise throughout a credit cycle.
- While short term technical conditions within the market can result in some limited volatility, a slow recovery with limited growth potential can allow certain issuers to continue to de-lever, either through debt reduction or continuing optimization of operating cash flows, bringing about an improved credit profile. We feel current yields exhibited by our holdings, already reflect a less than robust recovery and provide the opportunity to invest at attractive levels as we enter the second half of the year.
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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