Manager Commentary as of 6/30/2010
- Treasuries were the strongest performing sector of the Barclays Capital Aggregate Bond Index in the second quarter, returning 4.68%. The outperformance was notable in the long maturities, which posted a 12.17% return for the quarter. Concerns over financial stability in Europe and of economic softness in the U.S. helped push the 10-year yield under 3% and the 30-year yield under 4% by the end of the quarter. Against the uncertain macroeconomic and equity market backdrop, all sectors of the bond market enjoyed positive returns: Corporate debt returned 3.42% to investors while securitized assets, such as mortgage-backed bonds, returned 2.86% for the quarter.
- The Westcore Plus Bond Fund returned 2.95% for the quarter, lagging its benchmark, the Barclays Capital Aggregate Bond Index which returned 3.49%. Although the Fund holds some meaningful positions in longer-dated Treasuries, its overall underweight in Treasuries relative to the Index was a drag to performance. Within our overweight to the corporate sector, our REIT, consumer non-cyclical, and basic industrial holdings were positive contributors to performance. Unsurprisingly, our exposure to the energy sector was the biggest detractor to corporate performance given the market impact of the BP oil spill.
- At this time, we maintain the cautious macroeconomic outlook that we have had throughout this recovery period. Our interest rate exposure is roughly equal to that of the benchmark as we currently view rates as range-bound; inflation expectations remain muted and the looming uncertainties on Eurozone stability and the weakness of the recovery are a boost to Treasuries. We expect that in this environment the robust demand we have seen for high-quality corporate bonds will persist.
- We continue to find value in the income advantage of corporate bonds and our high-yield exposure remained stable throughout the quarter. Across the quality spectrum, we still believe that security selection will drive performance going forward and continue to search for issuers with improving credit fundamentals, sustainable competitive advantages, and attractive valuations given our long-term investment-oriented approach.
The performance data quoted represents past performance and does not guarantee future results. 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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