December 2015

The Barclays Municipal 3-Year Bond Index lost 0.01 percent during the fourth quarter of 2015 while the Near-Term Tax Free Fund gained 0.27 percent. See complete fund performance here.

The U.S. Federal Reserve raised rates during the quarter. The December Federal Open Market Committee (FOMC) statement, issued along with an initial 0.25 percent rate hike, said it “currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.” The municipal yield curve flattened, with intermediate- and longer-term yields declining. The difference between 30-year and two-year municipal yields ended the quarter slightly less than its 20-year average. Short-term yields rose while yields on bonds with maturities greater than seven years declined during the quarter. As a result, longer-term bonds outperformed. Meanwhile, the front end underperformed. Within the main sectors, revenue bonds outperformed while government obligation (GO) bonds and pre-refunded bonds underperformed.

A number of issuers that have been in the news for their fiscal struggles, Illinois and New Jersey among them, rallied in the fourth quarter. This was largely due to demand from high-yield investors. While Illinois remains without a budget, the city of Chicago passed a budget for fiscal year 2016 that included property tax increases. In order to shore up its pledge on GO debt, Puerto Rico began to claw back revenues that had been budgeted to pay principal and interest on bonds issued by several public corporations.

Supply and demand trends remain positive. 2015 was the fifth calendar year of negative net supply, and flows into municipal bond funds were positive in the fourth quarter, thereby supporting municipal bond prices.

The Fed does not have preset paths for interest rate hikes and is instead dependent on the economic environment. As the new rate cycle begins, the Fed has said that it “expects economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” In addition, the Fed is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. It anticipates doing so until normalization of the level of the federal funds rate is well underway.

For the fund, a higher exposure to the shorter end of the yield curve detracted from performance, as the one- to three-year portion of the curve underperformed the five- to seven-year portion. The fund’s exposure to New Jersey was a source of outperformance as was its exposure to transportation and water bonds.

Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund's prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end here or by calling 1-800-US-FUNDS.

The Barclays 3-Year Municipal Bond Index is a total return benchmark designed for short-term municipal assets. The index includes bonds with a minimum credit rating BAA3, are issued as part of a deal of at least $50 million, have an amount outstanding of at least $5 million and have a maturity of 2 to 4 years.

Net Asset Value
as of 02/12/2016

Global Resources Fund PSPFX $4.50 0.06 Gold and Precious Metals Fund USERX $6.25 0.13 World Precious Minerals Fund UNWPX $4.41 0.06 China Region Fund USCOX $6.29 0.01 Emerging Europe Fund EUROX $4.83 0.03 All American Equity Fund GBTFX $21.76 0.46 Holmes Macro Trends Fund MEGAX $16.05 0.16 Near-Term Tax Free Fund NEARX $2.27 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change