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June 2015

The Barclays Municipal 3-Year Bond Index lost 0.02 percent during the first quarter of 2015. See complete fund performance here.  

Volatility was pervasive as both the municipal bond and Treasury markets contended with mixed economic data and evolving Federal Reserve rhetoric around interest rate normalization. Municipal bond issuance was robust, led by increased refundings as issuers continued to take advantage of historically low rates ahead of possible future rate hikes. Demand for municipal bonds waned somewhat with net outflows out of funds. This was not entirely unexpected given credit concerns and Moody’s downgrade of Chicago to below-investment-grade status. With the fiscal year-end coming to a close, budget issues were at the forefront and well-known pension offenders such as Illinois, Puerto Rico and New Jersey continued to see negative headlines, ratings pressure and wider credit spreads.

Moody’s downgraded Chicago to junk status following an Illinois Supreme Court decision stating pension benefits cannot be curtailed. The ruling left Chicago with little hope of improved pension health through cutbacks in benefits. The downgrade was particularly surprising since Moody’s has essentially discounted any options Chicago may have in dealing with its budget and pension situation, thereby putting pressure on the city’s liquidity position in the process. 

Yields on Puerto Rico bonds spiked toward the end of June as Puerto Rico’s governor announced the commonwealth cannot pay its roughly $72 billion in debts and started a process to seek concessions from the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment.

In positive news, local government bankruptcies are down year-over-year as the economy improves. Only two Chapter 9 petitions have been filed by local governments so far this year as of June 17. That’s down from the same period a year ago when there were seven Chapter 9 cases filed.

For the fund, exposure on the shorter end of the yield curve was beneficial as the one-to-three-year portion of the curve outperformed the five-to-seven-year portion. Revenue bonds outperformed during the quarter which was another positive, as roughly 60 percent of the fund is made up of revenue bonds. The fund’s exposure to Illinois as well as school district bonds was a drag on performance as both underperformed.

Past performance does not guarantee future results.

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 07/29/2015

Global Resources Fund PSPFX $5.13 0.06 Gold and Precious Metals Fund USERX $4.75 0.06 World Precious Minerals Fund UNWPX $3.93 0.03 China Region Fund USCOX $8.06 0.05 Emerging Europe Fund EUROX $5.86 0.03 All American Equity Fund GBTFX $28.09 0.26 Holmes Macro Trends Fund MEGAX $21.42 0.05 Near-Term Tax Free Fund NEARX $2.24 -0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 -0.01