Second Quarter 2020

The Near-Term Tax Free Fund had a total return of 1.19 percent in the second quarter of 2020, underperforming its benchmark, the Bloomberg Barclays Municipal Bond 3 Year Index, which returned 2.28 percent. See complete fund performance here.

The main source of underperformance came from underweighting exposure in the three- to five-year maturity range, as this area of the curve saw stronger relative performance during the quarter versus shorter and longer maturities. This exposure was a result of the fund’s barbell strategy, which overweighs short- and long-term maturities while underweighting medium-term maturities.

Past performance does not guarantee future results. 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.

Strengths

  • The fund’s allocation to maturities in the five- to seven-year range was a positive contributor as performance was strong in that area of the curve.
  • The fund’s allocation to Illinois bonds contributed positively to performance, as they outperformed the benchmark and carried a higher weighting.
  • The fund’s allocation to single-family housing bonds contributed positively to performance, as they outperformed the benchmark and carried a higher weighting.

Weaknesses

  • The fund’s underweight allocation to the three- to five-year maturity area of the curve versus the benchmark was a detractor as bonds in those maturities had the strongest performance.
  • The fund’s allocation to Texas bonds contributed negatively to performance, as they underperformed the benchmark while carrying a higher weighting.
  • The fund’s allocation to higher education bonds contributed negatively to performance, as the benchmark’s exposure had stronger performance and carried a higher weighting.

Outlook

Employment for state and local governments, after just having rebounded from the financial crisis, is feeling the heat again. In 2000-08, total employment in the state and local governmental sector increased almost 10.5 percent, peaking at 19.7 million. Following post-crisis losses of more than 700,000 employees, total employment rebounded to a new high of 19.9 million in February. However, unforeseen budget deficits have led to furloughs and in many cases permanent cuts, with almost 1 million in reductions since March.

On the positive side, state and local governments battered by the COVID-19 pandemic's economic impacts are set to receive hundreds of billions of dollars in relief in the next U.S. stimulus package, likely to pass before August, with potential relief between $500 billion and $1 trillion. With governors having already requested over $1 trillion, such relief will help governments reduce borrowing costs at a time when spreads have widened. A package released by House Democrats in May included about $1 trillion in relief, with $500 billion for states and $375 billion for local governments.

 

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. It is not possible to invest in an index.

Net Asset Value
as of 08/05/2020

Global Resources Fund PSPFX $4.97 0.07 Gold and Precious Metals Fund USERX $14.76 0.28 World Precious Minerals Fund UNWPX $5.38 0.08 China Region Fund USCOX $9.43 0.06 Emerging Europe Fund EUROX $5.93 0.08 All American Equity Fund GBTFX $23.87 0.12 Global Luxury Goods Fund USLUX $16.66 0.21 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change