Third Quarter 2020

The Near-Term Tax Free Fund had a total return of 0.68 percent in the third quarter of 2020, just underperforming its benchmark, the Bloomberg Barclays Municipal Bond 3 Year Index, which returned 0.71 percent. See complete fund performance here.

The main source of underperformance came from underweighting exposure in the 1-3 year maturity range, as the benchmark had stronger performance in that maturity range. 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 5-7 year range was a positive contributor as performance was strong in that area of the curve.
  • The fund’s allocation to District of Columbia bonds contributed positively to performance, as they outperformed the benchmark and carried a higher weighting.
  • The fund’s allocation to school district bonds contributed positively to performance, as they outperformed the benchmark and carried a higher weighting.

Weaknesses

  • The fund’s underweight allocation to the 1-3 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 New Jersey bonds contributed negatively to performance, as they underperformed the benchmark.
  • The fund’s allocation to power bonds contributed negatively to performance, as the benchmark’s exposure had stronger performance and carried a higher weighting.

Outlook

Uncertainty around fiscal policy and the pending U.S. presidential election has left many investors on the sidelines, reluctant to put their cash to work in the municipal market. After extended debate, a new stimulus package with aid to municipal and local government entities has yet to be passed as of the September quarter end. While municipal issuers would certainly benefit from another package, further delays won’t necessarily translate to a sharp deterioration in credit quality. Downgrades are likely to occur, but those most impacted will be credits that already had weaker operating or financial positions entering the recession.

As fiscal stimulus negotiations re-intensify and Democrats expand their lead in the polls, the focus on fundamentals may soon shift toward expectations for higher taxes and increased need for tax-exempt income. The coming months are likely to remain volatile and could see a flood of issuance ahead of the U.S. election that is similar in magnitude to the pull-forward in issuance experienced in December 2017 ahead of tax reform.

 

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 10/26/2020

Global Resources Fund PSPFX $4.83 -0.14 Gold and Precious Metals Fund USERX $13.23 -0.22 World Precious Minerals Fund UNWPX $4.73 -0.20 China Region Fund USCOX $9.42 -0.08 Emerging Europe Fund EUROX $5.39 -0.10 All American Equity Fund GBTFX $23.97 -0.39 Global Luxury Goods Fund USLUX $17.07 -0.33 Near-Term Tax Free Fund NEARX $2.24 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change