Overweight?

The Treasury component of the Bloomberg Barclays US Aggregate Index has increased quite drastically, from 22.4% as of Dec. 31, 2007 to 37.0% as of June 30, 2017, as seen in the charts below. The main reason for this change is related to the heavy issuance of US Treasury securities after the 2008 financial crisis, which ultimately increased the weighting to that particular sector.

Source: Barclays Live and Morningstar Direct, as of Dec. 31, 2007, and June 30, 2017 – Bloomberg Barclays US Aggregate Index

What this means for investors

Since many passive, intermediate fixed income strategies track the allocation of the Bloomberg Barclays US Aggregate Index, their portfolios would also reflect a heavy weighting toward Treasurys. Therefore, these strategies can be very sensitive to interest rate risk and also have lower income potential from the higher allocation to Treasurys. A skilled active manager has the flexibility to diversify across sectors to decrease duration risk and increase yield.

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds. The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio. Duration is a measurement of the sensitivity of a bond’s price to a 1% change in interest rates, given the bond’s coupon rate and maturity.

Duration is a measurement of the sensitivity of a bond’s price to a 1% change in interest rates, given the bond’s coupon rate and maturity.

Index performance returns do not reflect any management fees, transaction costs, or expenses.

Indices are unmanaged and one cannot invest directly in an index.

The Bloomberg Barclays US Aggregate Index is a broad composite that tracks the investment grade domestic bond market.

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