Limited Duration Fund Commentary

3Q 2021

Market Overview

Third-quarter economic growth was notably slower than the rapid pace experienced during the first two quarters of 2021 and much lower than consensus forecasted at the beginning of the period. While growth slowed, inflation continued its trend higher during the quarter as commodity prices, led by energy, rose sharply. These two trends (slower growth and higher inflation) seemed to offset each other during the quarter as fixed income markets exhibited very little volatility. Interest rates across the curve ended the quarter barely changed from their starting levels, and returns in many fixed income sectors were close to zero.

Positioning the Limited Duration Fund

Portfolio composition is subject to change.

With inflation at elevated levels and economic growth expected to rebound in the fourth quarter, we believe the most likely path for interest rates should be higher. Given our expectation of higher rates, we are maintaining a short position versus our benchmark.

Markets are currently quite liquid and seem likely to stay that way for the foreseeable future. In this type of environment, we believe it makes sense to take liquidity risk in portfolios. This is the reason we continue to hold a large underweight to government sectors versus the benchmark.

Corporate spreads remain tight, especially on the short end of the yield curve. Though we don’t expect corporate spreads to widen materially, we continue to favor the risk/return profile of the non-agency securitiezed markets.

In summary:

  • Short duration
  • Underweight government sectors
  • Overweight non-agency ABS/MBS

Why should investors consider investing in this Fund?

With money market funds yielding nearly zero percent, it may make sense for investors to move out on the yield curve with a portion of their cash. This fund could represent a relatively high-quality short duration substitute for those investors. With benchmarks so heavily weighted to lower-yielding government sectors, we continue to believe that actively managed fixed income is preferable to passive strategies.

DISCLOSURES

An investor should consider a fund’s investment objectives, risks and charges and expenses carefully before investing or sending money This and other important information about an investment company can be found in the fund’s prospectus. To obtain a Cavanal Hill Funds prospectus or summary prospectus, please call 800-762-7085 or visit us at www.cavanalhillfunds.com. Please read it carefully before investing.

Cavanal Hill Investment Management, Inc. is an SEC registered investment adviser and a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company (“BOKF”). BOKF, NA serves as the custodian for the Cavanal Hill Funds. Cavanal Hill Investment Management, Inc. provides investment advice, administration and other services for the Funds and receives a fee for providing such services as fully described in the prospectus. The Funds are distributed by Cavanal Hill Distributors, Inc. a registered Broker/Dealer, member FINRA and wholly-owned subsidiary of BOKF
Commentary provided is for the indicated period and is designed to provide a frame of reference. It does not constitute investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The opinions expressed herein reflect the judgment of the authors at this date and are subject to change without notice and are not a complete analysis of any sector, industry or security. This document contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the Cavanal Hill Funds, the securities and credit markets and the economy in general. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve judgments as to expected events are inherently forward-looking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security, group of securities, type of security or market segment involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. The potential realization of these forward-looking statements is subject to a number of limitations and risks, which are described in the Fund’s prospectuses, and investors or potential investors, are cautioned to review the Funds’ prospectuses and the description of such risks. Neither the Funds not the Funds’ investment adviser, Cavanal Hill, undertake any obligation to update, amend, or clarify forward-looking statement, whether as a result of new information, future events or otherwise.

Investment Risks

Fixed income securities are subject to interest rate risks. The principal value of a bond falls when interest rates rise and rise when interest rates fall. During periods of rising interest rates, the value of a bond investment is at greater risk than during periods of stable or falling rates. Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in prices, especially for longer-term issues and in environments of changing interest rates.

Not FDIC Insured | No Guarantee | May Lose Value

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