Limited Duration Fund Commentary
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.
- 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.
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.
Not FDIC Insured | No Guarantee | May Lose Value