Strategic Enhanced Yield Fund Commentary

1Q 2023

Market Overview

Bonds rallied during January only to reverse direction in February and reverse again in March. The end result for the quarter was a positive return for the Treasury sector. Financial corporate bonds were affected by the bank crisis in March, which lowered the investment grade corporate sector return. Passthrough mortgages also contributed to relative performance. The high yield securities in the portfolio behaved similarly to their higher-rated counterparts. Emerging market debt was the performance laggard during most of the quarter. Longer-duration issues performed significantly better than short and intermediate-duration ones.

Positioning the Strategic Enhanced Yield Fund

Portfolio composition is subject to change. With the present economic and geopolitical environment, we are maintaining the portfolio in a defensive position, as the Federal Reserve (the Fed) continues to indicate that the fight for lowering inflation is ongoing. Overall, shorter duration, and a neutral duration Treasury sector will help to protect the portfolio against sudden “flight to safety” instances. We are maintaining the Fund’s positions in the financials and high yield sectors while monitoring them closely.

Notable Changes to the Portfolio

Although the investment grade corporate index performed well in March due to its longer duration, the volatility associated with that sector calls for caution as corporate spreads fluctuated across a 45-basis point (0.45%) range. And despite the creditworthiness associated with the mortgagebacked securities (MBS) sector, that sector’s performance was somewhat disappointing in March and year to date due to spread widening. Hence, our positioning favors the Treasury and Agency sectors as we maintain a more defensive position in the MBS and credit sectors. Finally, we assume trading range in rates during this quarter as the market sorts out the Fed’s dilemma of addressing inflation while aware of concerns over financial stability.

Why should investors consider investing in this Fund?

The portfolio’s yield remains attractive with potential price improvements. As inflation pressures are tamed, capital appreciation could also contribute to positive performance. As the global economy continues to strengthen, sectors such as emerging market debt and high yield bonds could contribute significantly to make this fund a high risk-adjusted return investment.

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 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 forwardlooking 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 nor 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.

Short-term investment-grade bonds offer less risk and generally a lower rate of return than longer-term higher yielding bonds. High-yield bonds,“commonly referred to as junk bonds,” have a higher risk of default or other adverse credit events, but have the potential to pay higher earnings over investment-grade bonds. The higher risk of default, or the inability of the creditor to repay its debt, is the primary reason for the higher interest rates on high-yield bonds. International investing involves increased risk and volatility.

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