Ultra Short Tax-Free Income Fund Commentary

1Q 2022

Market Overview

The short end of the municipal market experienced dramatically higher yields in the first quarter as market participants became concerned that the Federal Reserve is behind the curve in the fight against inflation and will need to raise the overnight lending rate more than anticipated. Yields on fixed-rate paper in the 1-year maturity range rose over 100 basis points (1.0%) during the period. This move was not only due to tracking the Treasury market, but also attributable to pressure caused by outflows from municipal bond funds during the quarter. The subsequent selling of bonds by funds in the secondary market in order to meet the redemptions pushed rates higher as supply outweighed demand. Yields on variable rate demand notes (VRDNs) also moved up considerably during the period. The SIFMA index rose from 0.10% to 0.51% during the quarter, reaching its highest level since April 2020.

Positioning the Ultra Short Tax-Free Income Fund

Portfolio composition is subject to change.

The Fund will continue to seek opportunities to lock in attractive yields in the fixed rate market. In addition, with rates on VRDNs finally starting to rise in conjunction with the Fed’s moves, the Fund will look to have a more balanced mix of fixed rate and variable rate holdings.

Why should investors consider investing in this Fund?

The Ultra Short Tax-Free Income Fund should provide an attractive tax-free yield as well as a relatively stable net asset value in a rising rate environment as the Fed continues its tightening cycle in the coming months.

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.
THE SIFMA Municipal Swap index is a 7-day6 high-grade market index comprised of tax-exempt VRDNs reset rates that are reported to the Municipal Securities Rule Making Board’s (MSRBs) SHORT reporting system. The index is calculated on an actual/actual basis and is published every Wednesday by 4pm Eastern Time. The bonds going into the index are selected from all eligible bonds reporting data through the SHORT system that meet the index criteria as set forth by SIFMA. The index is calculated by Bloomberg as the calculation agent for SIFMA.
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. Short term investment grade bonds offer less risk and generally a lower rate of return than longer term higher yielding bonds. Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer term issues and in environments of changing interest rates. The Fund’s income may be subject to certain state and local taxes and, depending on one’s tax status, to the federal alternative minimum tax.

Not FDIC Insured | No Guarantee | May Lose Value

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