During the first quarter, the iMGP Dolan McEniry Corporate Bond Fund had a loss of 4.54% versus the Bloomberg U.S. Intermediate Credit benchmark decline of 5.07%
Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund.To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.imgpfunds.com.
During the first quarter of 2022, volatility continued to make its way through markets as negative returns were seen in many equity and fixed-income markets. The volatility was driven by a variety of factors including rising rates, inflation, and geopolitical concerns. Despite the uncertainty, credit quality remains strong, and yields are substantially more attractive than they were at the end of 2021. Dolan McEniry will continue to monitor markets for any opportunities that may arise.
U.S. Treasury yields increased during the quarter and the curve flattened as the Federal Reserve raised the Federal Funds Rate for the first time since 2018 to 0.25%-0.50% and signaled additional rate hikes in 2022. Higher U.S. Treasury rates combined with wider corporate spreads led to negative returns in many fixed income assets. Despite the negative returns in the first quarter, the resulting higher yields are a welcome change to fixed income investors.
During the quarter, the treasury curve flattened as the 10 year U.S. Treasury yield increased from 1.51% to 2.34%, the 5 year yield increased from 1.26% to 2.46% and the 2 year yield increased from 0.74% to 2.34%. U.S. Treasury rates have increased from pandemic lows but remain low on a historical basis.
Per Bloomberg data, spreads on corporate investment grade bonds widened 24 basis points during the quarter to an average option adjusted spread (“OAS”) of +116 basis points. The OAS of the Bloomberg Corporate High Yield Index widened 42 basis points to +325 basis points at quarter end.
On a relative basis, the iM Dolan McEniry Corporate Bond Fund outperformed the Bloomberg U.S. Credit Intermediate Index by 53 basis points. The fund’s outperformance was driven by its relative outperformance in corporate investment grade and high yield, and overexposure to high yield as opposed to government related securities. The yield curve positioning and duration had a minimal effect on relative performance versus the benchmark.
Outlook and Strategy
Dolan McEniry believes that client portfolios are positioned to provide reasonable absolute and relative returns going forward. Dolan McEniry’s core competence is credit analysis, and we focus on a company’s ability to generate generous amounts of free cash flow over time in relation to its indebtedness. Investment safety and risk mitigation are of primary importance as we continue to search for undervalued fixed income securities. As of March 31st, the iM Dolan McEniry Corporate Bond Fund had a +58 basis point yield premium and similar duration versus the Bloomberg U.S Intermediate Credit. We believe these stats may allow the portfolio to perform well versus the benchmarks over time.
|12/31/21 Stats||iM Dolan McEniry Corporate Bond Fund||Bloomberg Intermediate Credit|
|Yield to Worst||2.22%||1.73%|
|Yield to Maturity||2.52%||1.77%|
|Effective Duration||3.58 Years||4.37 Years|
Yield Curve and Duration: The yield curve positioning and duration had a minimal effect on the performance versus the benchmark.
During the quarter, the iM Dolan McEniry Corporate Bond Fund underperformed the Bloomberg U.S. Credit Intermediate Index by 26 basis points. The fund’s underperformance was driven by the fund’s underperformance in corporate investment-grade.
|Top Performers||Bottom Performers|
|AMC Networks Inc||Oracle Corp.|
|Lumen Technologies Inc.||Qorvo Inc.|
|Microchip Technology Inc.||Qurate Retail Inc.|