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Commentary iMGP Dolan McEniry Corporate Bond Fund First Quarter 2022 Commentary

Portfolio Commentary

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.

Market Review

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.

Portfolio Commentary

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 StatsiM Dolan McEniry Corporate Bond FundBloomberg Intermediate Credit
Yield to Worst 2.22%1.73%
Yield to Maturity 2.52%1.77%
Effective Duration 3.58 Years4.37 Years
Average Coupon4.10%2.93%

Attribution Commentary

Yield Curve and Duration:  The yield curve positioning and duration had a minimal effect on the performance versus the benchmark. 

Commentary:

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.

Security Selection

Top PerformersBottom Performers
AMC Networks IncOracle Corp.
Lumen Technologies Inc.Qorvo Inc.
Microchip Technology Inc.Qurate Retail Inc.

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DISCLOSURE

Must be preceded by or accompanied by a Prospectus.  The funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188, or visiting imgpfunds.com. Read it carefully before investing.

Mutual fund investing involves risk. Principal loss is possible. Past performance does not guarantee future results. 

Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments by the Fund in lower-rated securities presents a greater risk of loss of principal and interest than higher-rated securities. Foreign securities are subject to risks relating to political, social, economic developments abroad and differences between U.S. and foreign regulatory requirements and market practices, including fluctuations in foreign currencies.

Credit Ratings are grades given to bonds that indicate their credit quality as determined by a Nationally Recognized Statistical Rating Organization (“NRSRO”) such as Standard and Poor’s, Moody’s, and Fitch. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which is the highest grade, to ‘D’, which is the lowest grade. If NRSRO ratings differ, the security will be considered to have received the highest of those ratings. For securities rated by an NRSRO other than S&P, the Adviser converts that rating to the equivalent S&P rating. Securities not rated by an NRSRO appear in the “Not Rated/Unavailable” category. Ratings are subject to change.

A basis point is a value equaling one one-hundredth of a percent (1/100 of 1%)

Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration.

Free cash flow is the amount of cash a company has after expenses, debt service, capital expenditures and dividends.

Effective duration is a calculation used to approximate the actual, modified duration of a callable bond. It takes into account that future interest rate changes will affect the expected cash flows for a callable bond.

Investment grade bond is a bond with a rating of AAA to BBB

The option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option. Typically, an analyst uses Treasury yields for the risk-free rate. The spread is added to the fixed-income security price to make the risk-free bond price the same as the bond.

Treasury yield refers to the percentage return on investment (ROI) on the U.S. government debt instruments. For simplicity, Treasury Yield is the interest that the Treasury department pays you for allowing the government to borrow money from you for a fixed duration.

The 10-year Treasury yield is the current rate Treasury notes would pay investors if they bought them today. The 10-year Treasury yield is closely watched as an indicator of broader investor confidence.

Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. The curve is used to predict changes in economic output and growth.

Yield to Worst is the lowest potential yield that can be received on a callable bond without the issuer actually defaulting.

Yield to Maturity is the rate of return anticipated on a bond if it is held until the maturity date.

Average Coupon is the average of each bond in the portfolio’s rate of interest

Bloomberg Barclays U. S. Aggregate Index  is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS (agency and non-agency).

Bloomberg Barclays U.S. Corporate High Yield Index is an unmanaged, U.S. dollar– denominated, nonconvertible, non-investment-grade debt index. The index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million.

Bloomberg Barclays U.S. Intermediate Credit Index:  is the intermediate component of the Bloomberg Barclays U.S. Credit Index. The Bloomberg Barclays U.S. Credit Index measures the investment grade, US dollar-denominated, fixed-rate, taxable, corporate and government – related bond markets. It is composed of the US Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals, and local authorities.

Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. 

iM Global Partner Fund Management, LLC  has ultimate responsibility for the performance of the IMGP  Funds due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement.

The IMGP  Funds are Distributed by ALPS Distributors, Inc.  LGM 001218  exp. 7/31/2022