Short Term Bond Fund
The Florida Trust Short-Term Bond Fund posted a total return of 0.47% in June, versus the benchmark BAML 1-3 Year Treasury Index return of 0.60%. For the fiscal year-to-date period beginning October 1, 2015, the fund posted a 1.17% total return versus the benchmark return of 0.99%.
Within the 1-3 year credit sectors, financials continue to lag compared to industrials and utilities. Despite the temporary spike in volatility following the Brexit vote, all spread sectors ended the quarter with positive total returns. New issuance of corporate bonds was slow for almost the entire month, but the last two days brought in $26B of new bonds by issuers including Oracle Corp. ($14B) and Molson Coors Brewing Co., helping June hit its target of $85B of new issuance.
Following the UK referendum, we actively reviewed the portfolio’s positioning and continue to follow our credit process to digest new information, but do not see any major changes in our fundamental outlook at this time. Of special importance to both the Day to Day and Short Term Bond Fund portfolios is that short-term funding markets are not currently showing signs of financial market stress and it appears liquidity has not materially waned. Whether using LIBOR yields, repurchase agreement rates, Federal Funds markets or Treasury market bid/ask spreads, none indicate major funding issues for financial institutions, large positions being unwound, or massive deleveraging.
The Florida Trust Short Term Bond Fund holds a diversified mix of sectors for income generation. We continue to look for opportunities to move maturities out the yield curve to capture higher yields, while maintaining S&P’s AAA rating. Corporate bonds remain attractive, and we anticipate maintaining our exposure through the purchase of bonds in the new issue market. We also use an allocation of high-quality asset-backed and mortgage-backed securities (ABS/MBS) with short duration profiles for their yield and diversification benefits. Portfolio duration of 1.46 years was 0.06 lower from the prior month end and the market yield for the portfolio was 0.06 lower at 0.98%. The Fund had withdrawals of $12.2 million in June.