Cavanal Hill Bond Fund Quarterly Commentary
Market Overview
After months of anticipation, the Federal Reserve (the Fed) lowered the federal funds rate by 50 basis points (0.50%) to a range of 4.75% to 5.00%. With inflation nearing the Fed’s target of 2.0%, and growing signs of economic weakness, the Fed has now shifted focus from inflation to employment. The yield curve has turned positive at the longer end but is still heavily inverted inside of one year. Credit spreads remain historically tight, but less-liquid areas still show some value, including asset-backed securities (ABS) and some parts of the taxable municipal space.
Positioning the Fund
Portfolio composition is subject to change
The Fed has shifted course, and a rate-cutting cycle has begun. We believe duration extension trades continue to make sense, and we are modestly long relative to peers. Though credit spreads have tightened significantly, it’s difficult to envision a scenario of significant widening in the near term. Therefore, we’re looking to maintain our level of credit exposure and add only if we see compelling opportunity. We believe the best opportunities remain in the ABS market, and we maintain a significant overweight to the sector. Spreads have tightened with the rest of credit, but room remains for further tightening and we see the yields as still attractive.
Why should investors consider investing in this fund?
We expect returns to remain higher than they have been in many years. With economic growth slowing and an aggressive Fed finally beginning to cut rates, high quality fixed income should be an attractive asset class in our view.
Disclosures
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 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.
If you’d like additional information about this or any of the Cavanal Hill Funds, please contact Bill King at 855.359.1898, Bill.King@cavanalhill.com, or cavanalhillfunds.com.
Not FDIC Insured | May Lose Value | No Bank Guarantee