Cavanal Hill Limited Duration Fund Quarterly Commentary
Market overview
The first quarter of 2025 was a period of economic challenges and adjustments marked by significant economic fluctuations in the U.S. The U.S. economy went from forecasts of solid growth to a potentially sharp reversal due to weaker consumer spending and a record trade deficit plus a high degree of uncertainty regarding tariffs and other economic policies from the new administration.
Unemployment has stabilized for now just north of 4.00%. Consumer spending declined as consumer confidence ebbed due to uncertainty about tariffs and inflation. The Federal Reserve held the federal funds rate at 4.25% to 4.50% in the first quarter, but it still projected two rate cuts by the end of 2025. Globally, the economic outlook was characterized by divergent paths and elevated policy uncertainty. European markets outperformed the U.S. for the quarter for the first time in years.
Despite these challenges, few worries are evident in the fixed income markets. Credit spreads remain very tight, even though they widened somewhat during the quarter. They are remarkably sanguine, showing little evidence of longer-term economic turmoil. For the quarter, the Bloomberg U.S. Aggregate Index returned 2.78%.
How the Fund is positioned:
We remain overweight asset-baked securities. We continue to believe that the risk/return profile of these securities is superior to other credit-based sectors. Despite the decline in rates during the first quarter, yield levels remain attractive. Accordingly, we would view any large increases in rates or spreads as selective buying opportunities. We would look to reduce our modestly long duration stance should rates decline significantly.
Why should investors consider investing in this fund?
With economic uncertainty rising along with financial market volatility, high quality fixed income should be a particularly attractive asset class now and for the foreseeable future in our view.
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.
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