Cavanal Hill Limited Duration Fund Quarterly Commentary
Market Overview
In the fourth quarter, the Federal Reserve (the Fed) twice reduced its benchmark interest rate by a quarter percentage point, bringing the target range to 4.25% – 4.50%. The Fed’s decision was influenced by a combination of factors, including a slight uptick in inflation and a need to maintain economic stability amid global uncertainties. Rate cut expectations have dropped significantly as markets increasingly price in a soft landing in 2025. The market will continue to keep an eye on inflation, which has eased to the 2.5% to 3% range.
At year-end, the yield curve was positive across the board, except for a small inversion below 6 months. Credit spreads remain historically tight, though agency mortgage-backed securities (MBS) show some value relative to other market sectors. We believe that less-liquid areas still show some value, such as asset-backed securities (ABS) and some corners of the taxable municipal space.
How are you positioning the fund?
We have added modestly to duration as interest rates have increased. We are overweight to credit. We believe the best opportunities remain in the ABS market, driven by what we believe are unique opportunities. Credit spreads have tightened in ABS but still present a strong risk/return profile in our assessment.
Why should Investors consider investing in this fund?
Expected returns remain higher than they have been in many years. With economic growth slowing and the 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, 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 Funds’ 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 statements, 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 rises 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.