Cavanal Hill Strategic Enhanced Yield Fund Quarterly Commentary

3Q 2024

Market Overview

The third quarter of 2024 ended with healthy returns across most major asset classes, despite some market volatility. Fixed income markets were especially buoyed by the prospect of lower rates. Most notably, 14 months from its last interest rate hike, the Federal Reserve (the Fed) kick-started its cutting cycle with a 50 basis point (0.50%) cut in September. With the unemployment rate having drifted up from a low of 3.4% in April 2023 to 4.2% at the end of the quarter, Fed officials have now made it clear they do not welcome any further economic weakening and are keen to quickly move interest rates back to less restrictive levels.

The 10-year Treasury began the quarter at 4.40% and fell all quarter long, ending at 3.78%. The U.S. dollar had its first negative quarter of the year, practically erasing its year-to-date, finishing at -4.81%.

Investment grade spreads widened slightly. Within the credit sub sectors, utilities were the best performers overall. Additionally, higher-rated credits outperformed lower-rated ones and longer securities in both the Treasury and corporate bond space outperformed shorter ones significantly.

The high yield (+5.28%), emerging market debt (+5.82%), corporate (+5.85%), mortgage-backed securities (+5.53%), and non-dollar (+8.51%) sectors outperformed the broader Bloomberg U.S. Aggregate index’s return of +5.20% on the quarter. The U.S. Treasury (+4.74%) and government agency securities (+3.40%) sectors trailed the broader index’s return.

How are you positioning the Fund?

We maintained the portfolio’s duration with a shorter target than the benchmark’s, although we began to move it closer to neutrality halfway through the quarter. We maintained an allocation to the “plus” sectors — high yield and emerging market debt —focusing largely on high-quality securities within those sectors. We introduced new corporate names that became solid performers as spreads with Treasuries continued to tighten. Government and corporate bond allocation remained level for most of the quarter. All sectors of the portfolio contributed to its absolute return.

Why should investors consider investing in this fund?

Although interest rates are falling, we believe that longer-term rates will not come down as fast as the short-term issues that are influenced by the Fed’s rate-lowering strategy, so yields will remain at present levels, keeping the Fund’s total return competitive.

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 fame 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 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

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