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Market environment continued to improve
Just one year ago, investors were digesting the Lehman Brothers collapse — one event among many notable structural changes in the financial marketplace and in a climate in which the credit markets had effectively closed for business. Fast forward to September 2009. Yield spreads have tightened considerably because of ongoing government intervention to remove illiquid assets from bank balance sheets. New issuance has turned a corner and seen a healthy pickup in 2009. Risk aversion has abated and an appetite for risk has taken hold over the course of these past several months. Spread compression this quarter was greater for securities rated at a lower tier in credit quality. By many accounts, it seems that the economy’s slide has been checked, with muted or rising indicators signaling that we may be in the initial stages of a recovery (albeit a slow and sluggish one). Thus far, the Federal Reserve Board has indicated that it will not move the target rate from the zero-to-0.25% range at any point in the near term.
Treasury yields decreased across all maturities in the third quarter, despite the continued massive supply of Treasury debt to fund the Treasury department’s unprecedented spending in response to the financial crisis.
In this environment, the fund outpaced its primary benchmark, the Barclays Capital U.S. Credit Bond Index and its blended benchmark, which combines the Barclays Capital U.S. Credit Bond Index (85%) and the JPMorgan Global High Yield Index (15%).
Performance attribution
Investment-grade credit had a positive impact on performance. An overweight in financials — mainly banks, brokers and insurers — as well as natural gas pipelines, proved favorable. Lower-tier, BBB-rated debt outperformed higher-quality AAA-rated debt. The fund’s high-yield stake was a positive contributor to the fund’s return for the quarter.
The fund’s long-duration positioning was evenly spread along the curve, with the exception of the very long end. Because the long end outperformed the rest of the curve, curve positioning detracted from relative performance.
Market outlook
We believe that corporate debt looks inexpensive by historical standards, and we remain positive in our outlook for the sector. As noted here before, we continue to recommend an underweight in the consumer cyclical sector.
Performance data quoted represents past performance, and current performance may be lower or higher. Past performance is no guarantee of future results.
Brandes Investment Partners, LP is an unaffiliated, SEC-registered investment adviser.
Please read and consider the investment objectives, risks, charges and expenses for any fund carefully before investing. For a prospectus, which contains this and other important information about the fund, contact your Columbia Management representative or financial advisor or go to www.columbiamanagement.com.
Barclays Capital U.S. Credit Bond Index measures performance of investment-grade corporate debt and sovereign, supranational, local authority and non-U.S. Agency bonds that are U.S. dollar denominated and have a remaining maturity of greater than or equal to 1 year.
The JPMorgan Global High Yield Index is designed to mirror the investable universe of the U.S. dollar global high- yield corporate debt market, including domestic and international issues.
Unlike mutual funds, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index.
Effective November 3, 2008, the Lehman Brothers indices were renamed Barclays Capital indices.
Effective June 19, 2009, the fund changed its primary benchmark to the Barclays Capital U.S. Credit Bond Index. The fund’s secondary benchmark was changed to a blended benchmark, a weighted custom composite consisting of 85% Barclays Capital U.S. Credit Bond Index and 15% JPMorgan Global High Yield Index. Prior to June 19, 2009, the Barclays Capital U.S. Intermediate Government/Credit Bond Index and the Barclays Capital U.S. Intermediate Credit Bond Index were the fund’s primary and secondary benchmarks, respectively.
Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts will come to pass. The views and opinions expressed are those of the portfolio managers and analysts of the affiliated advisors of Columbia Management Group, are subject to change without notice at any time, may not come to pass and may differ from views expressed by other Columbia Management associates or other divisions of Bank of America. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security or sector.
There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. It should not be assumed that any securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions made in the future will be profitable or will equal the investment performance of the securities discussed herein.
Columbia Management Group, LLC (“Columbia Management”) is the investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and products for institutional and individual investors. Columbia Funds are distributed by Columbia Management Distributors, Inc., member FINRA and SIPC. Columbia Management Distributors, Inc. is part of Columbia Management and an affiliate of Bank of America Corporation. |