Fund performance Excluding fees, the Columbia Absolute Return Currency and Income Fund Class A shares outperformed its benchmark, the Citigroup 3-Month Treasury Index, returning 0.69% compared to the benchmark's 0.01% return for the first quarter. For up-to-date fund performance, please visit columbiamanagement.com.
Market overview During the first quarter, the U.S. economy generated enough solid economic data to raise consumer expectations and restore investor confidence. First quarter 2012 growth forecasts are between 1% and 2%, buoyed by solid manufacturing activity and improving job growth. Even though growth remains modest, it continues to broaden across key sectors. Consumer confidence rose along with higher expectations for business conditions over the long term.
Against this generally favorable backdrop, U.S. equity markets delivered the strongest first-quarter gains in more than 10 years. The S&P 500 Index, a broad measure of largecap stock performance, gained 12.59% with dividends reinvested. Financials, technology and consumer discretionary stocks led the market rally, while utilities stocks declined. Most segments of the U.S. fixed-income markets delivered modest first-quarter returns. Barclays Aggregate Bond Index, a broad measure of investment-grade corporate and government bonds, returned 0.30%. Securitized bonds and Treasury Inflation Protected Securities (TIPS) returned 0.74% and 0.86%, respectively, as measured by the Barclays Securitized Index and the Barclays TIPS Index. By contrast, high yield and emerging market bonds posted gains of 5.05% and 4.86%, respectively, as measured by the BofA Merrill Lynch High Yield Cash Pay Index and the JPMorgan Emerging Bond Index. U.S. Treasury returns were negative, as the yield on the bellwether 10-year Treasury rose from 1.89% to 2.23% over the period.
Performance contributors and detractors The Absolute Return Currency and Income Fund posted positive results during the quarter, producing a 0.69% return (excluding fees). Our G10 currency strategy performed well over the quarter. The factors were mixed, with carry and asset market factors contributing the most, as the risk trade performed well for the first two months of the year. The model benefited the most from long positions in the Swedish krona and the Norwegian krone and short positions in the Japanese yen and Swiss franc. The euro and the Australian dollar had a negative impact on returns over the quarter and the remaining currency contributions were fairly flat.
Outlook Most major markets experienced strong returns during the first quarter. Greater clarity around European debt resolution and economic, jobs and retail data seemed to confirm for investors that a recovery is under way.
The struggle between improving U.S. market fundamentals and continued macroeconomic worries are likely to persist. The Federal Reserve (Fed) recently highlighted moderate, but improving, U.S. economic growth, but also stressed a need for its accommodative monetary policy to bring down unemployment. The European Central Bank (ECB) has made some extraordinary efforts to address market liquidity pressures brought on by the sovereign debt crisis, but evidence suggests the underlying indebtedness issues are far from resolved. This dovish approach to monetary policy and liquidity has the markets flush with cash, but has allowed for de-emphasis toward fundamental analysis and company differentiation. This, combined with an unstable Middle Eastern and North Korean nuclear situation and a slowing Chinese economy, has made it clear that conflicting information will continue to plague the global markets.
Results for 2012 will depend on whether the improving U.S. economy can offset the relative slowness being experienced by China. Furthermore, the accommodative nature of the Fed and the ECB will eventually end, requiring managers with a strong fundamental analysis background to evaluate between alternatives. Opportunities will emerge but volatility will also be present, as global governments move toward resolutions. Our feeling that the major source of volatility in 2012 will likely be the market's reaction to leadership policies has not changed. We recommend including an assortment of strategies with low correlation to each other to buffer against any unexpected events. We try to manage our absolute return funds to offer the potential for reduced correlation to broad markets, while minimizing volatility and producing positive absolute returns.
Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. For a free prospectus, which contains this and other important information about the funds, visit columbiamanagement.com. The prospectus should be read carefully before investing.
Columbia Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA and managed by Columbia Management Investment Advisers, LLC.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance. Asset classes described in this commentary may not be suitable for all investors. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts are accurate.
1The returns shown for periods prior to the share class inception date (including returns since inception, which are since fund inception) include the returns of the fund's oldest share class. These returns are adjusted to reflect any higher class-related operating expenses of the newer share classes, as applicable. Please visit columbiamanagement.com/mutual-funds/appended-performance for more information.
Current and future fund holdings are subject to risk.
Additional performance information: All results shown assume reinvestment of distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Gross Expense Ratio: Fund expense ratios are calculated based on the Fund's average net assets during the Fund's most recently completed fiscal year (or based on estimated amounts for funds that have been in existence less than one year), and have not been adjusted for current asset levels. If adjusted for any decrease or increase in assets, expense ratios would be higher or lower, respectively, than the numbers shown above. Please see the Fund's prospectus for additional details.
The Citigroup 3-Month Treasury Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3 month Treasury Bill issues.
The S&P 500 Index is an unmanaged list of common stocks which includes 500 large companies.
The Barclays Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.
The Barclays Securitized Index is a component of the Barclays U.S. Aggregate Index and consists of the ABS, CMBS and MBS components 'The Barclays TIPS Index consists of Inflation-Protected securities issued by the U.S. Treasury. The index rules are that securities: (1) must have at least one year to final maturity, (2) must have at least $100 million par amount outstanding, (3) must be rated investment grade (Baa3 or better) by Moody's Investors Service, if a Moody's is not available, the S&P or Fitch rating is used, (4) must be a fixed rate, (5) must be dollar-denominated and non-convertible, (6) must be publicly issued, and (7) must be a U.S. Treasury Inflation Note.
The BofA Merrill Lynch High Yield Cash Pay Index is an unmanaged index used as a general measure of market performance consisting of fixed-rate, coupon-bearing bonds with an outstanding par which is greater than or equal to $50 million, a maturity range greater than or equal to one year and must be less than BBB/Baa3 rated but not in default.
The JPMorgan Emerging Market Bond Index measures the total return performance of international government bonds issued by emerging market countries that are considered sovereign (issued in something other than local currency) and that meet specific liquidity and structural requirements.
It is not possible to invest directly in an index.
Also check out:
Market overview During the first quarter, the U.S. economy generated enough solid economic data to raise consumer expectations and restore investor confidence. First quarter 2012 growth forecasts are between 1% and 2%, buoyed by solid manufacturing activity and improving job growth. Even though growth remains modest, it continues to broaden across key sectors. Consumer confidence rose along with higher expectations for business conditions over the long term.
Against this generally favorable backdrop, U.S. equity markets delivered the strongest first-quarter gains in more than 10 years. The S&P 500 Index, a broad measure of largecap stock performance, gained 12.59% with dividends reinvested. Financials, technology and consumer discretionary stocks led the market rally, while utilities stocks declined. Most segments of the U.S. fixed-income markets delivered modest first-quarter returns. Barclays Aggregate Bond Index, a broad measure of investment-grade corporate and government bonds, returned 0.30%. Securitized bonds and Treasury Inflation Protected Securities (TIPS) returned 0.74% and 0.86%, respectively, as measured by the Barclays Securitized Index and the Barclays TIPS Index. By contrast, high yield and emerging market bonds posted gains of 5.05% and 4.86%, respectively, as measured by the BofA Merrill Lynch High Yield Cash Pay Index and the JPMorgan Emerging Bond Index. U.S. Treasury returns were negative, as the yield on the bellwether 10-year Treasury rose from 1.89% to 2.23% over the period.
Performance contributors and detractors The Absolute Return Currency and Income Fund posted positive results during the quarter, producing a 0.69% return (excluding fees). Our G10 currency strategy performed well over the quarter. The factors were mixed, with carry and asset market factors contributing the most, as the risk trade performed well for the first two months of the year. The model benefited the most from long positions in the Swedish krona and the Norwegian krone and short positions in the Japanese yen and Swiss franc. The euro and the Australian dollar had a negative impact on returns over the quarter and the remaining currency contributions were fairly flat.
Outlook Most major markets experienced strong returns during the first quarter. Greater clarity around European debt resolution and economic, jobs and retail data seemed to confirm for investors that a recovery is under way.
The struggle between improving U.S. market fundamentals and continued macroeconomic worries are likely to persist. The Federal Reserve (Fed) recently highlighted moderate, but improving, U.S. economic growth, but also stressed a need for its accommodative monetary policy to bring down unemployment. The European Central Bank (ECB) has made some extraordinary efforts to address market liquidity pressures brought on by the sovereign debt crisis, but evidence suggests the underlying indebtedness issues are far from resolved. This dovish approach to monetary policy and liquidity has the markets flush with cash, but has allowed for de-emphasis toward fundamental analysis and company differentiation. This, combined with an unstable Middle Eastern and North Korean nuclear situation and a slowing Chinese economy, has made it clear that conflicting information will continue to plague the global markets.
Results for 2012 will depend on whether the improving U.S. economy can offset the relative slowness being experienced by China. Furthermore, the accommodative nature of the Fed and the ECB will eventually end, requiring managers with a strong fundamental analysis background to evaluate between alternatives. Opportunities will emerge but volatility will also be present, as global governments move toward resolutions. Our feeling that the major source of volatility in 2012 will likely be the market's reaction to leadership policies has not changed. We recommend including an assortment of strategies with low correlation to each other to buffer against any unexpected events. We try to manage our absolute return funds to offer the potential for reduced correlation to broad markets, while minimizing volatility and producing positive absolute returns.
Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. For a free prospectus, which contains this and other important information about the funds, visit columbiamanagement.com. The prospectus should be read carefully before investing.
Columbia Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA and managed by Columbia Management Investment Advisers, LLC.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance. Asset classes described in this commentary may not be suitable for all investors. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts are accurate.
1The returns shown for periods prior to the share class inception date (including returns since inception, which are since fund inception) include the returns of the fund's oldest share class. These returns are adjusted to reflect any higher class-related operating expenses of the newer share classes, as applicable. Please visit columbiamanagement.com/mutual-funds/appended-performance for more information.
Current and future fund holdings are subject to risk.
Additional performance information: All results shown assume reinvestment of distributions and do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Gross Expense Ratio: Fund expense ratios are calculated based on the Fund's average net assets during the Fund's most recently completed fiscal year (or based on estimated amounts for funds that have been in existence less than one year), and have not been adjusted for current asset levels. If adjusted for any decrease or increase in assets, expense ratios would be higher or lower, respectively, than the numbers shown above. Please see the Fund's prospectus for additional details.
The Citigroup 3-Month Treasury Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3 month Treasury Bill issues.
The S&P 500 Index is an unmanaged list of common stocks which includes 500 large companies.
The Barclays Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.
The Barclays Securitized Index is a component of the Barclays U.S. Aggregate Index and consists of the ABS, CMBS and MBS components 'The Barclays TIPS Index consists of Inflation-Protected securities issued by the U.S. Treasury. The index rules are that securities: (1) must have at least one year to final maturity, (2) must have at least $100 million par amount outstanding, (3) must be rated investment grade (Baa3 or better) by Moody's Investors Service, if a Moody's is not available, the S&P or Fitch rating is used, (4) must be a fixed rate, (5) must be dollar-denominated and non-convertible, (6) must be publicly issued, and (7) must be a U.S. Treasury Inflation Note.
The BofA Merrill Lynch High Yield Cash Pay Index is an unmanaged index used as a general measure of market performance consisting of fixed-rate, coupon-bearing bonds with an outstanding par which is greater than or equal to $50 million, a maturity range greater than or equal to one year and must be less than BBB/Baa3 rated but not in default.
The JPMorgan Emerging Market Bond Index measures the total return performance of international government bonds issued by emerging market countries that are considered sovereign (issued in something other than local currency) and that meet specific liquidity and structural requirements.
It is not possible to invest directly in an index.
Also check out:
