Short Term Bond Fund
December data painted a picture of an economy that remains fundamentally resilient but increasingly uneven beneath the surface. Third-quarter gross domestic product (GDP) was revised higher to a robust 4.3% annualized pace, supported by stronger-than-expected consumer spending. Fall retail sales were notably strong, reinforcing momentum in consumer demand heading into year-end.
Inflation data came in well below expectations, with both headline and core Consumer Price Index (CPI) declining meaningfully on a year-over-year basis. While the report was likely distorted by incomplete data collection, lower reported prices may nonetheless lift Personal Consumption Expenditures (PCE) growth and GDP in coming quarters. The labor market continued to cool gradually. Payroll growth was modest in November, revisions remained a headwind, and job gains were increasingly concentrated in specific sectors like healthcare, while manufacturing employment contracted further. Rising labor force participation pushed the unemployment rate higher, even as wage growth continued to decelerate.
At its December meeting, the Fed delivered a widely expected 25 bp rate cut, bringing the funds rate to 3.5%–3.75% and marking 175 bps of cumulative easing over the last fifteen months. Updated projections showed slightly lower inflation, stronger expected growth, and a policy path that remains cautious, with only limited additional easing penciled in over the next two years. Chair Powell emphasized improved confidence in the consumer and productivity gains, while acknowledging ongoing data distortions and growing tension between the Fed’s dual mandate. Treasury yields were slightly higher in December, corporate credit spreads were mostly unchanged, and agency mortgage-backed securities (MBS) spreads tightened.
In Short Term Bond Fund, we remain focused on disciplined rate exposure while selectively adding potential value through credit. We have continued to increase positions in short duration corporates, prioritizing issuers with solid balance sheets as layoff activity broadens and growth becomes more uneven. Agency mortgage holdings benefited from spread tightening during the month, and overall portfolio liquidity has improved. With duration in line with category peers, we believe the fund is positioned to capture incremental income while maintaining flexibility should rate volatility rise in the months ahead.
Multi-Sector Bond Fund
Economic data in December underscored an economy that is holding up well overall, though disparities across sectors are becoming more apparent. Third-quarter GDP was revised upward to an impressive 4.3% annualized pace, bolstered by stronger-than-expected consumer spending. Retail sales for the fall exceeded expectations, helping to sustain household demand as the year came to a close.
Inflation readings were significantly below expectations, with both headline and core CPI showing meaningful declines over the past year. While some distortions from incomplete data collection remain, the softer prices may support stronger real PCE growth and GDP in the quarters ahead. The labor market showed continued moderation. November payroll growth was limited, with revisions weighing slightly, and gains were largely concentrated in sectors such as healthcare. Manufacturing employment, in contrast, declined further. Rising labor force participation contributed to a higher unemployment rate, while wage growth continued to ease.
In December, the Federal Reserve implemented a 25 bp rate cut, bringing the target range to 3.5%–3.75% and marking a cumulative 175 bp of easing since mid-2024. The Fed’s updated projections point to slightly lower inflation and stronger expected growth, signaling a cautious approach with only limited additional easing likely over the next couple of years. Chair Powell noted that consumer spending remains resilient and productivity gains are supportive of economic momentum. He also highlighted that some recent data were distorted and that the Fed continues to navigate the balance between moderating inflation and supporting employment. Market conditions were relatively constant during the month, with modest upward pressure on Treasury yields, little change in corporate credit spreads, and continued tightening in agency MBS.
Within Multi-Sector Bond Fund, positioning reflects this environment. Targeted allocations to rate-sensitive areas, including agency mortgages and longer-dated investment-grade bonds, have been advantageous amid spread tightening. In high yield, the focus remains on shorter-duration bonds from established issuers, maintaining income while controlling risk. Efforts to increase the fund’s coupon profile have aimed to reduce reliance on interest rate movements for returns. Liquidity has improved meaningfully, aided by a significant reduction in asset-backed exposure and maintaining healthy cash reserves.
Past Performance is no guarantee of future results.
The performance data quoted represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. For performance information current to the most recent month-end, please call toll-free 800-544-6060
Sources: Yorktown Management & Research Co., Bloomberg.
All estimates use daily fund pricing and Yorktown's standard credit quality evaluation method.
Definition of Terms
United States Treasury (UST) - the national treasury of the federal government of the United States where it serves as an executive department. The Treasury manages all of the money coming into the government and paid out by it.
Asset-Backed Security (ABS) - An asset-backed security is an investment security --a bond or note --which is collateralized by a pool of assets, such as loans, leases, credit card debt, royalties, or receivables.
Basis Points (bps) - refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
High Yield (HY) - high-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower cre dit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they must pay a higher yield than investbonds to compensate investors.
Investment Grade (IG) - an investment grade is a rating that signifies that a municipal or corporate bond presents a relatively low risk of default.
The funds are distributed by Ulitmus Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC and the other firms referenced in this material.
Gross Domestic Product (GDP) - The total value of goods produced and services provided in a country during one year.
Personal Consumption Expenditures (PCE) - the primary measure of consumer spending on goods and services in the U.S. economy.
Mortgage-backed securities (MBS): Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property.
The fund itself has not been rated by an independent rating agency. Ratings (other than U.S. Treasury securities or securities issued or backed by U.S. agencies) provided by Nationally Recognized Statistical Rating Organizations (NRSRO's) including Standard & Poor's, Moody's, Fitch, Kroll, Morningstar DBRS, A.M. Best, and Egan-Jones. This breakdown is not an S&P credit rating or an opinion of S&P as to the creditworthiness of such portfolio. This breakdown is provided by Yorktown Management & Research. When calculating the credit quality breakdown, the manager selects the middle rating when three or more rating agencies rate a security. When two agencies rate a security, the higher of the two ratings is used, and one rating is used if that is all that is provided. A rating of BB and below would represent below investment-grade. Ratings apply to the credit worthiness of the issuers of the underlying securities and not the fund or its shares.
Ratings may be subject to change.
Investing involves risk, including loss of principal. There is no guarantee that this, or any, investment strategy will succeed. Fixed income investments are affected by a number of risks, including fluctuation in interest rates, credit risk, and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Diversification does not ensure a profit or guarantee against loss.
1 Includes Structured Notes, Preferred, and Corporate Bonds not rated by a Nationally Recognized Statistical Rating Organizatio n (NRSRO).
2 Duration measures the sensitivity of the price (the value of principal) of a fixed -income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. Spread duration is the sensitivity of the price of a security to changes in its credit spread. The credit spread is the difference between the yield of a security and the yield of a benchmark rate, such as a cash interest rate or government bond yield.
3 Rating Sensitive, Component, and Step-Up Bonds.
4 Weightings subject to change.