The RCT Flex Cash Fund produced a total return of 0.02% for the trailing 12 months, slightly lagging the Merrill Lynch 91-Day Treasury Bill’s 0.13% return. Given previous changes to the Fund’s average maturity structure and the fee waiver to partially offset the impact of the Fed’s zero short-term interest rate policy, there are no additional methods to meaningfully raise the Fund’s yield while maintaining its high credit quality.
The outlook for more remunerative money market returns remained dim as the year came to a close. There appears to be a low probability of rising short-term interest rates before late 2012, at the earliest. Despite a recent increase in headline inflation due to rising food and energy costs, Fed action to raise rates is unlikely until there is a meaningful reduction in unemployment. CBIS continues to urge participants to utilize short bond alternatives, such as the RCT Short Bond Fund, to enhance yield for portions of cash pools not requiring immediate liquidity while the Fed pursues a zero interest rate policy.
The RCT Short Bond Fund returned 3.34% in 2010, substantially outperforming its benchmark, which returned 2.35%. The nearly 100 basis points in added-value resulted from credit spread tightening in most non-Treasury sectors, as well as an ongoing yield advantage for the Fund over its Treasury benchmark. Aside from a difficult second quarter in which Treasuries rallied on concerns over the European Union debt crisis and slower U.S. economic growth, the Fund consistently added value as the year progressed and continues to rank in the top third of peer managers for the trailing three- and five-year periods.
The RCT Intermediate Diversified Bond Fund returned 7.20% (Class B, 7.27%) for the year, well ahead of the Barclay’s Aggregate Index’s 6.54% return. The Fund’s effective duration was shorter than the benchmark’s for most of the year, producing a modest cost as the 10-year Treasury yield declined by more than 50 basis points. However, non-Treasury-sector spread tightening provided substantial relative value, particularly due to the Fund’s credit sector overweight and gains from its approximately 4.5% allocation to below-investment-grade issues. It is notable that although the Treasury curve flattened modestly, the corporate spread curve steepened, causing credit spreads for intermediate maturities to tighten far more than for long-term maturities. The Fund’s corporate exposure was gradually increased during the year, while its mortgage-backed exposure was further reduced, thereby avoiding some of the volatility that plagued mortgages due to Agency actions and foreclosure-related uncertainties. The Fund ranked in the 79th percentile of peer Core Plus Bond managers for the year, lagging peers due to its relatively shorter duration and smaller exposure to below-investment-grade debt. However, the Fund ranked in the top 30% of bond managers for the trailing three- and five-year periods.
|Total Assets Under Management|
|(in millions) 12/31/10||$4,025.4|
|RCT - Fixed-Income||$1,191.1|
|CUIT - Balanced & Equity||$2,160.8|
|Individually Managed Portfolios||$673.5|
CBIS continues to urge participants to utilize short bond alternatives, such as the RCT Short Bond Fund, to enhance yield for portions of cash pools not requiring immediate liquidity while the Fed pursues a zero interest rate policy.