July 15, 2020
During the second quarter of 2020, the Osterweis Strategic Income Fund (the Fund) generated a total return of 7.38% compared to 2.90% for the Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg). The Fund’s annualized total returns over the one-year, five-year, and ten-year periods ending June 30, 2020 were -0.10%, 3.27% and 4.72%, respectively, compared to 8.74%, 4.30%, and 3.82% for the BC Agg over the same periods.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling (866) 236-0050. An investment should not be made solely on returns. The Fund’s gross expense ratio was 0.87% as of March 31, 2020.
Although Covid-19 remains a major concern, particularly given the recent spike in U.S. cases, the second quarter was largely a time of recovery for both the economy and the financial markets. Aided by a veritable plethora of government stimulus programs – over 400 have been implemented globally since early March – domestic stock and bond indexes retraced much of their first quarter losses and are again near their pre-pandemic levels. Likewise, employment data improved during the quarter, as the U.S. unemployment rate fell from a high of 14.7% to 11.1%. While still elevated, the trend is favorable.
Another positive sign is that the capital markets have been functioning exceptionally well. In fact, corporations have been raising record amounts of capital to ensure they have liquidity to weather the storm. According to JP Morgan, high yield companies raised over $142 billion in debt during the second quarter, which is the highest quarterly total of all time, and over $215 billion during the first half, which is also among the highest first half totals ever.
While we do not expect the recovery to be v-shaped or a straight line, we believe that the worst of the economic and market fallout from the pandemic is likely behind us. The recent volatility has allowed us to acquire high quality bonds and convertibles at favorable valuations, and we maintain a healthy cash balance should additional opportunities arise.
We thank you for the continued confidence and look forward to continuing our relationship. We welcome any questions or comments that you have.
This commentary contains the current opinions of the authors as of the date above, which are subject to change at any time. This commentary has been distributed for informational purposes only and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.
The Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) is an unmanaged index which is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.
A basis point is a unit that is equal to 1/100th of 1%.
The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting www.osterweis.com/statpro. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.
Mutual fund investing involves risk. Principal loss is possible.
The Osterweis Strategic Income Fund may invest in debt securities that are un-rated or rated below investment grade. Lower-rated securities may present an increased possibility of default, price volatility or illiquidity compared to higher-rated securities. The Fund may invest in foreign and emerging market securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Small- and mid-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Higher turnover rates may result in increased transaction costs, which could impact performance. From time to time, the Fund may have concentrated positions in one or more sectors subjecting the Fund to sector emphasis risk. The Fund may invest in municipal securities which are subject to the risk of default.
While the fund is no-load, management fees and other expenses still apply. Please refer to the prospectus for more information.
Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC.