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In Q1 2026, the Fund saw a slight drop in value as investors reversed positions on rate cuts as
credit spreads widened for longer-term securities. Over the past three years, the Fund has delivered
a net annualized total return of 4.33%, reflecting consistent income generation and disciplined
portfolio positioning.
The first quarter of 2026 for U.S. fixed income markets was defined by a shift in investor focus
toward inflation persistence and the macroeconomic implications of the escalation of the Iran
conflict. Treasury yields moved modestly higher across much of the curve, driven by renewed
concerns around energy-driven inflation and increased term premia, while volatility picked up
relative to the subdued conditions observed at the end of 2025. Despite these pressures, demand
for high-quality fixed income remained intact, supported by still-attractive absolute yields and a
growing recognition of fixed income’s role as a portfolio stabilizer amid elevated uncertainty.
Economic data during the quarter pointed to a moderation in growth from the robust pace observed
in the second half of 2025, though activity remained resilient overall. Labor market conditions
showed early signs of softening, with slower job creation and a gradual uptick in unemployment,
while wage growth began to decelerate. Inflation data proved stickier than anticipated, particularly
in core services, complicating the Federal Reserve’s policy outlook. As a result, market expectations
for the pace and magnitude of further rate cuts were pared back, with investors increasingly pricing
a more prolonged period of policy rates remaining near current levels.
Against this backdrop, the Federal Reserve held policy rates steady throughout the quarter,
maintaining a cautious stance as it balanced moderating growth against persistent inflationary
pressures. Chair Jerome Powell emphasized data dependency and reiterated that while the policy
rate was within a broadly neutral range, the Committee remained vigilant to upside inflation risks.
The Treasury yield curve continued its gradual normalization, with modest steepening driven
primarily by upward pressure on longer-dated yields. Credit markets were impacted by both the
war and ongoing concerns over private credit markets, with longer duration spreads widening on
some issuers.
Against this backdrop, we continue to invest selectively and opportunistically within investment grade
credit. We continue to maintain an approximately 14% allocation to hybrid securities which are offering yields in excess of 6%.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
