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Commentary iM Dolan McEniry Corporate Bond Fund Third Quarter 2021 Commentary

During the quarter, the iM Dolan McEniry Corporate Bond Fund (IDMIX) had a return of -0.02% versus the Bloomberg Barclays U.S. Intermediate Credit benchmark return of 0.07%. Year to date, the fund is down 0.11% compared to a decline of 0.48% for the Intermediate Credit benchmark.

On a relative basis, the fund’s underperformance in the quarter relative to the Bloomberg Barclays U.S. Credit Intermediate was driven by the fund’s slight underperformance in corporate investment-grade credit. Yield curve positioning and duration had a minimal effect on relative performance versus the benchmark.

Performance quoted represents past performance and 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 funds may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund.To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.partnerselectfunds.com.

Quarterly Review

During the third quarter of 2021, U.S. Treasury rates rose slightly, and corporate investment grade and high yield spreads widened marginally. The combination of slightly higher rates and minimal spread widening led to mostly positive returns in many fixed income products. Despite the spread of the Delta variant of COVID-19, steadily improving economic and financial conditions, along with the continued backing of the Federal Reserve, has led to significant tightening of corporate spreads year to date.

Improving economic and financial performance over the last several months has increased consumer and investor confidence.  Despite this improvement, the long-term ramifications of COVID-19 and the Federal Reserve’s response are yet to be seen.

As the Federal Reserve intended to accomplish, yields have come down and corporations have been able to not only issue debt but issue debt at historically low yields. This has helped U.S. corporations immensely but has also narrowed investor yields and buy side liquidity. Dolan McEniry will continue to monitor markets for risks and opportunities, and we will adjust as appropriate to add value to our clients’ portfolios. 

During the quarter, the 10-year U.S. Treasury yield increased from 1.47% to 1.49%, the 5-year yield increased from 0.89% to 0.97%, and the 2-year yield increased from 0.25% to 0.28%.  U.S. Treasury rates have increased from pandemic lows but remain low on a historical basis.

Per Bloomberg Barclays’ data, spreads on corporate investment-grade bonds widened 4 basis point during the quarter to an average option adjusted spread (“OAS”) of +84 basis points.  The OAS of the Bloomberg Barclays Corporate High Yield Index widened 21 basis points to +289 basis points at quarter end. 

Outlook and Strategy

Dolan McEniry believes that client portfolios are positioned to provide reasonable absolute and relative returns going forward.  Dolan McEniry’s core competence is credit analysis, and we focus on a company’s ability to generate generous amounts of free cash flow over time in relation to its indebtedness.  Investment safety and risk mitigation are of primary importance as we continue to search for undervalued fixed income securities. As of September 30th, the iM Dolan McEniry Corporate Bond Fund had a +32 basis point yield premium and similar duration versus the Bloomberg Barclays U.S Intermediate Credit. We believe these stats should allow the portfolio to perform well versus the benchmarks over time.  

Credit Quality Breakdown As of 9/30/21

Average Portfolio Rating: BBB

Credit QualityWeight
AAA6.01%
AA0.00%
A7.66%
BBB68.47%
BB17.87%
B0.00%
CCC0.00%
Total100.00%

Distribution by Maturity

Maturity% Bond HoldingsAverage Curr. Yld
Under 1 Yr1.04%4.40%
1 Yr – 3 Yrs13.02%4.40%
3 Yrs – 5 Yrs34.52%3.70%
5 Yrs – 7 Yrs45.72%3.70%
7 Yrs – 10 Yrs5.71%4.30%

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DISCLOSURE

The funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188, or visiting partnerselect.com. Read it carefully before investing.

Mutual fund investing involves risk. Principal loss is possible. Past performance does not guarantee future results. 

Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments by the Fund in lower-rated securities presents a greater risk of loss of principal and interest than higher-rated securities. Foreign securities are subject to risks relating to political, social, economic developments abroad and differences between U.S. and foreign regulatory requirements and market practices, including fluctuations in foreign currencies. 

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Credit Ratings are grades given to bonds that indicate their credit quality as determined by a Nationally Recognized Statistical Rating Organization (“NRSRO”) such as Standard and Poor’s, Moody’s, and Fitch. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which is the highest grade, to ‘D’, which is the lowest grade. If NRSRO ratings differ, the security will be considered to have received the highest of those ratings. For securities rated by an NRSRO other than S&P, the Adviser converts that rating to the equivalent S&P rating. Securities not rated by an NRSRO appear in the “Not Rated/Unavailable” category. Ratings are subject to change. 

iM Global Partner Fund Management, LLC  has ultimate responsibility for the performance of the PartnerSelect Funds due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement. 

The PartnerSelect Funds are Distributed by ALPS Distributors, Inc.