This report presents a comprehensive overview of the Floating Rate Fund's activities and performance during the third quarter of 2025, specifically focusing on the period ending September 30. It delves into the broader financial market landscape, exploring how shifts in monetary policy, corporate profitability, and consumer behavior influenced investment outcomes. The analysis also details the fund's specific returns and the underlying factors contributing to its resilience in a dynamic economic environment.
Navigating Volatility: A Quarter of Strategic Gains in Floating Rate Markets
Quarterly Highlights: Monetary Easing and Economic Resilience
During the third quarter of 2025, the financial markets experienced a notable monetary policy adjustment with a 25 basis point reduction in interest rates in September. This move, however, was met with lingering questions regarding the extent of future easing. Concurrently, the corporate sector demonstrated strong performance, with earnings surpassing initial projections. Consumer expenditures also remained robust, despite emerging indications of financial strain among lower-income demographics. These combined factors created a complex but ultimately favorable environment for certain investment categories.
Fund Performance and Underlying Strengths
The Floating Rate Fund achieved a commendable return of +1.78% for the quarter ending September 30, 2025. This figure reflects the performance at the net asset value (NAV) of Class I shares, with all distributions being reinvested. This positive outcome is largely attributable to the enduring strength of loan issuers, who have maintained solid fundamental health even after navigating the most aggressive Federal Reserve hiking cycle in over four decades. This resilience underscores the robust credit quality inherent in the fund's holdings.
Market Technicals and Continued Demand
Beyond fundamental strength, the market for floating rate instruments continues to benefit from supportive technical factors. A key driver of this sustained support is the ongoing demand stemming from Collateralized Loan Obligation (CLO) creation. The consistent formation of new CLOs provides a steady appetite for floating rate loans, contributing to favorable market conditions and liquidity for the asset class. This technical tailwind acts as a crucial underpinning for the Floating Rate Fund's performance.
Overview of Fixed Income Market Indicators
A review of key fixed income market data for the period reveals important trends. The 2-Year Treasury Yield decreased from 3.71% at the end of June 2025 to 3.61% by September 30, 2025. Similarly, the 10-Year Treasury Yield also saw a slight decline from 4.23% to 4.15% over the same period. The 2-10 Year Treasury Yield Spread, which measures the difference between these two yields, stood at 52 basis points. These movements reflect the market's response to the rate cut and its evolving expectations for future interest rate trajectories.
