During the final quarter of 2025, American fixed income markets showed strong performance. This upward trend was fueled by a combination of factors including interest rate reductions from the Federal Reserve, a general easing of inflationary pressures, and generally stable economic data. These positive developments occurred despite facing challenges such as a government shutdown in the U.S. and some signs of a softening labor market.
Specifically, the Limited Term Income Portfolio's I share class achieved a return of 1.24% in the fourth quarter of 2025. This result surpassed its benchmark, the Bloomberg Intermediate U.S. Government/Credit Index, by 4 basis points. The strategic decisions made regarding sector allocation and the careful selection of individual securities were key to this relative outperformance. Notably, the portfolio's larger holdings in Collateralized Mortgage Obligations (CMOs) and Mortgage-Backed Securities (MBS) significantly boosted its returns, contributing 17 and 8 basis points respectively. While the portfolio maintained a slightly shorter average duration of 3.50 compared to the index's 3.72, the positioning related to duration and the yield curve minimally detracted from its relative performance for the quarter, by just 2 basis points. This indicates that the strategic asset choices and the overarching economic conditions were highly favorable for the portfolio's returns.
The portfolio's success illustrates the importance of adaptive investment strategies in a fluctuating economic landscape. By carefully navigating market dynamics and making informed decisions on asset allocation, it's possible to achieve favorable outcomes even when faced with broader economic uncertainties. This proactive approach not only benefits investors but also reinforces the value of expert management in optimizing returns and mitigating risks within the fixed income sector.
