Global Tactical Income Class

Global Tactical Income Class Commentary

Portfolio Sub-Advisor: Aston Hill Investments Inc.

Fund Commentary - December 31, 2011

The Fund lagged its benchmark for much of this year. Its equity content was predominantly composed of U.S. stocks which are represented by the S&P 500 Index. This Index spent most of the year in negative territory; however, with economic indicators turning positive in the fall, investors returned to equities and brought the S&P 500 Index back to slightly better than breakeven.  The ongoing economic and political troubles in Europe continued to play havoc with investors as many fled European equities for the safety of the U.S. dollar and Treasury bonds in the second half of 2011. In this environment, the Fund slightly lagged its blended benchmark for the year due to an underweight position in the Utilities sector; however, the performance was bolstered by a heavier weighting in high yield bonds.

The Fund began the year with a cash equivalent position of approximately 16% of the total Fund and ended the year with roughly 12%. Over the same period, the Fund's weighting in corporate bonds increased from 42% to 46%, while the Fund's weighting in equities remained at approximately the same level at 42%. The Fund had an overweight in higher yielding corporate bonds versus the Citigroup World Broad Investment Grade Bond Index which detracted from performance. The limited exposure to the Materials sector helped the Fund's performance.

Performance in U.S. equities proved to be quite different across industry sectors. Sectors with long duration assets and dependable cash flows such as Utilities were strong performers in 2011, so that the Fund's underweight position in Utilities hurt performance. Traditional defensive sectors such as Consumer Staples and Health Care were also well ahead of the overall Index performance. The Materials sector and the Financials sector underperformed significantly. The Fund maintained its weightings in Real Estate Investment Trusts (REITs) and the Portfolio Sub-Advisor continues to overweight the Telecom sector with names such as AT&T Inc., Verizon Communications Inc. and CenturyLink  Inc. All three companies generate dependable free cash flow and trade at attractive earnings multiples relative to their historical norm.

The Fund added to its holdings in high yield bonds throughout 2011. Although this asset class has lagged the performance of investment grade bonds, it has still outperformed the overall U.S. equity market. Within this asset class, the Fund maintains a significant weight in senior secured first lien securities, otherwise known as "bank debt". The Portfolio Sub-Advisor believes these securities offer better protection than the subordinated debt from the same issuer and, in many cases, still offers significant cash yield.