Bond Fund

Overview

Objective

Seeks total return through current income and, secondarily, capital appreciation.

Strategy

Invests primarily in a broad range of government and investment-grade corporate bonds and other fixed-income securities.

Fund Manager

Scott M. Colbert, CFA

  • Joined Commerce in 1993
  • 28 years of experience
  • Fund manager since Fund inception

Risk/Return

LOW - - • - - - - HIGH

In general, greater returns are associated with greater risks.

Fund Statistics

Inception Date 12/12/94
Ticker Symbol CFBNX
Cusip 200626208
Minimum Initial Investment $1,000

Commentary

The United States economic growth continues to meander along as the economic recovery enters its eighth year. With third quarter Gross Domestic Product (GDP) rising 3.5%, the second half of 2016 appears to be bouncing back from a weak first half of 1.1% annualized growth. Historically this late stage of the economic cycle is usually characterized by wage pressures, rising inflation and elevated interest rates. Consumer spending remains the primary growth driver and should have helped produce a GDP growth rate of 2.25% in the fourth quarter.

In December, the Federal Reserve (Fed) hiked short term interest rates for the first time in a year. The quarter-point hike pushed the Fed Funds target range to between 0.50% and 0.75%. We believe the favorable economic data, along with the anticipation of aggressive fiscal policy coming from the Trump administration, were part of the reasons for action.

During the past three months, US Treasury rates rose across the yield curve. The 10-year Treasury yield finished at 2.44%, after starting the quarter at 1.59%. Returns were negative across all major investment grade bond sectors for the quarter, with long maturity Treasuries suffering the most.

The Bond Fund outperformed (-2.01%) relative to the Bloomberg Barclays Aggregate Bond Index (-2.98%) in the fourth quarter. With credit spreads tightening during the period, the Fund's overweight in the corporate sector contributed to performance. The Fund's non-benchmark exposure to municipal bonds detracted from performance.

As we enter 2017, we believe additional hikes of the Fed Funds rate are expected. Uncertainty remains about regulatory changes the new Trump administration may implement and the extent of expansionary fiscal policy. We believe that recent economic data suggests that solid economic progress in the coming quarters is likely.

Total Fund Assets as of 12/31/2016 $1,063,462,542
Net Asset Value1 $19.77
Effective Duration2 5.43 Yrs.

Footnotes:
1. The Net Asset Value represents the assets of the fund (ex dividend) by the total number of shares.
2. Duration is the method determining a bond's price sensitivity, given changes in interest rates.
3. The composition of the portfolio is subject to change in the future.

Portfolio Holdings

Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. When interest rates rise, the prices of bonds and therefore the value of fixed income mutual fund shares can decrease and an investor can lose principal value. The guarantee on U.S. government securities applies only to the underlying securities of the Fund if held to maturity and not to the value of the Fund's shares. Mortgage-backed securities are subject to prepayment risks, which may result in greater share price volatility. Asset-backed securities may be less liquid than other securities and therefore more difficult to value and liquidate, if necessary. Foreign investments may be more volatile than investment in U.S. securities and will be subject to the risks of currency fluctuations and political developments.

Holdings and allocations shown are unaudited, and may not be representative of current or future investments. Holdings and allocations may not include the Fund's entire investment portfolio, which may change at any time. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities.

Commerce Bond Fund Holdings

January, 2017*
Febuary, 2017*
March, 2017*

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