Short Term Government Fund

Overview

Objective

Seeks current income consistent with preservation of principal.

Strategy

Invests primarily in U.S. Government securities and government mortgage-backed 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.

The Short-Term Government Fund's net asset value and yield are not guaranteed by the U.S. Government or by its agencies, instrumentalities or sponsored enterprises.

Fund Statistics

Inception Date 12/12/94
Ticker Symbol CFSTX
Cusip 200626109
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.

Treasury yields moved higher in the short-end of the yield curve, as inflation expectations rose and the bond market digested the Fed's interest rate hike. The 5-year Treasury yield finished the quarter at 1.93%, after starting the quarter at 1.15%. Returns were negative for the government sectors in the fourth quarter, with Treasuries declining the most in the period.

The Short-Term Government Fund (-0.94%) outperformed relative to the Citigroup 1-5 Year Treasury/Government Index (-1.13%) for the fourth quarter. The portfolio's shorter duration relative to its benchmark assisted performance. A modest increase in relative Treasury exposure detracted from performance.

As we enter 2017, we believe that 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 recent economic data suggests that solid economic progress in the coming quarters is likely.

Total Fund Assets as of 12/31/2016 $98,976,470
Net Asset Value1 $17.15
Effective Duration2 2.39Yrs.

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. These risks may result in greater share price volatility.

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 Short-Term Government Fund Holdings

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

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