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 Colbert, CFA

  • Joined Commerce in 1993
  • 30 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 slow pace of United States economic growth continued with fourth quarter Gross Domestic Product (GDP) rising 2.1%. Low productivity and little capital investment seem to be restricting this second longest recovery in American history from reaching the historical full year growth rate average of 3.0%. GDP appears to be around 1.0% in the first quarter despite healthy consumer spending. We feel that further improvement to 3.0% in the second quarter of 2017 is expected, fueled by a rise in inventories and utilities consumption.

In March, the Federal Reserve (Fed) hiked short term interest rates as inflation and job growth were in line with current expectations. The quarter-point hike pushed the Fed Funds target range to between 0.75% and 1.00%. The Fed has signaled that it is ready to raise interest rates several more times this year.

Treasury yields were flat to slightly higher in the short-end of the yield curve for the first three months of the year. The 5-year Treasury yield finished at 1.92%, after starting the quarter at 1.93%. Returns were positive for the government sectors in the first quarter.

The Short-Term Government Fund (0.34%) underperformed relative to the Citigroup 1-5 Year Treasury/Government Index (0.40%) for the first quarter. The portfolio’s overweight relative to its benchmark in agency mortgage-backed securities detracted from performance. The portfolio’s exposure to Treasury Inflation Indexed Securities (TIPS) assisted with contributing to performance.

The bond market has recently been reacting to events in Washington. Steady employment growth remains in place, inflation continues to be subdued, and interest rates are still low.

Total Fund Assets as of 03/31/2017 $103,335,274
Net Asset Value1 $17.14
Effective Duration2 2.41Yrs.

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

March, 2017*
April, 2017*
May, 2017*

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