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 U.S. economy grew at a solid 3.4% in the third quarter of 2018. Together with the second quarter’s 4.2% growth rate, this is the fastest consecutive quarter period of growth since 2014. However, we believe declining business investment, slowing housing activity, and decreasing consumer spending signify a slowdown of economic activity. Economists now project an overall Gross Domestic Product (GDP) rate of 3.1% for 2018 and between 2.0% - 2.5% in 2019.

The Federal Reserve (Fed) raised the federal funds rate 25 basis points (bps) to the current 2.25%-2.50% target at the December 2018 meeting. A strong labor market and an inflation rate near its 2% target has allowed the Fed to continue its gradual approach to raising rates. The Fed’s official statement was initially interpreted by the financial markets as supporting continued rate hikes in the face of worsening economic news and stock market performance. Subsequent statements from Chairman Jerome Powell assuring policy flexibility and a move from three to two projected rate hikes in 2019 calmed financial markets. Market forecasts currently call for few, if any, hikes in 2019.

U.S. Treasury rates moved lower over the fourth quarter. The 5 year Treasury declined to 2.51% from 2.95% at the beginning of the quarter. Returns across all bond sectors were mixed for the quarter but turned positive for most major sectors year to date.

The Short Term Government Fund underperformed the Bloomberg Barclays 1-5 Year Government/Credit Index in the fourth quarter. The Fund’s overweight to mortgage-backed securities contributed to performance. The Fund’s lower duration relative to its benchmark detracted from performance.

A slowing economy is projected for 2019 as the boost from tax cuts fades and tensions surrounding China trade/ tariff concerns remain.
Total Fund Assets as of 12/31/2018 $72,291,559
Net Asset Value1 $16.86
Effective Duration2 1.82 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. 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 Holdings

January 2019*
February 2019*
March 2019*

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