Metwest High Yield Bond Fund

Quarterly Commentary


After an impressive start to the year that saw the persistence of 2017’s animal spirits, equities experienced a severe sell-off in early February as a surge in the Cboe Volatility Index (VIX) exposed lopsided risk positioning and significant retail outflows reinforced the downward trend. Volatility showed no signs of pulling back for the rest of the first quarter, and the VIX ended at approximately 22 – roughly double where it was on average over the past two years. While there was no single catalyst for the volatility spike, markets seemed to be pricing in the reality of tighter global liquidity conditions combined with a continued rate policy normalization from the Fed after positive inflation materialized in the jobs report. The hand-off of monetary control from Janet Yellen to Jerome Powell occurred in the first quarter with few hiccups, as the Fed proceeded with another 25 basis point (bp) hike at the March FOMC meeting as expected. Regarding forward expectations, the 2018 median funds rate remained unchanged at three hikes, while one additional hike was included in the 2019 and 2020 forecasts. Of note, the Fed’s long-run sustainable growth rate of the economy was unchanged at 1.8%, reflecting a certain amount of skepticism regarding the lasting effect of tax cuts. As the Fed continued to pull back, Treasury yields recalibrated, with the policysensitive 2-Year Treasury note overtaking the dividend yield on the S&P 500 for the first time since 2008. It is important to note that this late-cycle rising rate regime is occurring at the same time that fiscal stimulus is being implemented by way of tax reform, which has necessitated increased T-bill issuance to fund swelling deficits. This in turn puts further upward pressure on short-term funding costs, which will exacerbate already tightening liquidity conditions...

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Bloomberg Barclays U.S. Corporate High Yield Index 2% Issuer Cap – An unmanaged index that covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The index limits exposures to a specific issuer to a maximum 2% by market value.

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About the Index or Indices

The index listed is not available for direct investment; therefore its performance does not reflect a reduction for fees or expenses incurred in managing a portfolio. The securities in the index may be substantially different from those in the Fund.

Forward Looking Statement

This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. TCW assumes no duty to update any such statements.

About Performance
The performance data presented represents past performance and is no guarantee of future results. Total returns include reinvestment of dividends and distributions. Current performance may be lower or higher than the performance data presented. Performance data current to the most recent month end is available on the product detail page for each Fund. Investment returns and principal value will fluctuate with market conditions. The value of an investment in the Fund, when redeemed, may be worth more or less than its original purchase cost.
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A Word About Risk

Fixed income investments entail interest rate risk, the risk of issuer default, issuer credit risk, and price volatility risk. Funds investing in bonds can lose their value as interest rates rise and an investor can lose principal.


High yield investments by the Fund in lower-rated and non-rated securities presents a greater risk of loss of principal and interest than higher-rated securities. The Fund may also not be suitable for all investors due to its use of sophisticated investment instruments such as derivatives.


Portfolio characteristics and holdings are subject to change at any time. Opinions expressed are current only as of the time made, and are subject to change without notice. While we have gathered this information from sources believed to be reliable, MetWest cannot guarantee the accuracy of the information provided. Source for the statistical and economic data cited in this report is Bloomberg. This commentary contains material that is protected, individually and collectively, by copyright, trademark or other proprietary rights of Metropolitan West Asset Management, LLC, or others as indicated.


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The MetWest Funds are advised by Metropolitan West Asset Management, LLC, which is a wholly-owned subsidiary of The TCW Group, Inc.