Metwest Strategic Income Fund

Quarterly Commentary

A harsh financial winter blew in over the fourth quarter, especially in December, as investment markets were whipsawed by investor concerns regarding slowing global growth, trade deterioration, and policy uncertainty. Volatility as measured by the Cboe VIX Index registered a sustained gain – closing above 30 for four days – which further dampened the mood of investors who faced a liquidity constrained environment at year-end. Overall, the final quarter of 2018 was one of re-priced expectations, as the defining feature of this cycle – central bank support – continued to be withdrawn. In the ninth such move since 2015, the FOMC raised rates at its December meeting, bringing the target range for the Federal Funds rate to 2.25% - 2.50%. While this move was largely anticipated, recent market volatility and concerns about the economic outlook led many investors to expect the Fed to pause rate hikes in 2019, even as the Fed itself maintained a tightening bias. This mismatch in expectations between the market and the Fed regarding the path of rates increases the possibility for a policy misstep, adding to the numerous downside risks facing the economy. The Fed did adjust its growth outlook downward, coinciding with softer manufacturing and housing market data, which further contributed to a substantial drop in consumer optimism just months after the gauge hit an 18-year high. Notably, housing is a leading indicator, and current data points suggest a tightening environment going forward as home sales have been sluggish against a backdrop of challenged affordability and early 2018’s rising mortgage rates. Meanwhile, in other forward-looking metrics, the Treasury yield curve has flattened considerably as inflation expectations collapsed, and actually inverted between 2- and 5-Year maturities in mid- December. Whether the front-end inversion was a classic recession signal or just a short-term kink that can be explained away by technical factors, it sent a warning flag to investors as the impact of tax cuts and deregulation fade. The high-level view suggests a decade-old economic recovery that is losing steam, while growth prospects are burdened with an enormous debt build-up that will be increasingly more difficult to service prospectively...

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Legal Disclosures

BofA Merrill Lynch 3 Month U.S. Treasury Bill Index Plus 200 bps – An unmanaged index comprised of a single issue purchased at the beginning of the month and held for a full month. The issue selected at each month-end rebalancing is the outstanding Treasury Bill that matures closest to, but, not beyond three months from the rebalancing date.

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

The primary risks affecting this Fund are “interest rate risk” (including “extension risk” and “prepayment risk”), “liquidity risk,” “derivatives risk,” “foreign securities risk,” “credit risk” and “junk bond risk.”

The funds' investments in high yield securities are considered speculative and are subject to greater volatility and risk of loss than investment grade securities, particularly in deteriorating economic conditions

The MetWest Funds are distributed by TCW Funds Distributors LLC.

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