TCW Core Fixed 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 yearend. 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2018 was one of re-priced expectations, as the defining feature of this cycle – central bank support – continued to be withdrawn.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...

To read full commentary please click pdf below.

Media Attachments

Legal Disclosures

Bloomberg Barclays U.S. Aggregate Bond Index – A market capitalization-weighted index of investment-grade, fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of at least one year.

About Securities

Securities issued by U.S. government agencies and authorities are not insured, and may not be guaranteed by the U.S. Government. 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.

Portfolio Characteristics & Holdings
It should not be assumed that an investment in the securities listed was or will be profitable. Portfolio characteristics and holdings are subject to change at any time.

This content may include estimates, projections and other "forward-looking" statements. Actual events may differ substantially from those presented. TCW/MetWest assumes no duty to update any such statements. All projections are based on current asset prices and are subject to change.

Subject to Change

Any opinions expressed are current only as of the time made and are subject to change without notice. TCW assumes no duty to update any such statements. The views expressed herein are solely those of the author and do not represent the views of TCW as a firm or of any other portfolio manager or employee of TCW.

Obtain a Prospectus

You should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. A Fund’s Prospectus and Summary Prospectus contain this and other information about the Fund. To receive a Prospectus, please call 800-386-3829 or you may download the PDF TCW Funds Prospectus. Please read it carefully.

The TCW Funds are distributed by TCW Funds Distributors LLC