Investment Strategy

What a year! 2023 had it all, from aggressive rate hikes and sharply rising yields to financial concerns and geopolitical turmoil, all culminating with a powerful year-end rally based on changing market expectations for monetary policy. As we look toward 2024, while the Federal Reserve (Fed) is indeed transitioning toward easing monetary policy, we remain cautious now that markets appear priced for perfection.

Why Madison High Quality Bond Fund

  • Active management of interest rate risk (duration range of 75-125% of the benchmark), yield curve, sector, and security selection decisions.
  • Focus on downside risk management to provide an uncorrelated fixture in an asset allocation.
  • A-rated bonds or better (no BBBs), with no exposure to collateralized debt or international bonds.

Key Highlights (As of Monday March 18, 2024)

Class Y

Class I

NAV

10.27

10.34

Change($)

-0.01

-0.01

YTD(%)

-0.77%

-0.77%

Ticker

MIIBX

MIIRX

Inception Date

05/01/00

02/28/22

Expense Ratio

0.50

0.41

Morningstar Overall
Rating™ as of 02/29/24

Among 536 Short-Term Bond funds

A

Average quality rating2

3.98%

30-day SEC Yield1,3

59

holdings1

$56.9M

net assets1

Commentary

After a volatile first half, fixed income investors began the third quarter firmly focused on fundamental data for clues regarding the future path of monetary policy. Not surprisingly, the Fed (Federal Reserve) stayed true to their word and reiterated that their restrictive policy stance would remain in place until significant headway is made lowering inflationary pressures. Interest rates continued their march higher as economic data releases remained surprisingly strong in the face of meaningfully higher mortgage rates, rising energy costs, and faltering consumer confidence. As we begin the final months of 2023, we are likely approaching the end of a historic, nearly two-year, monetary tightening campaign, yet lower interest rates may still be some time away.

Performance

Average annual returns, %

Portfolio Highlights

Top Ten Fund Holdings (As of 02/29/24)

FANNIE MAE

4.37%

US TREASURY N/B

3.11%

FANNIE MAE

3.22%

US TREASURY N/B

3.02%

US TREASURY N/B

3.15%

US TREASURY N/B

2.99%

US TREASURY N/B

3.15%

US TREASURY N/B

2.99%

US TREASURY N/B

3.15%

US TREASURY N/B

2.75%

The Morningstar Rating™ for funds, or “star rating”, is calculated for funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics, and may not indicate positive performance.  Ratings may vary by share class.

1 Data as of December 31, 2023.

2 The average quality rating is not the result of an assessment of the credit quality of the Fund’s portfolio by a Nationally Recognized Statistical Rating Agency (NRSRO) or any other independent entity. Credit quality ratings on underlying securities of the Fund are received from one or more NRSRO (e.g., S&P, Moody’s, Fitch, etc.) and converted to the equivalent major rating category commonly utilized by more than one NRSRO. Bonds backed by U.S. Government or agency securities are given an implied rating equal to the rating of such securities. Ratings and portfolio credit quality may change over time.

3 SEC 30-day yield represents net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the fund’s share price at the end of the 30-day period. It is calculated based on the standardized formula set forth by the SEC.

Performance quoted represents past performance. Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than that shown.

Net Asset Value (NAV) is the amount per share you would receive if you sold shares that day. Change refers to the amount (in dollar terms) that the value of the share price changed from the previous day’s close of trading. The Year-to-date (YTD) return is the net change in the value of the fund’s share price (in percentage terms) at NAV from January 1 to the current date shown above. Expense ratios are as of each fund’s most recent prospectus.  For more detailed information on performance, including returns for the most recent month-end or quarter-end, view Performance.

Investment returns assume all distributions are reinvested and reflect all applicable fees and expenses. Benchmark index returns assume all distributions are reinvested. Indexes are unmanaged and, therefore, have no fees. Investors cannot invest directly in an index.

Investment returns reflect fee waivers without which they would have been lower and net expenses higher.  The investment adviser waived 0.10% of its annual management fee from August 7, 2020 through February 27, 2022.

An investment in the Fund is subject to risk and there can be no assurance the Fund will achieve its investment objective.  The risks associated with an investment in the Fund can increase during times of significant market volatility. The principal risks of investing in the Fund include interest rate risk, call risk, risk of default, and liquidity risk.  Mutual funds that invest in bonds are subject to certain risks including interest rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds.  More detailed information regarding these risks can be found in the Fund’s prospectus.

Bloomberg U.S. Intermediate Government Credit A+ Bond Index measures the performance of U.S. dollar denominated U.S. Treasuries, government related and investment grade U.S. corporate securities with quality ratings of A3/A- or better and maturities between one and 10 years.

© 2023 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.