Commentary

The committee continues to believe that the outlook for the U.S. economy is strong and inflation will remain sticky above the Fed’s 2% target. This is evidenced by the market’s assumption of rate hikes by year’s end.

We believe the focus remains on the opening of the Strait of Hormuz. If/when tanker transit normalizes and crude reacts with lower prices, this would signal that the worst has passed. Thus, as investors anticipate more inflation from higher crude prices (and thus retail gas prices), we still view 10-year yields above 4.25% as an appropriate level to be neutral relative to the benchmark.

Playing duration or relative curve positioning while the conflict in Iran is unresolved is likely to result in undesired volatility; thus, the committee decided on continuing to hold a neutral posture through June.

Positioning in IG corporates (70% relative) and securitized (neutral) also remains unchanged.

Both emerging market local debt and interest rate-hedged high-yield positions will be exited in favor of convertible securities. The addition of convertibles can provide exposure to technology and electricity (nearly 48% of underlying holding allocations). Two sectors that have benefited significantly from the AI infrastructure buildout.

The characteristics, rationale, and deviations below reflect the index positioning relative to the baseline benchmark effective June 1, 2026.

Tilt Rationale 

Neutral Duration	The committee continues to view the economy as strong and inflation as sticky, but the recent surge in rates calls for a more risk-aware stance.
Neutral Curve	The Index continues to hold a neutral curve position relative to the benchmark.
70% Underweight IG Credit	The Index has held an underweight position relative to the benchmark in investment-grade corporate bonds.
Neutral Securitized	The Index holds a neutral position relative to the benchmark within the securitized sector.
5% Short-Term TIPS	A short-term TIPS position offers inflation protection at an attractive yield. It is a hedge against another large surge in crude prices or spike in inflation.
5% Convertible Securities	Convertible securities have had a phenomenal year, and the exposure to AI-related companies, while the momentum is strong, is an attractive play.

Allocation

Name	Market Value (%)
iShares MBS ETF	26.00
iShares 3-7 Year Treasury Bond ETF	16.86
Schwab Long-Term U.S. Treasury ETF	9.80
Schwab Short-Term U.S. Treasury ETF	9.13
iShares 7-10 Year Treasury Bond ETF	7.24
Vanguard Long-Term Corporate Bond ETF	6.10
Vanguard Short-Term Corporate Bond ETF	6.00
SPDR Bloomberg Convertible Securities ETF	5.00
iShares 0-5 Year TIPS Bond ETF	5.00
Vanguard Intermediate-Term Corporate Bond ETF	4.12
iShares Agency Bond ETF	2.25
iShares BBB Rated Corporate Bond ETF	2.00
iShares 20+ Year Treasury Bond ETF	0.50

Historical Allocations