In the second quarter of 2025, the Nationwide Strategic Income Fund (IS share class) demonstrated a notable outperformance against its benchmark, the Bloomberg US Aggregate Bond Index. The fund delivered a return of 1.61%, surpassing the index's 1.21%. This positive performance was predominantly fueled by the fund's strategic allocations to both investment-grade and high-yield corporate bonds, which proved to be the primary contributors to its gains during this period. However, it is essential to acknowledge that certain hedging strategies, specifically those related to corporate credit and interest rates, negatively impacted the fund's overall returns. These hedges, while designed to mitigate risk, acted as significant detractors in the volatile market conditions that characterized the quarter.
The financial markets experienced considerable turbulence in Q2 2025, primarily triggered by the unexpected announcement of \"Liberation Day\" tariffs on April 2. These tariffs were significantly more aggressive than market participants had anticipated, leading to an immediate and pronounced reaction across various asset classes. Initially, investors responded by incorporating a higher probability of a US recession into their financial models, which manifested as a decrease in bond yields and a shift in broader market sentiment. This period of heightened uncertainty and rapid repricing created a challenging environment for all market participants.
Despite the prevailing market volatility, the Nationwide Strategic Income Fund navigated these conditions effectively, largely thanks to its core bond holdings. The strong performance of investment-grade and high-yield corporate bonds underscored the resilience and strategic positioning of these assets within the fund's portfolio. While the hedging instruments incurred losses, they are a fundamental component of the fund's risk management framework, designed to protect against unforeseen market movements. The interplay between strong core asset performance and the drag from hedging activities ultimately resulted in a net positive outcome for the fund relative to its benchmark.
This performance underscores the importance of a diversified and adaptable investment strategy in navigating complex financial landscapes. While short-term market reactions can be intense, a well-constructed portfolio, underpinned by robust analysis and prudent risk management, can still deliver favorable results. Investors should consider the long-term objectives and risk-adjusted returns when evaluating fund performance, recognizing that market volatility, while challenging, often presents opportunities for discerning investors.