The iMGP High Income Fund rose 2.10% in the second quarter, beating the Bloomberg Aggregate Bond Index (the Agg), which was up 1.21%, but trailing high-yield bonds (BofA Merrill Lynch US High-Yield Cash Pay Index), which rose 3.57%. The fund also outperformed its Morningstar Nontraditional Bond category peer group’s 1.63% gain. Through the first half of the year, the fund was up 3.41%, behind the Agg (+4.02%) and high-yield bonds (+4.55%), but ahead of the category (+2.90%).

Past performance does not guarantee future results.  Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. To obtain the performance of the funds as of the most recently completed calendar month, please visit www.imgpfunds.com. Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced.

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Quarterly Review

Performance of Managers

During the quarter, all three subadvisors produced positive returns. Guggenheim returned 3.11%, BBH gained 1.51%, and Neuberger Berman was up 1.17%. For the first half of the year, Guggenheim gained 4.94%, BBH 2.51%, and Neuberger Berman 1.16%. (All sub-advisor returns are net of the management fees that each sub-advisor charges the fund.)

Manager Commentaries

Brown Brothers Harriman

The portfolio gained during the quarter with contributions stemming from the portfolio’s defensive duration profile, strong selection results, and allocation effects within the portfolio’s corporate bond holdings. The portfolio’s selection results were strongest among its holdings of high yield corporate bonds and loans, while holdings of collateralized loan obligations (CLOs) lagged during the quarter. Positions in collateralized fund obligations, loans to cable satellite companies, electric utilities, and technology companies, and fiber ABS had the largest positive impacts on selection results. Loans to chemical companies and investment-grade corporate bonds of property and casualty insurers detracted from selection effects. Over the quarter, the portfolio’s holdings of high yield corporate bonds, loans, and investment-grade corporate bonds increased while reserves declined.            The portfolio’s weight to high yield and non-rated instruments increased to 48% from 40% during the quarter.

“In like a lion, out like a lamb” is an apt metaphor for capital markets in the second quarter. On April 2, 2025, the roar of Liberation Day tariffs rattled global markets. However, President Trump subsequently reduced the proposed tariff levels and markets rebounded strongly. A steady stream of notable headlines followed, including, but not limited to, the Moody’s U.S. downgrade, questions about the Federal Reserve’s independence, the One Big Beautiful Bill (OBBB) Act and its impact to the U.S. fiscal deficit, and rising tensions in the Middle East. Despite the deluge of news, the quarter ended with economic and market data seemingly unconcerned with those headlines. Equities posted strong returns during the quarter, while credit performed well as spreads narrowed back to recent lows. Unemployment and inflation data remained steady, and business and consumer sentiment improved from Liberation Day lows. Market predictions shifted to a higher-for-longer Fed stance.

The second quarter showed why interest rate timing is a challenging undertaking. The yield curve both inverted further from zero to three years and steepened from three to 30 years as uncertainties regarding Fed rate cuts, inflation, and growth persisted. The next Fed decision is scheduled for July 30, 2025. Investors predict the Fed will not cut rates then, with mixed opinions on whether the Fed cuts rates at all during the third quarter. Fixed income indexes enjoyed positive total and excess returns during the quarter. Riskier segments of the market outperformed higher-quality indexes as credit spreads narrowed. The Bloomberg Aggregate Index returned 1.2%, while the JPM Leveraged Loan Index returned 2.4% and the Bloomberg High Yield Index returned 3.5%.

Credit issuance was mixed during the quarter despite a lull of deals during the depths of market volatility in April. Investment-grade corporate bond issuance matched last year’s pace, while private label commercial mortgage-backed securities (CMBS) volumes are up 61% year over year. Issuance in several sectors was lower than their record-setting paces of 2024, yet volumes did not crater, and high-quality issuers can continue to access the markets. Volumes of nontraditional asset-backed securities (ABS), high-yield corporate bonds, and loans were down 9%, 15%, and 37%, respectively, year over year.

Credit dynamics are generally healthy, with losses and delinquencies of business loans, consumer debt, and commercial real estate loans generally at manageable levels. Businesses have weathered recent uncertainties well. Default rates are lower across the high-yield market, although the default rate on loans continues to be well above those for bonds. Delinquencies and charge-off rates of business loans at commercial banks have stabilized, and non-accrual rates of loans held by business development companies (BDCs) crept higher yet remain at manageable levels.

Delinquency rates and charge-offs on consumer loans held at commercial banks increased, yet not to levels that raise concerns about systemic losses that might impact securitizations. While auto loans, bank credit cards, and mortgage delinquencies have only modestly increased, federal student loan payments resumed during the quarter, causing a spike in delinquency rates on student loans. It is questionable whether the resumption of student loan payments will have a spillover effect into other types of consumers’ debt. Strong credit underwriting remains imperative to navigating debts backed by or tied to consumers.

Delinquency rates on commercial real estate varied by sectors and deal structures. Office delinquencies revealed a divergence by deal structure: Office loans in conduits continued to rise while single-asset, single-borrower (SASB) delinquencies moderated. Multifamily delinquencies increased to recent highs across deal structures. In retail, hotel, and industrial sectors, SASB and conduit delinquency rates converged at similar levels quarter over quarter. Delinquency rates and charge-offs of commercial real estate loans held at commercial banks remain subdued, indicating that market stress has not impacted banks’ credit portfolios to date.

With narrower spreads, strong fixed income fund flows, and mixed issuance, credit valuations weakened during the quarter. Investment-grade corporate bond “buys” decreased to 8% from 11%, to 27% from 38% for high yield, and to 43% from 45% for loans. Agency mortgage-backed securities (MBS) remain wholly unattractive, with no 15- or 30-year coupon cohort screening as a “buy.” Away from credits in mainstream indexes, ABS index spreads narrowed, though performance varied by subsector. Higher-quality CMBS spreads narrowed as spreads of BBB- rated multifamily and mixed-use CMBS widened. Spreads on collateralized loan obligation (CLO) debt narrowed further from already tight levels.

As always, there are idiosyncratic opportunities in distinct corners of the credit markets. Investment-grade corporate bonds in interest rate-sensitive industries offer opportunities, and many bonds with short to intermediate durations screen favorably. The corporate loan market continues to offer opportunities across the spectrum of deal sizes. Most high-yield opportunities reside in selective and smaller issuers. Tariffs and fiscal policy uncertainty have also affected several high-yield industries’ valuations and created opportunities. Spreads of several ABS subsectors and SASB CMBS property types have moved near their long-term averages. 

We continue to avoid certain segments that we believe have enduring credit issues. Emerging market credit remains unappealing to us due to concerns over creditor rights in most countries and its impact on their durability. We find non-agency residential mortgage-backed securities (RMBS) plagued by erratic issuance trends, unattractive valuations, and weak fundamentals.

If you could go back in time to last fall and show an investor this quarter’s headlines, we suspect they would be shocked by the buoyancy of the stock market and rich valuations of credit. We believe that selectivity regarding both valuations and durability are imperative for attaining favorable credit performance moving forward. Complacency may be creeping into some segments of the market, but we remain steadfast in our approach. We maintain attention to factors that underlie an issuer’s durability, such as underwriting standards, financial and operating flexibility, and prudent capital structures. Such an approach helps our clients’ portfolios perform through unpredictable times.

Guggenheim Investments

Downside economic risks retraced after Liberation Day tariffs were delayed. But at 15% the current tariff rate is still the highest since the 1930s, and there is upside risk as trade tensions re-escalate. We expect real GDP growth will slow a bit below 1% this year. Consumer spending growth should cool as higher prices on tariffed goods leave less room for spending elsewhere, and consumers are likely to retrench and save more as they deal with the highly uncertain environment. The labor market will be key in gauging how much consumer spending softens. While headline figures remain decent, there is growing evidence of softening under the surface. We expect the unemployment rate will end the year around 4.5% as growth cools and hiring remains subdued, but lower labor supply should help limit the rise in joblessness.

Business investment was already slowing, and is likely to slow further as companies wait to see how trade policy evolves and deal with potential supply chain disruptions. Capex intention surveys have rebounded somewhat given better tariff and fiscal news, but remain subdued. The One Big Beautiful Bill should provide some modest fiscal stimulus in 2026, with tax cuts helping boost consumer and business spending. Longer term fiscal concerns remain, however, as deficits are on track to continue to run larger than 6% of GDP. Recession odds have come down with tariffs on pause, but are still above normal. Failure to deliver on optimistic hopes for trade negotiations or a renewed tightening in financial conditions could make a recession more likely.

Inflation data has been tame in recent months as services inflation cools and tariffs have had modest impact so far. But we expect greater tariff effects over the next several months, pushing core inflation a bit above 3% by the end of the year. We anticipate that this inflation will fade quickly in 2026 as the economy slows. Absent anticipated tariff effects, the Fed might be reducing policy restrictiveness currently. By the fall, greater clarity that tariff inflation will not persist and job market weakness should justify reducing rates. However, a risk is that continued tariff delays prolong the Fed’s uncertainty over inflationary impacts. We anticipate Fed rate cuts will accelerate into 2026, with rates moving toward 3% due to a softening economy and lower potential growth. The potential for shocks to cause a recession means risks to our rate forecast are skewed to the downside. We anticipate Fed balance sheet runoff will end around the end of 2025.

Corporate fundamentals are strong, but we expect them to diverge among industries as some are more vulnerable to tariffs, international demand, or a more stretched consumer. Our positioning prioritizes diversification with a high level of income generation. We prefer higher quality credit as credit curves have flattened, particularly structured credit, where spreads remain wider relative to fundamental risk, and defensive assets like infrastructure. The 10-year Treasury yield should remain range-bound between 3.75–4.75%, with upward pressure from fiscal policy offset by slowing growth and easing monetary policy. We favor the belly of the curve, which is poised to outperform as the Fed eases. As growth slows and policy uncertainty creates a wider range of economic outcomes, higher quality credit can offer attractive real yields, diversification, and portfolio ballast to help buffer downside risks. As credit performance diverges among industries, however, and the yield curve shifts, active selection and risk management are critical.

Neuberger Berman

Equity Markets

If the first quarter of 2025 was about recalibration, the second quarter was a full-throated market rebound—reminding us that, in financial markets, the only predictable element is unpredictability. Equity markets entered Q2 with a point to prove, and by June’s close, the S&P 500 had surged to a new all-time high, posting a 10.94% gain for the quarter and 5.09% in June alone. This comeback pushed the S&P 500 to a 6.20% year-to-date return—a remarkable turnaround from the approximately -19% drawdown earlier in the year. The Nasdaq-100 rose 17.86% in Q2 and 8.35% YTD, fueled by a renaissance in mega-cap tech and persistent enthusiasm for AI-driven growth. Notably, the rally broadened beyond tech: cyclicals and industrials took on leadership roles, while defensive sectors lagged—a clear reversal from the risk-off sentiment that defined the previous quarter.

US Treasury Markets

Meanwhile, fixed income investors were reminded that market leadership is never static. The Bloomberg US Aggregate Bond Index rose 1.21% in the second quarter, lifting its year-to-date return to 4.02%, as Treasury yields resumed their ascent in response to ongoing economic resilience and a persistently hawkish tone from the Federal Reserve. High yield bonds stood out even further, with the Bloomberg US High Yield Index gaining 3.53% for the quarter and 4.57% year-to-date, supported by stable corporate fundamentals and ongoing risk appetite. Despite these gains in credit, the path for interest rates remains uncertain, and fixed income markets continue to grapple with the implications of stronger-than-expected growth and shifting monetary policy expectations.

Option Implied Volatility Indexes

Early April brought a jarring reminder of market fragility. News of new tariffs sent the VIX soaring over 50 on April 8th, signaling outright panic and briefly disrupting market stability. But as quickly as fear arrived, it dissipated. A subsequent pause in tariff implementation triggered a powerful reversal, punctuated by a 9% rally in the S&P 500 in a single day.

What followed seemed to be the power of a well-entrenched “buy the dip” mentality. Despite ongoing trade tensions, policy uncertainty, and geopolitical noise (including renewed tensions between Israel and Iran), investors pressed ahead. The S&P 500 delivered consecutive monthly gains of over 5% in May and June, while volatility steadily retreated. The VIX, which averaged a still-elevated 23.6 for the quarter, fell back to 16.7 by quarter-end.

April’s volatility shock weighed on premiums, with the US implied volatility premium averaging -22.59 for the month. (As a reminder, the strategy is profitable when the implied volatility premium is positive—the higher the better, so April was obviously a bad month for the strategy.) As expected, option markets responded swiftly—premiums adjusted higher until positive profit margins were restored, and by May and June, implied volatility premiums had rebounded to positive levels across the board.

Looking ahead, expectations are for US equity volatility to settle in the low-20s—a level that in our view reflects a healthy, well-functioning market. We don’t need volatility in the 30s, 40s, or 50s to generate attractive returns; in fact, sustained extremes often signal that something in the market is fundamentally broken. Volatility in the high teens to low-20s can often provide attractive option premiums without systemic distress.

Outlook

If there’s one lesson from the first half of this year, it’s that uncertainty remains the market’s only constant. With the Trump administration’s policy pivots, persistent geopolitical flashpoints, and renewed debate over the path of interest rates, investors face a landscape where risk can emerge—and recede—without warning.

In this environment, we believe the value of monetizing volatility has never been clearer. Systematic option strategies are uniquely equipped to seek to turn today’s premium-rich landscape into a source of risk-efficient return, dampening the impact of market shocks and providing a steady hand through episodes of turbulence. Unlike strategies that chase the market’s every move or rely on static exposures, our approach adapts in real time, reflecting prevailing conditions and ensuring we are compensated for the risks we underwrite.

Periods of policy and macroeconomic uncertainty may test investor resolve, but they also create fertile ground for disciplined premium collection. As volatility finds its footing in the high teens to low-20s, we see an opportunity to generate attractive returns—whether markets move sideways, grind higher, or face fresh bouts of volatility. In a world where the next headline risk is always just around the corner, we remain steadfast in our belief that thoughtful risk management and systematic volatility harvesting are not just tactical tools, but essential components of modern portfolio construction.

Strategy Allocations

The fund’s target allocations across the three managers are as follows: 40% each to Brown Brothers Harriman and Guggenheim Investments, and 20% to Neuberger Berman. We use the fund’s daily cash flows to bring each manager’s allocation toward their targeted allocation should differences in shorter-term relative performance cause divergences.

Sub-Advisor Portfolio Composition as of June 30, 2025