497 1 aflcio_497.htm AFL-CIO HOUSING INVESTMENT TRUST - PORTFOLIO PERFORMANCE COMMENTARY - DECEMBER 2015

AFL-CIO HOUSING INVESTMENT TRUST
Portfolio Performance Commentary:
December 2015

For the month of December 2015, the AFL-CIO Housing Investment Trust (HIT) had a gross return of -0.31% and a net return of -0.34%. Its benchmark, the Barclays Capital Aggregate Bond Index (Barclays Aggregate), reported a return of -0.32% for the month.

December gross relative performance: 0.01%
 
Performance for periods ended December 31, 2015
(Returns for periods exceeding one year are annualized)

 
Quarter
  
1 Year
  
3 Year
  
5 Year
  
10 Year
HIT Total Gross Rate of Return
(0.58%)
  
1.58%
  
2.00%
  
3.78%
  
5.01%
HIT Total Net Rate of Return
(0.69%)
  
1.13%
  
1.56%
  
3.34%
  
4.56%
Barclays Capital Aggregate Bond Index
(0.57%)
  
0.55%
  
1.44%
  
3.25%
  
4.51%

The performance data quoted represents past performance and is no guarantee of future results. Investment results and principal value will fluctuate so that units in the HIT, when redeemed, may be worth more or less than their original cost. The HIT's current performance may be lower or higher than the performance quoted. Performance data current to the most recent month- end is available from the HIT's website at www.aflcio-hit.com. Gross performance figures do not reflect the deduction of HIT expenses. Net performance figures reflect the deduction of HIT expenses and are the performance figures investors experience in the HIT. Information about HIT expenses can be found on page 1 of the HIT's current prospectus.
 
Positive contributions to the HIT's performance included:

●
The HIT's ongoing yield advantage over the Barclays Aggregate.

●
Poor performance by corporate bonds, the worst performing major sector in the Barclays Aggregate, with excess returns of -62 basis points (bps). The HIT does not invest in corporate bonds, whereas the sector comprised 24.3% of the index as of December 31, 2015.

●
The portfolio's relative short duration as interest rates rose across the curve. Two-, 5-, 10-, and 30-year Treasury rates increased by 12, 12, 6, and 4 bps, respectively. Countering this to some extent was the portfolio's overweight to spread products, as swap spreads to Treasuries widened. Two-, 5-, and 10-year swap spreads widened by 6, 5, and 6 bps, respectively.

●
The portfolio's overweight to the highest credit quality sector of the investment grade universe, whose excess returns were the highest among the four credit ratings buckets (AAA, AA, A, and BBB) of the Barclays Aggregate. Those returns were 2, -18, -24, and -118 bps, respectively. The HIT has an overweight with respect to the index in high credit quality investments. Approximately 95% of the HIT portfolio had a AAA profile or carried a government or government-sponsored enterprise guarantee compared to 72% for the Barclays Aggregate at the end of December.


 

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AFL-CIO HOUSING INVESTMENT TRUST                                                                                                                    December 2015 Performance Commentary

Negative contributions to the HIT's performance included:

●
Weak performance by agency multifamily mortgage-backed securities as spreads to Treasuries widened. FHA/Ginnie Mae multifamily permanent loan certificate spreads increased by approximately 7 bps and construction/permanent loan certificate spreads increased by 4 bps. Fannie Mae DUS spreads also widened across all structures. The benchmark Fannie Mae 10/9.5 spreads increased by approximately 12 bps. The HIT had 22.6% invested in DUS securities of various structures at the end of December.

●
Good performance by agency fixed rate single family mortgage-backed securities (RMBS), the best performing major sector in the index with excess returns of 10 bps. The HIT is underweight to this sector with a 16.6% allocation versus 28.4% in the Barclays Aggregate. Mitigating this, however, was the portfolio's overweight toward floating rate single family MBS, which outperformed amid a rising interest rate environment, and its underweight to 15-year fixed rate MBS, which underperformed the 30-year sector.

December 2015 Sector Performance 
         
Sector
  
Absolute
Excess Return
Modified Adjusted
 
Return
   (bps)
       Duration
         
U.S. Treasuries
  
-0.16%
0
      5.87
Agencies
  
-0.58%
-46
     4.02
Single family agency MBS (RMBS)
  
-0.03%
9
     4.49
Corporates
  
-0.78%
-62
     7.04
Commercial MBS (CMBS)
  
-0.89%
-69
     4.99
Asset-backed securities (ABS)
  
-0.19%
-11
     2.32
Source: Bloomberg L.P.

 
Change in Treasury Yields
       
Maturity
11/30/15
12/31/15
Change
       
1 Month
0.094%
0.125%
0.031%
3 Month
0.170%
0.165%
-0.005%
6 Month
0.390%
0.476%
0.087%
1 Year
0.482%
0.600%
0.118%
2 Year
0.932%
1.050%
0.117%
3 Year
1.222%
1.308%
0.087%
5 Year
1.645%
1.761%
0.115%
7 Year
1.989%
2.092%
0.103%
10 Year
2.207%
2.270%
0.063%
30 Year
2.973%
3.016%
0.044%
Source: Bloomberg L.P.

Investors should consider the HIT's investment objectives, risks, and charges and expenses carefully before investing. This and other information is contained in the HIT's prospectus. To obtain a prospectus, call the HIT at 202-331-8055 or visit www.aflcio-hit.com. The prospectus should be read carefully before investing.

This document contains forecasts, estimates, opinions, and/or other information that is subjective. It should not be considered as investment advice or a recommendation of any kind.
 
 
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