In the first quarter of 2026, the Nomura Tax-Free USA Fund saw its institutional class shares return -0.39%, trailing its benchmark, the Bloomberg Municipal Bond Index, which posted a -0.18% return. This represented an underperformance of 21 basis points for the fund. The quarter was marked by a general increase in U.S. Treasury yields, with the 5-year segment rising by 19 basis points, the 10-year by 12 basis points, and the 30-year by 4 basis points. These market movements, particularly in long-duration bonds, negatively impacted the fund's performance, as its allocations in these areas proved to be a drag on overall returns. However, certain strategic investments in BBB-rated bonds did offer some positive contributions.
Nomura Tax-Free USA Fund's Q1 2026 Performance Details
In the initial quarter of 2026, the Nomura Tax-Free USA Fund, specifically its Institutional Class shares, delivered a return of -0.39%. This outcome placed it 21 basis points behind its primary benchmark, the Bloomberg Municipal Bond Index, which recorded a return of -0.18% over the same period. This underperformance was predominantly attributed to the fund's strategic overweight positions in long-duration bonds. During this period, U.S. Treasury yields witnessed an upward trend; the 5-year Treasury yield climbed by 19 basis points, the 10-year by 12 basis points, and the 30-year by 4 basis points. These rising yields particularly affected the fund's holdings in long bonds (those with maturities beyond 22 years), as this segment of its portfolio registered a -0.41% return, significantly underperforming the Bloomberg Municipal Bond Index's long bond return of -0.22%. Conversely, the fund's overweight allocation to BBB-rated credits provided a positive offset, contributing favorably to its overall performance. Despite these mitigating factors, the cumulative impact of market dynamics and portfolio positioning led to the fund trailing both its benchmark and the median return within its Lipper category.
This performance report underscores the challenges faced by actively managed funds in volatile market conditions. The fund's experience highlights the delicate balance between duration management and credit allocation in a rising interest rate environment. For investors, it serves as a reminder to meticulously evaluate fund strategies, especially their exposure to interest rate sensitive assets like long-duration bonds, and to consider the broader macroeconomic context when assessing investment opportunities in municipal bonds.
