October 17th, 2014

Income Review

Third Quarter Review and Outlook Cumberland Income Fund October 2014

The Cumberland Income Fund gained +0.7% during the third quarter of 2014 compared to the gain of +1.1% posted by the FTSE TMX Canada Universe Bond Index during the same period. The Fund has gained +4.7% year-to-date and +6.4% year-over-year, while the FTSE TMX Index has gained +5.9% year-to-date and +6.3% year-over-year. As evidence of an improving economy continued to build up during the quarter, and in particular an improving labor market, speculation of “when”, not “if”, the U.S. Federal Reserve (the Fed) would increase the federal funds rate took center stage. Yet commentary from both Fed officials and market participants seemed to bring little consensus as to when we could expect that change. The fixed income markets seemed to have settled on there being a 50/50 chance of the Fed moving next summer, while the Federal Reserve Committee members’ forecasts imply a move as early as next spring. At Cumberland, our fixed income strategy has been positioned for continued modest North American economic growth, precisely what the reported economic indicators had been suggesting throughout the quarter. However, as was the case in the second quarter, longer-term interest rates, which are less impacted by direct Fed interest rate policy, continue on a downward trend, contrary to an upward trend that would be typical with the back drop of an improving economy.