Fund Fact Sheet
Parnassus Fixed-Income Fund
Ticker: PRFIX
As of March 31, 2013, the NAV of the Parnassus Fixed-Income Fund was $17.41, producing a loss for the quarter of 0.43%
(including dividends). This compares to a loss of 0.16% for the Barclays Capital U.S. Government/Credit Bond Index
("Barclays Capital Index") and a gain of 0.23% for the Lipper A-Rated Bond Fund Average, which represents the average
return of all A-rated bond funds followed by Lipper ("Lipper average").
Below is a table comparing the performance of the Fund with that of the Barclays Capital Index and the Lipper average.
Average annual total returns are for the one-, three-, five- and ten-year periods. For March 2013, the 30-day subsidized SEC
yield was 0.62% and the unsubsidized SEC yield was 0.59%.
Performance data quoted represent past performance and are no guarantee of future returns.
Current performance may be lower or higher than the performance data quoted. Current
performance information to the most recent month-end is available on the Parnassus website
(www.parnassus.com). Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original cost. Returns
shown in the table do not reflect the deduction of taxes a shareholder would pay in fund
distributions or redemption of shares. The Barclays Capital U.S. Government/Credit Bond
Index is an unmanaged index of bonds, and it is not possible to invest directly in an index.
Index figures do not take any expenses, fees or taxes into account, but mutual fund returns do.
Before investing, an investor should carefully consider the investment objectives, risks, charges
and expenses of the Fund and should carefully read the prospectus or summary prospectus,
which contain this and other information. The prospectus or summary prospectus can be
obtained on the Parnassus website, or by calling (800) 999-3505. As described in the Fund's
current prospectus dated May 1, 2013, Parnassus Investments has contractually agreed to
reduce its investment advisory fee to the extent necessary to limit total operating expenses to
0.68% of net assets for the Parnassus Fixed-Income Fund effective May 1, 2013. This
limitation continues until May 1, 2014, and may be continued indefinitely by the investment
adviser on a year-to-year basis.
First Quarter Review
Economic forecasters increased their projections
for U.S. economic growth during the quarter, as
politicians reached a compromise on the fiscal
cliff and postponed the debt ceiling issue to May.
There were also encouraging signs in economic
data related to housing and manufacturing
activity. As a result, the first quarter U.S. GDP
growth forecast increased from 1.5% at the start of
the year to over 2% by the end of the quarter.
As expectations for economic growth picked up,
investors moved out of the safety of Treasury
bonds and into riskier investments, such as
corporate bonds and stocks. Interest rates
increased during the first quarter, especially for
long-dated Treasury bonds. The yield on the
10-year Treasury note increased 9 basis points to
1.85%, while the 30-year bond yield finished the
first quarter up 15 basis points to 3.10%.
Long-dated Treasury bonds suffered larger losses
than short-dated ones, as bond prices move
inversely to interest rates. Treasury bonds with a
maturity greater than 20 years fell 2.89%, while
bonds with maturities between 10 and 20 years
declined only 0.77%. In contrast, renewed
economic growth helped the returns for corporate
bonds, particularly the ones issued by financial
institutions, and commercial mortgage-backed
securities (CMBS). During the first quarter,
financial corporate bonds returned 0.88% and
CMBS gained 0.13%.
During the first quarter, the Fund had a loss of
0.43%, because of our exposure to long-dated
Treasury bonds. Our Treasury bond holdings
reduced the NAV by 8¢, which was partially offset
by a 2¢ gain from our corporate bonds.
For the quarter, the Fund trailed the Barclays
Capital Index by 27 basis points, due to our larger
exposure to the Treasury market and lower weighting in corporate bonds. As of the end of the first quarter, the Fund's asset class allocation included 65.0% of the total
net assets invested in Treasury bonds and 29.0% in corporate bonds. This compared to 60.3% in Treasury bonds and 39.7%
in corporate bonds for the Barclays Capital Index.
The Fund lagged the Lipper average by 66 basis points in the first quarter, as we didn't own any financial corporate bonds or
CMBS. As of the end of the first quarter, the Fund owned primarily corporate bonds issued by companies in the industrial,
technology and healthcare sectors. While these bonds were up during the quarter, they didn't match the stronger returns of
financial corporate bonds. Most of our peers also didn't have much exposure to the underperforming Treasury market.
Outlook and Strategy
In my opinion, the zero interest rate polices of central banks have forced many investors toward riskier investments in search
of better returns. As a result, investors have bid up many corporate bonds to valuation levels that have usually resulted in
poor future returns.
According to a Deutsche Bank report, credit spreads, or the difference between U.S. corporate bond yields and Treasury bond
yields, are currently at levels that have historically generated negative excess returns. This means that the returns over the next
year for corporate bonds are expected to be worse compared to Treasury bonds.
I think that it's unlikely to see the outperformance of corporate bonds from last year repeated again this year. This is simply
because credit spreads are now much tighter. For example, based on Deutsche Bank calculations, financial credit spreads
would need to turn negative to achieve comparable returns to last year. In other words, investors would assume the very
unlikely scenario where Treasury bonds are perceived to be riskier than financial corporate bonds.
It seems to me that investors are becoming too complacent and that the
risks are now more weighted on the downside. Therefore, I think that a
defensive investment strategy is appropriate in such an environment. As
of the end of the first quarter, U.S. Treasuries were our largest holding,
representing 65.0% of the Fund's total net assets. The rest of the
portfolio includes corporate bonds (29.0%), convertible bonds (0.5%),
supranational bonds (2.3%), and short-term investments and other
assets and liabilities (3.2%).
Thank you for your trust and investment in the Parnassus Fixed-Income
Fund.
Yours truly,
Minh T. Bui
Portfolio Manager
The information above represents the Letter from Parnassus Investments, management's
discussion and analysis of fund performance, and Responsible Investing Notes as
excerpted from the Report. Please click on the "Full Report" link above to view
the Report in its entirety.