Concentration
Risk.
A Fund may be susceptible to an increased risk of loss, including losses due to
adverse events that affect the Fund’s investments more
than the market as a whole, to the extent that the Fund’s investments are
concentrated in the securities or other assets of one or more
issuers, countries or other geographic units, markets, industries, project
types, or asset classes. A Fund with investment concentration may
be more adversely affected by the underperformance of those assets, may
experience greater price volatility and may be more susceptible
to adverse economic, market, political or regulatory impacts on those assets
compared to a fund that does not concentrate its
investments.
Declining
Yield Risk. For a Fund with a
planned termination date, in the months leading up to the termination, the
Fund’s yield may move toward prevailing
money market rates and may be lower than the yields of the bonds previously held
by the Fund and lower than prevailing yields for bonds
in the market.
Floating
Rate Securities Risk. Compared to the
broader U.S. Treasury note market, the issuance of floating rate obligations by
the U.S. Treasury is
relatively new. A deep and liquid market has not yet developed for these
instruments, and the market remains relatively untested. Securities with
floating or variable interest rates can be less sensitive to interest rate
changes than securities with fixed interest rates, but may decline in
value if their interest rates do not rise as much, or as quickly, as interest
rates in general. Conversely, floating rate securities will not generally
increase in value if interest rates decline. A decline in interest rates may
result in a reduction in income received from floating rate
securities held by a Fund and may adversely affect the value of the Fund’s
shares. Generally, floating rate securities carry lower yields than fixed
securities of the same maturity. The interest rate for a floating rate security
resets or adjusts periodically by reference to a benchmark interest
rate. The impact of interest rate changes on floating rate investments is
typically mitigated by the periodic interest rate reset of the
investments. Securities with longer durations tend to be more sensitive to
interest rate changes, usually making them more volatile than
securities with shorter durations. Floating rate securities generally are
subject to legal or contractual restrictions on resale, may trade
infrequently, and their value may be impaired when the Fund needs to liquidate
such loans. Benchmark interest rates, such as the Secured Overnight
Financing Rate (SOFR), may not accurately track market interest
rates.
Although floating
rate securities are less sensitive to interest rate risk than fixed-rate
securities, they are subject to credit risk and default risk, which could
impair their value.
There is no
guarantee or assurance that: (i) a Fund will be able to invest in a desired
amount of floating rate securities issued by the U.S. Treasury, (ii) a
Fund will be able to buy floating rate securities at a desirable price, (iii)
floating rate securities will continue to be issued by the U.S. Treasury, or
(iv) floating rate securities will be actively traded. Any or all of the
foregoing, should they occur, would negatively impact a Fund.
Geographic
and Security Risks. Issuers in a
Fund’s portfolio may be located in, or otherwise connected to, parts of the
world affected by natural disasters,
such as severe heat, earthquakes, tornadoes, volcanic eruptions, wildfires,
droughts, floods, hurricanes and tsunamis. In addition, issuers
may be impacted by security concerns with respect to a country or region, such
as war and other types of conflict, terrorism,
strained international relations and territorial disputes. Any of these events
may adversely affect the issuers, markets and economies to which
a Fund is exposed, which may adversely affect the value of the
Fund.
Illiquid
Investments Risk. An illiquid
investment is any investment that a Fund reasonably expects cannot be sold or
disposed of in current market conditions
in seven calendar days or less without significantly changing the market value
of the investment. An investment may be illiquid due to,
among other things, fewer participants or less capacity to make a market in the
investment, the lack of an active market for the investment,
capital controls, delays or limits on repatriation of local currency, and the
insolvency of local governments. To the extent that a Fund invests in
securities or other assets with substantial market and/or credit risk, the Fund
will tend to have increased exposure to the risks associated
with illiquid investments. Illiquid investments may be harder to value,
especially in changing markets.
Liquid investments
may become illiquid after purchase by a Fund, particularly during periods of
market turmoil. There can be no assurance that a security or
other asset that is deemed to be liquid when purchased will continue to be
liquid for as long as it is held by a Fund, and any security or other
asset held by a Fund may be deemed an illiquid investment pursuant to the Fund’s
liquidity risk management program.
Holdings of
illiquid investments may reduce a Fund’s returns because the Fund may be unable
to transact at advantageous times or prices. If a Fund is forced
to sell underlying investments at reduced prices or under unfavorable conditions
to meet redemption requests or for other cash needs, the
Fund may suffer a loss. This may be magnified in a rising interest rate
environment or other circumstances where redemptions of
Fund shares may be greater than normal. If other market participants attempt to
liquidate holdings at the same time as a Fund, this will
lead to an increased supply of the Fund’s underlying investments in the market
and contribute to greater illiquid investments risk and downward
pricing pressure. In addition, if a Fund is limited in its ability to sell
illiquid investments during periods when shareholders are redeeming
their shares, the Fund will need to sell liquid securities to meet redemption
requests, and illiquid securities will become a larger portion of
the Fund’s holdings. During periods of market volatility, liquidity in the
market for a Fund’s shares may be impacted by the liquidity in the
market for the underlying securities or other assets held by the Fund, which
could lead to the Fund’s shares trading at a premium or
discount to the Fund's NAV.
Income
Risk.
A Fund’s income may decline due to falling interest rates or other factors. This
can occur because the Fund may be required to invest in
lower-yielding bonds when a bond in the Fund’s portfolio matures, is near
maturity, is called or is prepaid or when the Fund otherwise needs to
purchase additional bonds, such as due to a substitution in the underlying index
for an index fund.
