Homestead Short-Term Bond Fund

Homestead Short-Term Bond Fund

Q4 2021

Mark SanteroPresident and [email protected]

Firm Overview

• Homestead Funds was established by the National Rural Electric Cooperative Association in 1990.

Homestead Funds offers 10 no-load mutual funds across equity and fixed-income asset classes.

• RE Advisers is the SEC-registered investment advisor to nine of the 10 funds and a subsidiary of NRECA.

RE Advisers manages approximately $8.4 billion in mutual funds, pension plans and separately managed accounts as of 12/31/21.

2Short-Term Bond Fund |


Short-Term Bond Fund Profile

Inception November 5, 1991

Net Assets (as of 12/31/21) $565,306,312

Morningstar Category Short-Term Bond

Lipper Classification Short-Investment Grade Debt

Benchmark ICE BofA 1-5 Year Corp./Gov. Index

Ticker Symbol HOSBX

CUSIP Number 437769300

Fee Structure No Load

Expense Ratio 0.78%*

Median Expense Ratio for Peer Group 0.76%*

Transaction Fees None

Minimum for Initial Purchase $500/$200 IRA

*As of 12/31/20. The expense ratio shows the percentage of fund assets deducted annually to cover operating expenses. Fund expense ratios shown here do not include acquired fund fees and expenses. If applicable, these additional costs are disclosed in the prospectus. The peer group ratio is according to Morningstar Direct, based on each fund’s Morningstar classification. The ICE BofA 1-5 Year Corp./Gov. Index measures the performance of U.S. government and investment-grade corporate debt. Indices are unmanaged, and investors cannot invest directly in an index.

Objective and Strategy

• Seeks a high level of income consistent with maintaining minimum fluctuation of principal

• Invests in high-quality, short-term debt securities, including:

Commercial paper

Corporate bonds

U.S. Treasuries and other government-guaranteed securities

Municipal bonds

U.S. dollar-denominated debt securities of foreign issuers (Yankee Bonds)

Asset-backed and mortgage-backed securities

• Average portfolio maturity expected to be three years or less

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Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated securities involve greater risk than higher-rated securities.

Short-Term Bond Fund |

Approach: Relative-Value Orientation

Top-Down Components• Economic outlook, fiscal and monetary policy

• Duration and yield curve positioning

• Sector and security weights relative to benchmark

Bottom-Up Components

• Security selection

• Risk management

• Performance monitoring

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Allocation

Macro Backdrop

Positioning

Selection

Risk Management

Performance Monitoring

Allocation


Key Principles

• We make short-term tactical allocations to sectors and industries, gravitating toward securities that we believe are attractive in terms of risk/reward.

• We focus on research to identify what we believe are highly credit worthy issuers and select favorable issues within the issuers’ capital structure.

• We consider ourselves to be long-term investors within the parameters of a short-term bond fund.

• We seek total return with a secondary emphasis on yield. However, given the inherently liquid nature of an investment-grade, short-term bond portfolio, all things being equal, the strategy will sacrifice a degree of liquidity for greater yield.

• Our risk-management process emphasizes monitoring active exposures on an absolute and relative basis versus the benchmark across duration, sector allocation and security selection.


Investable Universe

• Security Selection. Focus is on high-quality, short-term debt securities, including corporate bonds, asset- and mortgage-backed securities, municipal bonds, Yankee bonds and U.S. government and agency obligations.

• Credit Quality. Ordinarily, at least 80% of the fund is invested in securities rated A or above by Standard & Poor’s (or the equivalent rating from another organization). There is a 5% limit on purchases of securities rated BBB at the time of purchase.

• Maturity. The fund’s dollar-weighted average maturity is expected to be three years or less. Due to the constant rollover component inherent in a short-term bond portfolio, liquidity, is to a certain extent, self-fulfilling.


Performance Drivers

• Duration and yield curve management

• Sector allocation and security selection

• Fundamental credit research

• Disciplined investment philosophy and repeatable process


Process

9

Allocation


Portfolio Management Team

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Mauricio Agudelo, CFA®

Head of Fixed-Income Investments

University of Maryland, bachelor’s degree in finance. Mr. Agudelo has been in the industry since 2004.

Ivan Naranjo, CFA®, FRM®

Fixed-Income Portfolio Manager

University of Maryland, bachelor’s degree in finance. Mr. Naranjo has been in the industry since 2004.

David CoreaInvestment Analyst

University of Maryland University College, bachelor’s degree candidate. Mr. Corea has been in the industry since 2018.



Portfolio Attributesas of December 31, 2021

(a) Rate includes purchases and sales of long-term U.S. Treasury bonds.

12/31/2021

Net Assets $565,306,312

Number of Holdings 245

30-day SEC Yield 0.46%

Weighted Average Maturity 2.68 years

Weighted Average Duration 2.34 years

12/31/2020Turnover Ratio 328% (a)


Fund vs. Index Credit Ratingas of December 31, 2021

May not total 100% due to rounding. Ratings are composite ratings utilizing both Moody's and S&P ratings for each security. The ICE BofA 1-5 Year Corp./Gov. Index measures the performance of U.S. government and investment-grade corporate debt. Indices are unmanaged, and investors cannot invest directly in an index. Unless otherwise noted, performances of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer’s creditworthiness. If agency ratings differ, the security will be considered to have received the highest of those ratings, consistent with the fund’s investment policies. Securities in the unrated category have not been rated by a rating agency; however, the investment advisor performs its own credit analysis and assigns comparable ratings that are used for compliance with fund investment policies.

42.89%

9.16%

42.07%

5.70%

0.18%

68.98%

5.46%

12.38%

12.04%

1.13%

AAA

AA

A

BBB

BB & Lower

Short-Term Bond Fund ICE BofA 1-5 Year Corp./Gov. Index


Total Returnsfor quarter ending December 31, 2021

Indices are unmanaged, and investors cannot invest directly in an index. Unless otherwise noted, performances of indices do not account for any fees, commissions or other expenses that would be incurred. The index's returns do not include reinvested dividends.

The total returns shown above represent past performance, which does not guarantee future results. Investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. For performance data current to the most recent month-end, call 800.258.3030 or visit homesteadfunds.com.

The fund’s total returns include interest, capital gains, dividends and distributions.

-0.88%-1.11% -1.11%

2.70%

2.29% 2.13%

4.06%

-0.69%-0.87% -0.87%

2.92%

2.28%

1.84%

4.27%

-2%

-1%

0%

1%

2%

3%

4%

5%

QTD YTD 1 Year 3 Year 5 Year 10 Year Since Inception

Retu

rn



Calendar-Year Total Returnsas of December 31, 2020

Indices are unmanaged, and investors cannot invest directly in an index. Unless otherwise noted, performances of indices do not account for any fees, commissions or other expenses that would be incurred. The index's returns include reinvested dividends.

The total returns shown above represent past performance, which does not guarantee future results. Investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. For performance data current to the most recent month-end, call 800.258.3030 or visit homesteadfunds.com.

Total fund’s returns include interest, capital gains, dividends and distributions.

1.65% 1.69%

3.90%

5.42%

-1.11%

1.28% 1.40%

5.08%4.65%

-0.87%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2017 2018 2019 2020 2021

Retu

rn



May not total 100% due to rounding.

35.4%

30.9%

14.2%

12.8%

2.6%

1.7%

0.6%

1.8%

25.6%

70.4%

3.9%

0.0%

0.0%

0.1%

0.0%

0.0%

Corporate bonds - other

U.S. government & agencyobligations

Yankee bonds

Asset-backed securities

Corporate bonds - governmentguaranteed

Municipal bonds

Mortgage-backed securities

Short-term and other assets

Market Va lue Percentage


Fund vs. Index Security Exposureas of December 31, 2021

Competitive Advantages

Competitive Advantages

• Homestead Funds uses a disciplined investment approach and repeatable process.

• A relative value-oriented strategy incorporates top-down and bottom-up factors.

• Portfolio construction is dynamic, which provides flexibility to adjust to changes in the economic and business cycle.

• Boutique firm and small portfolio size affords flexibility and responsiveness to investment opportunities.


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Fund Company Media Mentions

S&P Fund Awards, November 2011: “Gold Award for Small Company”

Consumer Reports, February 2007: “60 Funds You Can Count On”

Smart Money, December 2006: “Fund Watch: Good Gifts”

Kiplinger’s Personal Finance, November 2006: “Thrills without Spills”

Motley Fool Champion Funds, November 2006: “Fund of the Month”

Consumer Reports, March 2005: “70 All-weather Winners”

Louis Rukeyser’s Mutual Funds, November 2004: “Open Arms”

Kiplinger’s Personal Finance, April 2002: “Take Heart: Low Minimums”

Business Week, February 2002: “That Old Bond Magic May Not Last”

Money, Fall 2001: “10 Best Funds”

Forbes, June 2015: “Mutual Fund Honor Roll”

Kiplinger’s Personal Finance, May 2015: “How to Beat Index Funds”

Bloomberg Markets, April 2015: “Small-Cap US Equities”

Investor’s Business Daily, April 2015: “Are Small-Cap Stock Mutual Funds Helping Build Your Wealth?”

Wall Street Journal, March 2015: “How to Pick a Stock Picker”

Kiplinger’s Personal Finance, February 2015: “Oldies but Goodies”

Barron’s, December 2014: “The Artistry of Investing”

Forbes, August 2014: “Mutual Funds Honor Roll”

Kiplinger’s Personal Finance, April 2014: “The Top Small-Cap Funds”

Bloomberg Markets, May 2013: “The Best Performing Mutual Funds”

Money, January/February 2018: "Investor's Guide 2018"

Investor's Business Daily, January 2018: "Top Value Funds (Six Month Leaders)"

Kiplinger's Personal Finance, November 2017: "5 “Unloved” Value Funds to Consider Buying Now"

Wall Street Journal, July and November 2017: "Category Kings"

Kiplinger's Personal Finance, April 2017: "25 Best Mutual Funds for Low Fees"

Seeking Alpha, May 2016: "3 Strong Buy All-Cap Value Mutual Funds

Money, January 2016: “Top Picks from Top Pros”

Kiplinger’s Personal Finance,January 2016: “This Small-Company Stock Fund Finds Gems in Surprising Places”

Investor’s Business Daily, October 2015: “Small-Cap Mutual Funds Hang Tough; Homestead Among Leaders”

Kiplinger's Personal Finance, January 2020: "Benjamin Graham's Timeless Advice"

Investor's Business Daily, October 2019: "Leading Growth Stocks Drive This Hush-Hush Mutual Fund's Outperformance"

Barron's, July 2019: "The Best Mutual Funds You’ve Never Heard Of"

Investor's Business Daily, June 2019: "Top Value Funds (Six Month Leaders)"

Kiplinger's Personal Finance, March 2019: "A Tough Year for Investors"

Investor's Business Daily, January 2019: "Top Value Funds (Six Month Leaders)"

Kiplinger's Personal Finance, April 2018: "Kiplinger's 25 Favorite No-Load Mutual Funds"

Investor's Business Daily, February 2018: "Top Value Funds (Six Month Leaders)"

Money, June 1998: “The World’s Best Mutual Funds”

Reuters, February 1998: “Fund Risk is as Important as Return”

Barron’s, November 1997: “For Warm Fuzzies, Try Homestead”

Money, November 1997: “Lift Your Returns with Five Funds that Don’t Seek the Spotlight”

Consumer Reports, September 1997: “Who Needs a Bond Fund?”

Fortune, August 1997: “The Best Mutual Funds for Your Retirement”

Smart Money, October 1996: “Where to Stash Your Savings”


Definitions

20homesteadfunds.com |

Asset-backed securities (ABS): Bonds or notes backed by financial assets.

Basis points (BPS): A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.

Dividend yield: A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Duration: The weighted average of the times until those fixed cash flows are received

Earnings per share (EPS): A company's profit divided by the outstanding shares of its common stock.

Mortgage-backed security (MBS): An investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them.

Price to book: Companies use the price-to-book ratio to compare a firm's market-to-book value by dividing price per share by book value per share.

Price to cash flow: A ratio used to compare a company's market value to its cash flow. It is calculated by dividing the company's market cap by the company's operating cash flow in the most recent fiscal year or, equivalently, dividing the per-share stock price by the per-share operating cash flow.

Price to earnings: The ratio of a company's stock price to the company's earnings per share. The ratio is used in valuing companies.

Weighted average maturity: Life of an amortizing loan or amortizing bond, also called average life, is the weighted average of the times of the principal repayments; it's the average time until a dollar of principal is repaid.

Disclaimer

21homesteadfunds.com |

Investing in mutual funds involves risk, including the possible loss of principal. Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated securities involve greater risk than higher-rated securities.

Past performance is no guarantee of future results.

Investors are advised to carefully consider fund objectives, risks, charges and expenses before investing. The prospectus contains this and other information and should be read carefully before you invest. To obtain a prospectus, call 800.258.3030 or download a PDF at homesteadfunds.com.

Homestead Funds’ investment advisor and/or administrator, RE Advisers Corporation, and distributor, RE Investment Corporation, are indirect wholly-owned subsidiaries of NRECA. 01/22

© 2022 RE Investment Corporation, Distributor. All rights reserved.

homesteadfunds.com | 4301 Wilson Blvd. INV8-305 | Arlington, VA 22203

Homestead Short-Term Bond Fund

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