U.S. stocks rose modestly for the quarter as a strong rally in the latter half of the period erased earlier losses. Worries that a slowing global economy might drag the U.S. down caused markets to get off to a poor start in 2016. However, market sentiment rebounded in mid-February amid higher oil prices and improved U.S. economic data. International developed markets stocks fell in the period, but emerging markets stocks gained. The U.S. dollar weakened against several major currencies, boosting equity returns for U.S. investors.
The Spectrum Growth Fund returned −0.53% in the quarter compared with 0.97% for the Russell 3000 Index and 1.01% for the Lipper Multi-Cap Core Funds Index. For the 12 months ended March 31, 2016, the fund returned −3.25% versus −0.34% for the Russell 3000 Index and −2.58% for the Lipper Multi-Cap Core Funds Index. The fund's average annual total returns were −3.25%, 7.96%, and 5.89% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.79% as of its fiscal year ended December 31, 2015.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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We favor international equities over domestic stocks based on the former's potential for stronger earnings and margin growth and modestly more attractive valuations. The U.S. economic cycle is further advanced than many overseas economies that are in earlier stages of recovery, and international economies and companies are expected to benefit from aggressive monetary stimulus measures and weaker currencies. Attractiveness varies by country and region, however. European earnings, in particular, have room to grow as the economy recovers. Among domestic equities, we favor large-caps over small-caps, although we reduced the size of our overweight as relative valuations have moved closer to historical averages after protracted underperformance by small-caps.
Our global growth expectations remain modest as weak global trade and lower commodity prices weigh on global economies. The U.S. Federal Reserve downgraded its economic growth and inflation expectations for 2016, while remaining committed to interest rate policy normalization at a "gradual" pace. Central bank policies in Europe, Japan, and some emerging markets continue to diverge from the U.S. as they implement quantitative easing measures and negative interest rates to stimulate growth. Key risks to global markets include the impacts of global monetary policy actions, including the potential adverse consequences of negative interest rates on banking sector profitability, increased currency volatility, and political and policy uncertainties facing many countries already weighed down by weaker growth.