After stumbling in early April, U.S. stocks continued their upward trajectory and posted second-quarter gains. According to various Russell indexes, large- and mid-cap stocks outperformed small-cap companies, while there was little difference in the returns of growth and value stocks for small-caps and large-caps. Non-U.S. stocks also posted solid returns, with emerging markets outperforming developed markets overall despite a backdrop of geopolitical tensions. U.S. bonds generated another quarter of healthy returns even as the Federal Reserve prepared the markets for an eventual increase in benchmark lending rates. Emerging markets bonds posted strong gains.
The Global Allocation Fund returned 3.63% in the quarter compared with 4.05% for the Morningstar Global Allocation Index. For the 12 months ended June 30, 2014, the fund returned 16.46% versus 16.64% for the Morningstar Global Allocation Index. The fund's 1-year and Since Inception (05/28/2013) average annual total returns were 16.46% and 11.09%, respectively, as of June 30, 2014. The fund's expense ratio was 2.03% as of its fiscal year ended October 31, 2013.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
With the ability to position the portfolio according to our views on economic and market conditions, we favor stocks relative to bonds but have continued to moderate the overweight to equities as valuations climb. We are overweight international equities, including emerging markets, because of their more attractive valuations relative to U.S. stocks. In fixed income, we are overweight high yield bonds versus investment grade because of their yield advantage and lower sensitivity to changes in interest rates; however, we moderated the emphasis on high yield amid the ongoing strength in that segment. The fund includes a position in a hedge fund of funds for the purpose of potentially improving risk-adjusted returns; this allocation helped the fund's relative returns during the quarter.
Diminishing fiscal headwinds, improved consumer finances, and declining unemployment suggest that U.S. gross domestic product growth should improve over the balance of 2014. European economic growth should continue to gradually improve as problems in the peripheral eurozone countries recede, but slow progress toward economic reforms in some eurozone nations and elevated unemployment levels will likely contain the pace of expansion. Stocks are broadly at valuation levels that are at or slightly above historical averages, with some segments-such as U.S. small caps-appearing expensive. Although the terms on recent high yield issues have become less favorable to investors, we believe that high yield debt is attractive relative to other fixed income assets in the ongoing low-rate environment.