U.S. stocks generally rose in the second quarter. Markets registered moderate gains in April and May, supported by accommodative global monetary policies, stabilizing oil prices, and reduced expectations for interest rate hikes in the U.S. Markets tumbled in late June after the UK surprisingly voted to leave the European Union (Brexit). International developed markets stocks declined moderately, while emerging markets stocks rose slightly overall. In the global industrials space, utilities shares surged higher as risk-averse investors sought perceived safety and attractive yields. Airlines and information technology stocks tumbled amid concerns about the impact of slowing global growth on cyclical stocks.
The Global Industrials Fund returned 2.15% in the quarter compared with −1.38% for the MSCI ACWI Index Industrials + Automobiles & Auto Components. For the 12 months ended June 30, 2016, the fund returned −1.48% versus −4.60% for the MSCI ACWI Index Industrials + Automobiles & Auto Components. The fund's 1-year and Since Inception (10/24/2013) average annual total returns were −1.48% and 2.03%, respectively, as of June 30, 2016. The fund's expense ratio was 2.39% 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.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
Our building products and business services stocks generated some of the fund's largest absolute gains for the period. Our automobile stocks and airlines declined. Given the modest and uncertain economic backdrop, we do not believe the stock market is sufficiently pricing downside risks. As a result, the risk/reward profile for many cyclical industrials stocks has become less attractive, and we have deemphasized some of the portfolio's cyclical names in favor of less cyclical, more defensive stocks. Among these are aerospace and defense service providers and manufacturers with exposure to relatively stable and predictable government spending.
In the U.S., consumer spending continues to support moderate economic expansion. The Federal Reserve has adopted a "low and slow" approach to interest rate hikes, and their timing may be further affected as they evaluate Brexit's impact on U.S. and global growth rates. Economic data continue to show modest growth in Europe, but again, Brexit's full impact remains to be seen. Japan's economy continues to idle after years of reform efforts have failed to ignite sustainable growth, and there is significant divergence across emerging markets in terms of economic, monetary, and fiscal conditions. We will continue to emphasize company-specific fundamentals to find firms with sustainable competitive advantages that are getting stronger relative to their peers.