U.S. stocks were little changed after an up-and-down quarter as early optimism about positive economic data and monetary stimulus in Europe and Japan gave way to concerns about the Greek debt crisis. Returns were mixed for non-U.S. stocks, with developed markets recording slim gains and emerging markets (EM) falling slightly. Bond returns were broadly negative during the quarter. U.S. bonds were hurt by rising rates as improving economic expectations have increased the likelihood of a rate increase by the Federal Reserve in the fall. Bonds in developed non-U.S. markets and emerging markets fell slightly in U.S. dollar terms. The currency environment stabilized after strong gains by the U.S. dollar from mid-2014 through the first quarter of 2015.
The Target Retirement 2020 Fund returned 0.00% in the quarter compared with −0.54% for the S&P Target Date 2020 Index. For the 12 months ended June 30, 2015, the fund returned 1.64% versus 2.32% for the S&P Target Date 2020 Index. The fund's 1-year and Since Inception (08/20/2013) average annual total returns were 1.64% and 7.68%, respectively, as of June 30, 2015. The fund's expense ratio was 0.65% as of its fiscal year ended May 31, 2014.
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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.
We have a neutral position in stocks relative to bonds. Stock valuations appear full, but a low-yield environment and expectations of higher interest rates later in 2015 weigh on bonds. We increased our overweight to non-U.S. equities based on better prospects for earnings and margins to grow as economies recover as well as on modestly more attractive valuations. We increased our overweight to high yield debt versus U.S. investment-grade bonds based on the former's better yields and lower sensitivity to interest rates. Low energy prices continue to hurt energy-related high yield issuers, but overall default rates should remain low.
The U.S. economy should grow in the 3% to 3.5% range in the second half of the year as weakness in the first quarter proves to be a transitory pullback driven by weather, energy capex declines, and a strong dollar. Europe and Japan appear poised to return to economic growth, spurred by aggressive monetary stimulus, and equity valuations are attractive, particularly if economies start growing again and earnings normalize. Slower global economic growth has exposed the divergent fiscal, monetary, and political conditions among emerging countries. A stronger U.S. dollar and lower prices for oil and other commodities may widen the gap between EM winners and losers (i.e., net commodity importers and commodity exporters).