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Small Cap Core

as of 6/30/16

Fund Commentary

Positive overall performance masked a volatile quarter in which small-cap stocks, as represented by the Russell 2000® Index, and the broader market had several periods in negative territory. Expectations for slowing global and domestic economic activity, changing expectations for Federal Reserve actions, and concerns about the Brexit vote contributed to dramatic changes in performance among sectors and stocks. A flight-to-safety led to a strong quarter for the utilities and consumer staples sectors and real estate investment trusts (REITs). Stabilizing oil and commodity markets helped the energy and materials sectors. Conversely, disappointing consumer spending and continued low interest rates dampened performance for consumer discretionary and financial stocks, respectively.

The Small Cap Core Fund returned 3.32%, compared with 3.79% for the Fund’s benchmark, the Russell 2000® Index. Outperformance among lower-quality stocks (as defined by our stock selection model) in the healthcare (particularly biotechnology) and technology (various industries) sectors was the main contributor to the Fund’s underperformance. Stock selection was weak in the materials sector, particularly among metals and mining stocks. Stock selection in the energy and consumer discretionary sectors offset some of the underperformance from lower-quality strength.

Micro-caps (stocks with market capitalizations less than $250 million) reversed their recent lagging trend and outperformed the broader small-cap market, helping to offset the underperformance of higher-quality stocks. Deeper valued stocks in select sectors outperformed, but in general, valuation was not a consistent characteristic of performance. The lowest profit margin and return on equity quintiles were the best performers, particularly among stocks in the healthcare and technology sectors (biotechnology, Internet and semiconductor companies).

Going forward, we will continue to invest in a diverse portfolio of small-cap stocks in a cost-efficient manner. We will continue to seek exposure to micro-cap stocks while attempting to avoid stocks with lower-quality characteristics, as indicated by our proprietary quality model.


Not FDIC insured | May lose value | No bank guarantee

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