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Small Cap Core

as of 12/31/14

Fund Commentary

After trailing for much of 2014, small-cap stocks rebounded in the fourth quarter and outperformed larger-capitalization stocks. Energy stocks remained a drag throughout the market, as were global exposures, but their influence was not enough to keep domestic small companies from rallying to end the year.

The Small Cap Core Fund posted a total return of 9.78% for the quarter, compared with 9.73% for the Fund’s benchmark, the Russell 2000® Index. Stock selection was strongest within the lagging energy sector, as the Fund’s higher-quality small-cap energy companies didn’t decline as much as the sector as a whole. Conversely, stock selection was weakest in the stronger healthcare sector, where an underweight to the rallying biotech industry and weaker stock selection among healthcare providers and suppliers detracted from overall performance.

The Fund had a modest overweight position in micro-cap stocks (those with market capitalizations of less than $150 million), which also lagged during the quarter and detracted from Fund returns. However, our efforts to avoid buying the lowest-quality companies (as determined by our proprietary stock selection model) helped, as the higher-quality companies tended to outperform, despite the notable exception of biotech stocks within the healthcare sector. Performance along the valuation spectrum was mixed but tended to favor stocks in the middle range of valuation (not the richest, not the cheapest), while the least-profitable stocks were laggards.

We will continue to focus on providing diverse exposure to domestic small-cap stocks, including those within the smallest segments of the market, while maintaining a disciplined process to manage active risk and transaction costs.

Not FDIC insured | May lose value | No bank guarantee

View investment terms definitions

Please carefully read the prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.

©2015 Northern Funds | Northern Funds are distributed by Northern Funds Distributors, LLC, not affiliated with Northern Trust.