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Small Cap Core

as of 9/30/14

Fund Commentary

Small-cap stocks experienced steep declines during the third quarter, erasing all of the outperformance small-cap stocks exhibited versus large-cap stocks during the prior five years, as measured by the Russell 2000® Index against the Russell 1000® Index. Concerns about the rising relative valuations of small-caps and heightened concerns surrounding global growth appeared to dampen enthusiasm for smaller company stocks.

The Small Cap Core Fund posted a total return of -5.92% for the quarter, compared with -7.36% for the Fund’s benchmark, the Russell 2000® Index. Within the Fund, strong stock selection among healthcare and energy stocks drove the outperformance. No fund sector showed material underperformance, but relative results in the materials and telecommunications sectors were essentially neutral. As intended, contribution from sector allocation was modest, but positive, as overweight positions in consumer staples and health care were beneficial. Stock selection among micro-cap stocks was strong, as the Fund’s broad holdings of micro-cap stocks significantly outperformed the micro-caps represented within the Index. Less successful was the differentiation of performance among stocks rated by our proprietary quality models. Lower-quality stocks outperformed within the financials and healthcare sectors. However, in both sectors, strong stock selection in the remaining higher-quality stocks more than offset the detraction of underweights to the lower-quality stocks.

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.

©2014 Northern Funds | Northern Funds are distributed by Northern Funds Distributors, LLC, not affiliated with Northern Trust.