The quarter saw a synchronized rally in global equities with major indices in the United States reaching record levels. Positive investor sentiment during the period was sustained by healthy macroeconomic indicators, positive earnings forecast and the promise of a corporate friendly tax reform. The value factor rebounded in September after struggling for much of the quarter, in part due to the proposed reduction in the corporate tax rate (20%, down from 35%) which could disproportionately benefit value-oriented stocks. High-beta stocks were in favor during the period as the relatively stable low volatility stocks underperformed. Our quality model, which identifies stocks that have historically generated higher margins and cash flows than peers, performed in-line with the benchmark, as investor focus was tuned to beta rather than profitability.
The Large Cap Value Fund posted a total return of 3.00% for the quarter, compared with 3.11% for the Fund's benchmark, the Russell 1000® Value Index. The Fund's strategic overweight to high quality stocks within energy and consumer staples led to strong stock selection within these sectors. Avoiding some of the most expensive names within health care, a lagging sector during the quarter, also contributed to performance. Stock selection proved challenging within financials, where stocks with the most attractive valuations lagged peers that were more expensive. The Fund's deeper exposure to value within the sector detracted from performance.
Disappointing corporate earnings or a diluted tax reform could quickly change the market's direction in the coming months. The Fund's allocation to securities that invest responsibly and generate outsized profits could dampen volatility surrounding these uncertainties. We believe investing at the intersection of high-quality and value is a prudent strategy to outperform the benchmark over the near term as well as the full market cycle.
Not FDIC insured | May lose value | No bank guarantee
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