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Active M U.S. Equity

as of 12/31/17

Fund Commentary

On the heels of favorable economic data, continued strong corporate earnings and anticipated tax reform, U.S. equity markets finished 2017 on a strong note, as the Russell 3000® Index posted a 6.3% gain, marking the ninth straight quarter of gains for the benchmark. Larger cap stocks continued their outperformance over smaller cap stocks while growth stocks extended their streak over value stocks across the market cap spectrum. All sectors posted positive returns with consumer discretionary (+9.1%) and information technology (+8.5%) leading the way while utilities (+0.6%) lagged. From a factor perspective, momentum performed well as did lower yielding stocks.

The Active M U.S. Equity Fund finished behind the Russell 3000® Index for the fourth quarter, with a return of 4.93% compared to 6.34% for the Index. Stock selection detracted during the quarter, as the Fund had an overweight to smaller cap stocks which did not fare as well as their larger counterparts and an underweight to the stronger performing higher momentum stocks. On a sector basis, positions in health care struggled, particularly in biotech. Information technology holdings also weighed on results, as the Fund was either underweight or did not have exposure to some of the more volatile stocks that performed well during the quarter.

During the quarter, we made changes to the Fund's sub-advisers for portfolio construction reasons. In an effort to mitigate the Fund's bias to downside protection strategy, we removed The London Company's yield-oriented strategy and redeployed the proceeds to Lazard's U.S. equity concentrated and Thompson Siegel & Walmsley's mid cap value strategies.

Not FDIC insured | May lose value | No bank guarantee

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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.

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