June Market Review

July 27, 2016

Shortly after the end of each month, our Chief Investment Strategist David Klassen provides a review of the market and our funds’ performance. Following is a summary of June —

Markets

  • Global financial market volatility spiked in June as the UK voted to leave the European Union through its referendum on June 24, resulting in steep losses for the British Pound Sterling and European equities, while bond and gold benefited from a flight to safety. Global equity markets ended June with mixed performance as emerging markets outperformed developed markets.
  • The S&P 500, which tracks large cap U.S. stocks, was up 0.26% in June, up 2.46% for Q2 and is up 3.84% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, decreased 0.06% in June, and is positive for Q2 and YTD with returns of 3.79% and 2.22% respectively. The international developed equity index (MSCI EAFE) was down 3.36% in June and is negative for Q2 and YTD, down 1.46% and 4.42% respectively. The emerging markets index (MSCI EM), was up 4.00% for June and is up 0.66% for Q2 and 6.41% YTD.
  • In June, bond yields decreased. The 30-year U.S. Treasury bond yield decreased 3bps to 2.29%, the 10-year decreased 38bps to 1.47%, and the 5-year decreased 37bps to 1.00%. Bond yields move opposite prices, so treasury prices increased across the board during the month.
  • Corporate bond prices as measured by Barclays Aggregate Index were up 1.80% for June, up 2.61% for Q2 and are up 5.31% YTD.

Economic & Geopolitical Headlines 

  • The U.S. economy, measured by real gross domestic product (GDP), in first quarter 2016, was up 1.1% according to “third” estimates released by the Bureau of Economic Analysis, an increase of 0.3 percent from “second estimates”. The fourth quarter 2015 GDP increased 1.4%.
  • The Federal Reserve met in June and Chair Janet Yellen commented on current conditions and the outlook for the U.S. economy, noting that recent labor market news has been generally good with unemployment rate falling to 4.7%, and rising household income. However, the sudden drop in job additions in May, along with global uncertainties, kept the Fed from raising the Federal Funds rate at its meeting on June 15. The Fed Chair commented that further gradual increases in the Federal Funds rate are likely to be appropriate if incoming market data are consistent with labor market strengthening and inflation targets.
  • Economic activity during the month of June in the manufacturing sector showed that the economy expanded. The June PMI registered 53.2, an increase of 1.9 percentage points from the May reading of 51.3, according to the Institute for Supply Management. This is the highest reading in the past 12 months. A reading above 50 is considered economic expansion.
  • The U.S. labor market grew in June as employers added 287,000 jobs, the highest number in eight months, and the unemployment rate increased by .2 percentage point to 4.9%. The increase in jobs reflected the return of workers from the strike at Verizon which increased private sector hiring. April and May employment numbers were revised down by a combined 6,000 jobs. The average job gains over the past three months is 147,000.

Performance & Fund Updates 

  • In June, net of all fees, the Total Equity Fund is down 0.10% for Q2, which brings the YTD return to 0.81%; the Domestic Core Fund is up 1.14% for Q2 and its YTD return is up 2.96%; the International Equity Fund is down 1.47% for Q2 and its YTD return is down 1.01%; the Small Cap Equity Fund is up 1.45% for Q2 and its YTD return is 0.86%; and the Fixed Income Fund is up 2.87% for Q2 and its YTD return is 5.90%.
  • Equity managers trailed benchmarks for Q2, reversing a more positive trend earlier in the year. In Domestic Core Equities, QMA struggled as quantitative factors faltered during quarter-end volatility. Small Cap Equities also trailed benchmarks for the quarter as Dimensional Fund Advisors lagged due to lack of interest sensitive REITs in the portfolio, and Fiduciary gave back some earlier year gains. Finally, LSV in the International Equity Fund also trailed, partly due to European exposure but also due to a value and quantitative orientation which were quarterly headwinds. As a note, as the markets have returned back to normalcy in July, equity manager performance has bounced back nicely.
  • The Moderate Balanced Fund is up 0.97% for Q2 and has a return of 2.75% YTD. The Aggressive Balanced Fund is up 0.55% for Q2 and has a return of 2.00% YTD. The Conservative Balanced Fund is up 1.71% for Q2 and has a return of 4.03% YTD. The Alternatives Balanced Fund is up 1.21% for Q2 and has a return of 1.58% YTD.
  • UCF transitioned the Beyond Fossil Fuels Fund from a U.S. Large Cap oriented index to a Global Equity index, the new Global BFF Equity Fund. With this and other transitioned, the Global Balanced BFF is now comprised of managers that are entirely fossil fuel free according to the BFF guidelines. The BFF Balanced Fund is up 0.72% for Q2 and has a return of 2.01% YTD.
 
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