May 2018 Market Review

June 22, 2018

Following is a summary of the markets and our funds’ performance for the month of May 2018, provided by our Chief Investment Strategist David A. Klassen.

MARKETS

  • Political uncertainties – North Korea, Iran, and the new Italian populist government – plagued global financial markets while talks on trade tariffs dominated news coverage. The US dollar hit a new high for the year in May, and US equities outperformed international equities. The S&P 500, which tracks large capS. stocks, increased 2.41% in May and is up 2.02% Y-T-D and the Russell 2000 Index, which tracks domestic small cap stocks, was up 6.07% and is up 6.90% Y-T-D. The MSCI EAFE Index, which tracks large and mid-cap international equities in developed markets, was down 2.25% in May and is down -1.55% Y-T-D. The emerging markets index (MSCI EM) dropped 3.54% in May and is down -2.61% Y-T-D.
  • In May, the US Treasury market saw an uptick across the yield curve with the 30-year US Treasury bond yield declining 10 bps to 3.03%; the 10-year yield dropping 9 bps to 2.86%, and the 5-year yield sliding 10 bps to 2.70%.
  • The Barclays Aggregate Index, a well-known measure of US Bond prices, increased 0.71% for May and is down -1.50% Y-T-D.

ECONOMIC & GEOPOLITICAL HEADLINES

  • US gross domestic product (GDP) increased 2.2% in the first quarter of 2018 according to the “second” estimate released by the Bureau of Economic Analysis. Fourth quarter 2017 GDP increased 2.9%.
  • The May Purchasing Managers Index (PMI) registered 58.7, an increase of 1.4 from the April reading of 57.3. Per the Institute for Supply Management, a reading above 50 indicates economic expansion.
  • In May, non-farm employment added 223,000 jobs, exceeding an estimate of 188,000, and the unemployment rate fell to an 18-year low of 3.8%. The April number was revised down to 159,000 from 164,000. Average Hourly Earnings increased by 2.7% year-over-year. The Federal Reserve’s monetary policy normalization is expected to stay on track.

PERFORMANCE UPDATES

  • The Total Equity Fund was up 0.51% in May and is up 0.41% Y-T-D. The International Equity Fund was down 1.72% in May, and its Y-T-D return is -1.55%. The Small Cap Equity Fund was up 4.10% for May and Y-T-D is up 4.53%. The Fixed Income Fund was up 0.18%, and its Y-T-D return is -1.27% net of fees.
  • United Church Funds equity managers’ performance was mixed relative to their respective benchmarks for May. International developed manager, Baillie Gifford, outperformed its benchmark, while LSV Asset Management lagged its benchmark. Emerging markets manager, Oaktree Capital, lagged its benchmark. Domestic Core equity managers State Street Global Advisors and Quantitative Management Associates outperformed, while Fiduciary Management, Inc. (FMI) underperformed its benchmark. Small cap manager Dimensional Fund Advisors outperformed while FMI and Westfield Capital Management underperformed their respective benchmarks in May.
  • In May, the Moderate Balanced Fund was up 0.27%, and is down 0.40% Y-T-D. The Aggressive Balanced Fund was up 0.30%, and has a return of -0.19% Y-T-D. The Conservative Balanced Fund was up 0.22%, and is down 0.77% Y-T-D. The Alternatives Balanced Fund was up 0.08%, and is up 0.27% Y-T-D. The Beyond Fossil Fuels Balanced Fund was up 0.59%, and is down 0.49% Y-T-D.
 
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