Following is a summary of the markets and our funds’ performance for the month of February 2019, provided by our Chief Investment Strategist David A. Klassen.
- Global financial markets extended January gains through February, completing the best 2-month start for U.S. equities since 1991. The S&P 500, which tracks large cap U.S. stocks, was up 3.21% in February and is up 11.48% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks increased 5.20% in February and is up 17.03% Y-T-D. The International developed equity index (MSCI EAFE), increased 2.55% in February and is up 9.29% Y-T-D. The emerging markets index (MSCI EM) increased 0.22% in February and is up 9.00%Y-T-D.
- In February, bond yields increased, and prices decreased; the 30-year U.S. Treasury bond yield increased 8bps to 08%, while the 10-year yield increased 9bps to 2.72%, and the 5-year yield increased 7bps to 2.51%.
- The Barclays Aggregate Index, which is a measure of U.S. Bond prices, decreased 0.06% for February and is up 1.00% Y-T-D.
ECONOMIC AND GEOPOLITICAL HEADLINES
- U.S. gross domestic product (GDP) in the fourth quarter of 2018 increased 2.6%, according to the “initial” estimate released by the Bureau of Economic Analysis. Third quarter 2018 GDP increased 3.4%.
- The February Purchasing Managers Index (PMI) registered to 54.2, a 2.4 percentage point decrease from the January reading of 56.6, indicating that the economy grew at a slower pace. Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion.
- Job growth came to a near halt in February as non-farm employment increased by only 20,000 jobs, even as the unemployment rate fell to 3.8 percent, as reported by the Bureau of Labor Statistics on March 8. It was the worst month for job creation since September 2017, when two major hurricanes hit the employment market, offset somewhat by a solid increase in wages. Average Hourly Earnings (wages) increased 3.4% year-over-year. Payroll number for December and January were revised by a combined total of 12,000 more than previously reported. After revisions, job gains over the past three months averaged 186,000.
- Fed continued communicating publicly its willingness to be more patient and be flexible given economic data.
FUND PERFORMANCE UPDATES
- In February, the Total Equity Fund increased 2.76% and is up 11.26% Y-T-D. The International Equity Fund was up 2.30% and is up 10.36% Y-T-D. The Small Cap Equity Fund increased 5.84% and is up 18.45% Y-T-D. The Fixed Income Fund was up 0.42% and is up 2.07% Y-T-D.
- All UCF equity managers had positive absolute returns in February. Relative performance was mixed. For international markets, developed manager Baillie Gifford outperformed while LSV and emerging markets manager RBC underperformed their respective benchmarks. Domestic equity managers QMA, State Street and FMI underperformed their respective benchmarks. Small cap managers DFA underperformed its benchmark, while BlackRock, Fiduciary and Westfield surpassed their respective benchmarks.
All Balanced Funds had positive absolute and relative returns for February. The Moderate Balanced Fund, UCF’s most popular fund, increased 1.78% and is up 7.25% Y-T-D. The Aggressive Balanced Fund was up 2.15% and is up 8.74% Y-T-D. The Conservative Balanced Fund returned 1.18% and is up 5.10% Y-T-D. The Alternatives Balanced Fund was up 1.72% and is up 6.61% Y-T-D. Finally, the Beyond Fossil Fuels Balanced Fund increased 1.68% and is up 7.17% Y-T-D.