Following is a summary of the markets and our funds’ performance for the month of October 2018, provided by our Chief Investment Strategist David A. Klassen.
- Volatility returned to the US equity markets with a vengeance. October witnessed two of the most significant daily point losses in the S&P 500 Index. Although companies reported strong earnings in the third quarter, some companies guided a decline in future growth. The S&P 500, which tracks large capS. stocks, decreased 6.84% in October and is up 3.01% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks, dropped 10.86% and is down –0.60% Y-T-D. The International developed equity index (MSCI EAFE) declined 7.96%and is down -9.28% Y-T-D. The emerging markets index (MSCI EM) decreased 8.71% and is down 15.72% Y-T-D.
- In October, bond yields increased across the yield curve with a corresponding decline in prices; the 30-year U.S. Treasury bond yield rose 20 bps to 3.39%, the 10-year yield increased 10 bps to 3.15% and the 5-year yield increased 4 bps to 2.94%.
- The Barclays Aggregate Index, which is a well-known measure of U.S. Bond prices, decreased 0.79% for October and is down 2.38% Y-T-D.
ECONOMIC AND GEOPOLITICAL HEADLINES
- U.S. gross domestic product (GDP) in the third quarter of 2018 increased 3.5%, according to the “advanced” estimate released by the Bureau of Economic Analysis. Second quarter 2018 GDP rose 4.2%.
- The October Purchasing Managers Index (PMI) decreased slightly, to 57.7 from 59.8 the previous month, indicating that the economy grew at a somewhat slower pace. Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion.
- In October, non-farm employment rose by 250,000 jobs, beating estimates of 193,000 and the unemployment rate remained unchanged at 3.7%. Average Hourly Earnings (wages) increased by 3.1% year-over-year. The monetary policy normalization and Fed plan to raise rates is expected to stay on track.
FUND PERFORMANCE UPDATES
- In October, the Total Equity Fund declined -8.46% and is down -5.69% Y-T-D. The International Equity Fund was down -9.81% and is down -13.41% Y-T-D. The Small Cap Equity Fund declined -10.68% and is down -2.19% Y-T-D. The Fixed Income Fund was down -0.78% and is down -2.25% Y-T-D.
- In October, the UCF equity managers’ performance were mixed relative to their respective benchmarks. For international markets, developed managers LSV and Baillie Gifford underperformed. The recently retained emerging markets manager RBC outperformed its benchmark. Domestic Core equity managers State Street and QMA fell short of their respective benchmarks, while FMI beat its benchmark. Small cap manager DFA and Westfield underperformed their respective benchmark, while Fiduciary surpassed its benchmark.
- All Balanced Funds gave up their gains from early in the year. The Moderate Balanced Fund, UCF’s most popular fund, declined -5.63% and is down -4.92% Y-T-D. The Aggressive Balanced Fund was down -6.82% and is down -5.60% Y-T-D. The Conservative Balanced Fund returned -3.90% and is down -4.06% Y-T-D. The Alternatives Balanced Fund was down -4.71% and is down -3.42% Y-T-D. Finally, the Beyond Fossil Fuels Balanced Fund was down -5.10% and is down -4.95% Y-T-D.