Second Quarter 2017

The All American Equity Fund had a total return of negative 0.45 percent in the second quarter of 2017, underperforming its benchmark, the S&P 500 Index, which returned 3.09 percent. Overall, large capitalization growth stocks outperformed large capitalization value stocks. See complete fund performance.

Past performance does not guarantee future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.

Strengths

  • Stock selection was strong in energy, information technology and utilities.
  • The fund's overweight in sector-specific investments proved to be a good decision evidenced by the allocation's 16 basis point outperformance.
  • Southwest Airlines, Quest Diagnostics and Carnival Corporation were among the best contributors to fund performance.

Weaknesses

  • Unfortunately, the fund's allocation to real estate, materials and consumer discretionary didn't provide the desired sector outperformance.
  • Stock selection was the principal driver of underperformance of the consumer discretionary investments.
  • Investments in Bed Bath and Beyond, W.W. Grainger and Macerich were among the worst contributors to the fund's performance.

Opportunities

  • Wall Street appears to be ignoring stock market history. Analyst consensus is for the S&P 500 to finish the year little changed from current levels. However, according to Strategas Research Partners, if the S&P 500 gains at least 8 percent in the first half of the year, it has averaged a 7.2 percent gain during the second half.
  • The U.S. economy's first-quarter growth was less tepid than previously reported, as consumer spending and trade added more to expansion, Commerce Department data shows. First-quarter GDP rose at a 1.4 percent annualized rate (forecast and previous estimate were 1.2 percent). Consumer spending, the biggest part of the economy, rose 1.1 percent (forecast and previous estimate were 0.6 percent). Exports grew 7 percent, revised from 5.8 percent.
  • One of the oldest stock market indicators is flashing a buy signal. The measure, known as Dow Theory, sends a bullish signal when transportation and industrial stocks make new 52-week highs simultaneously. This happened back in October and nothing has derailed its course despite the naysayers.

Threats

  • The Federal Reserve's consensus about when to unwind its balance sheet and how to set policy strategy in a time of low inflation is starting to fragment. The latest Fed meeting minutes reveal the debate highlighted divisions over the timing of balance sheet roll-off and unease over recent weak readings on inflation. For inflation, while the official baseline outlook is that recent weakness is transitory, the minutes show a split of about half the members on policy strategy. The policy committee was also divided over when to start gradual tapering off of the balance sheet, leading to no decision made on timing. Such division could result in instability within the Fed and lack of clarity on policy, leading to market turmoil.
  • Mizuho Securities sees conditions that are ripe for a market decline of 10 percent or more. The company's biggest concern is that stocks are expensive, especially when compared to the rate of U.S. economic growth and corporate profitability. This will be exacerbated as the yield curve flattens amid faltering inflation. Also worrisome to the firm is the historically low volatility in the market, which is sitting close to 50-year lows.
  • Credit Suisse put together a list of the large-cap stocks that hedge funds are dropping. These are stocks that, in many cases, a lot of funds still own, but that saw a big reduction in the number of funds investing in them during the first quarter of this year. A large number of hedge funds selling a stock could be an indicator of a not-so-bright future for the company. The list includes Targa Resources, General Motors, Gilead Sciences, United Parcel Service and more.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the All American Equity Fund as a percentage of net assets as of 6/30/2017: Southwest Airlines Co. 4.39%, Quest Diagnostics Inc. 3.38%, Carnival Corp. 3.18%, Bed Bath & Beyond Inc. 2.45%, W.W. Grainger Inc. 1.57%, The Macerich Co. 2.44%, Targa Resources Corp. 0.00%, General Motors Company 0.00%, Gilead Sciences Inc. 0.00%, United Parcel Service Inc. 0.00%.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

Net Asset Value
as of 08/22/2017

Global Resources Fund PSPFX $5.47 0.03 Gold and Precious Metals Fund USERX $7.38 -0.04 World Precious Minerals Fund UNWPX $6.46 -0.04 China Region Fund USCOX $10.37 0.15 Emerging Europe Fund EUROX $6.84 0.03 All American Equity Fund GBTFX $23.79 0.19 Holmes Macro Trends Fund MEGAX $19.51 0.15 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change