Third Quarter 2016

The All American Equity Fund declined 2.32 percent for the quarter, underperforming the S&P 500 Index benchmark, which returned 3.85 percent for the same period. 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.

The fund utilizes an approach that focuses on dividend growth and shareholder yield for stock selection. Going forward, we are optimistic that this investment process has the potential to deliver better diversification, risk adjusted returns and performance consistency.

Strengths

  • The fund’s macro allocations to technology and energy contributed greatly to the overall performance.
  • Macro investments in technology were the largest help to the fund’s performance.
  • The strongest contributors to the fund were Motorola Solutions, Ross Stores and Omnicom Group.

Weaknesses

  • Lower investment weights in financials and technology, the two best performing sectors for the quarter, seemed to be a headwind for the fund.
  • Stock selection in consumer discretionary, industrials and consumer staples were a drag on performance.
  • Investments in Tractor Supply Company, Kroger and Universal Health Services negatively impacted the fund, as they were the weakest contributors to performance.

Opportunities

  • BCA Research, Inc.’s U.S. equity strategists came out with their industry group pricing power report. In it, the group notes that pricing power has improved since its last update in March, with over half the industry groups showing a rising selling price trend. The most robust pricing power continues to reside in defensive sectors such as health care and consumer staples. Many domestically-focused consumer discretionary sectors are also showing an ability to raise selling prices, but those are also experiencing higher cost pressure.
  • Historically, a flat yield curve has signaled that monetary policy is too tight and that an economic downturn loomed. An inverted yield curve accurately predicted the major U.S. equity market tops in 2000 and 2007, as well as the shorter but sharp declines in 1990 and 1998. The yield curve continues to narrow as the Federal Reserve lowers its terminal rate forecast and the insatiable global search for yield persists. It will not take many Fed rate hikes for the yield curve to completely flatten or invert. As such, BCA’s U.S. equity strategists continue to de-emphasize the overall financial sector, preferring its less cyclical components such as real estate investment trusts (REITs) and insurance, which stand a better chance of outperforming as the curve flattens further.
  • America is driving more than ever. Data released by the Department of Energy shows that vehicles in the U.S. drove a record 1.58 trillion miles in the first half of 2016, up 3.3 percent from the same period last year. This is bullish for auto parts companies as wear and tear from increased driving will drive higher replacement parts sales.

Threats

  • The Federal Reserve is making a big change to how it tests America's banks. The Fed is considering changing the annual stress tests it gives to U.S. banks to see if they can withstand a massive financial crisis, and also using test results to set the capital buffers that banks must maintain to blunt the effects of a downturn, according to its chair, Janet Yellen.
  • Americans are ditching giant chain restaurants. According to data from Bank of America Merrill Lynch, restaurant spending has risen at a slower pace over the last 18 months, though spending at large chains--as opposed to smaller chains or local restaurants--has borne the brunt of this decline. "We find that sales of the big chain restaurants, which make up 18 percent of the aggregate, have been decidedly slower than the rest of the composite," the firm writes. "This is indicative of a market shift away from large chain restaurants."
  • Technical analysis out of UBS indicates that, at least for the month of September, the stock market may have hit its highs. "With breakdown last Friday, we are changing our tactical bias towards a more cautious stance since we see the risk of an 8 percent to 10 percent correction into late October/early November, where we have our next bigger tactical low projection for a classic year end bounce/rally," the firm wrote.

 

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

Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

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 9/30/2016: Tractor Supply Co. 1.64%, The Kroger Co. 2.09%, Universal Health Services Inc. 2.46%, Motorola Solutions Inc. 3.07%, Ross Stores Inc. 3.99%, Omnicom Group Inc. 3.22%.

Net Asset Value
as of 01/18/2017

Global Resources Fund PSPFX $5.52 -0.07 Gold and Precious Metals Fund USERX $7.87 -0.21 World Precious Minerals Fund UNWPX $6.95 -0.19 China Region Fund USCOX $7.70 0.08 Emerging Europe Fund EUROX $5.98 -0.02 All American Equity Fund GBTFX $23.75 0.09 Holmes Macro Trends Fund MEGAX $18.71 0.02 Near-Term Tax Free Fund NEARX $2.22 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change