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First Quarter 2014

Strengths

  • The Global Resources Fund started the year strong with a 0.96 percent return in the first quarter. See complete fund performance here.
  • Natural gas and WTI crude oil gained over 3 percent in the first quarter.  Additionally, the oil- and gas-related equities within the fund's portfolio outperformed its benchmark, the Morgan Stanley Commodity Related Equity Index (CRX).  Newfield Exploration Co., Sanchez Energy and Cimarex Energy Co. were key contributors to performance.
  • An underweight position in paper and forest equities proved to be accretive to the fund's performance in the first quarter.
  • Despite generally weak returns in the quarter for industrial metals, the fund's holdings within base metals outperformed.  Alcoa Inc., Nevsun Resources Ltd. and BHP Billiton Ltd. were notable performers.
  • Clean/renewable energy also beat the fund's benchmark this quarter, including FuelCell Energy, SunEdison, Inc. and Huaneg Renewable.

Weaknesses

  • Despite a positive return of 0.96 percent in the first quarter, the Global Resources Fund underperformed its benchmark by 351 basis points.
  • An underweight position in precious metals and an allocation to junior gold equities underperformed the gold equities positioned in our benchmark on a relative basis.   
  • The fund's allocation to chemicals, as well as oil & gas refining, underperformed due to a strong rebound by Potash Corp, a large CRX constituent, and select refining equities such as Tesoro Corp.  
  • An allocation to offshore oil and gas equipment and services negatively impacted the fund's performance.  Diamond Offshore Inc. and Hercules Offshore Inc. were notable laggards.

Opportunities

  • China will allocate $35 billion to environmental protection and energy conservation in 2014 in an attempt to control pollution. Roughly 50,000 coal-fired furnaces will be shut, and 6 million high-emission vehicles will be removed from roads, while diesel grades will also be raised.
  • Through most of this decade, non-Organization for Economic Cooperation and Development (OECD) demand growth has been a key driver for oil-market balances, but what makes this year different is that the growth is poised to come from a diverse pool of countries, including OECD countries. This diversity comes as a change from the few big sources that have been major contributors in the past, such as China and India.
  • China plans to phase out 27 million tonnes of steel capacity in 2014 to enhance environmental protection, energy consumption and technology standards. China's crude steel capacity reached 1,025 million tonnes by the end of 2013, while 30 million tonnes of new capacity will be built in 2014.

Threats

  • Given the importance of Russian commodity production and exports for world markets, the threat of economic sanctions on the country could have important implications for commodity markets.
  • Headwinds from Federal Reserve tapering, along with recent weak oil demand data, suggest that there may be downside risks for oil demand heading further into the year.
  • Non-commercial, speculative positions in the oil market now stand near the highest level on record.  If this begins to unwind it could be an additional source of potential downside risk to oil prices in the near term.

Past performance does not guarantee future results.

The Morgan Stanley Commodity Related Index (CRX) is an equal-dollar weighted index of 20 stocks involved in commodity related industries such as energy, non-ferrous metals, agriculture, and forest products. The index was developed with a base value of 200 as of March 15, 1996.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 03/31/2014: Alcoa Inc. 1.01%, BHP Billiton Ltd. 0.00%, Cimarex Energy Co. 1.14%, Diamond Offshore Drilling Inc. 0.00%, FuelCell Energy 0.00%, Hercules Offshore Inc. 0.40%, Huaneng Renewables Corp Ltd 0.00%, Nevsun Resources Ltd. 0.00%, Newfield Exploration Co. 0.19%, Potash Corp 0.00%, Sanchez Energy Corp. 1.18%, SunEdison, Inc. 0.98%, Tesoro Corp 0.00%.

Net Asset Value
as of 04/23/2014

Global Resources Fund PSPFX $9.85 0.03 Gold and Precious Metals Fund USERX $6.73 0.14 World Precious Minerals Fund UNWPX $6.43 0.11 China Region Fund USCOX $8.02 -0.03 Emerging Europe Fund EUROX $8.07 -0.06 All American Equity Fund GBTFX $32.19 -0.21 Holmes Macro Trends Fund MEGAX $23.56 -0.18 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change