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Third Quarter 2014

The Barclays Capital Municipal Bond Index gained 1.49 percent during the third quarter. For the third quarter in a row, returns were directly tied to maturity – the longer the better.  The short and intermediate portions of the curve experienced more modest gains with the 3-year and 5-year returning 0.30 percent and 0.79 percent, respectively. The municipal yield curve flattened during the quarter as yields on the long end of the curve fell by about 30 basis points, while the short end was roughly unchanged. Credit factors also played a role as lower-quality bonds outperformed. AAA-rated municipals gained 1.11 percent in the quarter versus a gain of 2.18 percent for BBB-rated bonds. General obligation municipals underperformed revenue-backed bonds as hospital and industrial development-backed bonds outperformed. In specialty-state trading, Puerto Rico was an outlier and significant underperformer, falling 1.15 percent. The market continues to digest the territory’s economic prospects and political will to pay its obligations. Michigan, New York and California outperformed.

The Federal Reserve continued to “taper” its quantitative easing (QE) program during the third quarter, with $10 billion reductions at every Federal Open Markets Committee (FOMC) meeting since December 2013, to bring the current pace to $15 billion per month. The Fed has communicated to the market that the complete wind down of the program is expected to be complete by the end of October. The economy got off to a strong start in the third quarter but did experience a modest pullback in several indicators as September came to a close. Employment and manufacturing data has been strong, while housing has been choppy at best and consumer confidence weakened in September. While the Fed is reducing stimulus, many areas of the world are embarking on new monetary stimulus measures, which has taken some pressure off the Fed and is the primary driver behind the bond market rally we have experienced this year.

Past performance does not guarantee future results.

The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

Net Asset Value
as of 10/24/2014

Global Resources Fund PSPFX $8.41 -0.04 Gold and Precious Metals Fund USERX $6.05 -0.07 World Precious Minerals Fund UNWPX $5.45 -0.04 China Region Fund USCOX $7.87 No Change Emerging Europe Fund EUROX $7.42 0.03 All American Equity Fund GBTFX $32.43 0.21 Holmes Macro Trends Fund MEGAX $23.01 0.08 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change