Market Sector Update
- Domestic markets rebounded sharply in the first quarter of 2019, with the S&P 500 Index, the Fund’s equity
benchmark, positing its strongest quarterly performance in nearly 10 years.
- The S&P 500 Index advanced nearly 14% with information technology, industrials energy and consumer discretionary
sectors leading the way. Every sector posted a positive return for the quarter with the laggards being health care and
- Despite the pro-cyclical bias of the equity market, the 10-year U.S. Treasury yield declined 11 basis points (bps) to
2.57%. The yield curve continued to flatten with the spread relationship between the 2-year and 10-year U.S. Treasuries
ending the quarter at 14 bps, down from 19 bps at the start of the year.
- The Fund’s fixed income benchmark, the Bloomberg Barclays U.S. Government/Credit Index, increased 3.26% during
the quarter as the Treasury market rallied due to falling interest rates and the duration benefit from curve
flattening. Investment grade credit spreads tightened to 113 bps, which also contributed to the benchmark positive
return for the quarter.
- The Fund’s equity portfolio delivered a positive return for the period, and was in line with the benchmark before the
effect of sales charges. Overweight positions to the industrials and energy sectors positively impacted relative
performance. In addition, strong stock selection in the consumer staples and energy sectors was a tailwind.
- The fixed income portion of the Fund advanced slightly, outperforming the benchmark return. The portfolio’s relative
underweight of Treasuries positively impacted performance as credit spreads tightened, resulting in stronger
performance from corporate credit. In addition, strong security selection in corporate credit was a positive contributor
to performance. Duration stands at approximately 90% of the benchmark. The Fund’s Treasuries position has increased
and is in line with the benchmark.
- The Fund outperformed the Morningstar U.S. Fund Allocation 50%-70% Equity category average. Performance was
positively impacted by an overweight of equities, which outperformed fixed income during the quarter, and strong
security selection in the fixed-income sleeve.
- Positions in General Mills, Union Pacific, Autodesk, Philip Morris, Lowes Corp. and Hess Corp. 8% Mandatory Convert
contributed to performance. Partially offsetting this strength was a relative underweight of the communication services
sector and poor stock selection in the consumer discretionary and health care sectors with positions in Tapestry,
Biogen and Pfizer being notable detractors.
- As we look ahead, global economic growth is likely to decelerate over the next several months, but we expect it to
remain positive. As we have previously highlighted, individual and corporate tax reform was a meaningful positive for
the domestic economy which, along with lighter regulation and a generally more business-friendly political climate,
was supportive for growth.
- However, the uncertainties around political, monetary and trade policies have been stubbornly persistent and are
likely to linger for most of this year. While we believe domestic economic growth will continue, the lagged effects of
tighter monetary policy and waning benefits from fiscal stimulus will be a headwind.
- As a result, we are closely watching inflation rates and inflation expectations which have been modest, and must
remain so, in order to allow our central bank to respond to slower growth and adjust the pace of monetary policy
normalization. As the domestic economy grows, we expect the Federal Reserve to raise interest rates at a very modest
pace and continue the process of winding down its balance sheet.
- While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding high quality,
growing companies whose securities are trading at a reasonable valuation with visible catalysts to drive relative
outperformance over the next 12 months. This approach has served investors well over time, and our confidence in it
has not waned.
The opinions expressed are those of the Fund’s managers at Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current
through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information
and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives,
financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.
The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-cap U.S. equity market. The index includes 500 of the top companies in leading industries of the U.S. economy. It
is not possible to invest directly in an index.
The Bloomberg Barclays U.S. Government/Credit Index measures the performance of U.S. dollar-denominated United States Treasuries, government-related, and investment-grade U.S. corporate securities that have
a remaining maturity of greater than or equal to one year. In addition, the securities have $250 million or more of outstanding face value and are fixed-rate and non-convertible securities. It is not possible to invest
directly in an index.
Top 10 Equity Holdings as a percent of net assets as of 03/31/2019: Lowe’s Co., Inc. 2.1, Union Pacific Corp. 2.0, Autodesk, Inc. 2.0, Las Vegas Sands, Inc. 1.9, Microsoft Corp. 1.9, General Mills, Inc. 1.8, Intel Corp. 1.8,
PPG Industries, Inc. 1.8, Boeing Corp. 1.7, Apple, Inc. 1.7.
Rick Perry served as a portfolio manager on the Fund until April 12, 2018.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Fixed-income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. The lower-rated securities
in which the Fund may invest may carry greater risk of nonpayment of interest or principal then higher-rated bonds. In addition to the risks typically associated with fixed-income securities, loan participations in which
the Fund may invest carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loan participations may be unsecured or not fully collateralized may be subject to restrictions on
resale and sometimes trade infrequently on the secondary market. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform nondividend
paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if
declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when
interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of
stocks (generally 45 to 55.) As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large
number of securities. The value of a security believed by the Fund’s managers to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. Not all funds
or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.