Market Sector Update

• The return of volatility in the equity markets was one of the main events of first quarter. To put this in context, the S&P 500, the Fund’s broad market target, saw 23 daily moves of greater than +/-1% during the quarter, compared to just eight for all of 2017.
• The increase in volatility was due largely to a tug of war in the market: strong corporate earnings growth driven by tax reform and deregulation on one side, and fears around rising interest rates, elevated equity market valuations, and potential protectionist trade policies on the other.
• An additional drag this quarter has been evolving U.S. trade policy, primarily focused on the North American Free Trade Agreement (NAFTA) and China. While there is good reason to modernize NAFTA and address trade fairness with China, especially around intellectual property protection, the recent headlines regarding the burgeoning trade tensions with China have not been well received by equity markets.
• In addition, we believe the recently enacted tax reform and continued moves on deregulation will aid the economy. As the paradigm of low interest rates, high regulation and low economic growth comes to a close, company management teams are less able to grow earnings through stock buybacks and welcome policy changes that incentivize them to increase capital spending. We are consistently hearing from companies across many sectors that significant portions of tax cut savings are being reinvested in their businesses, primarily technology initiatives.

Portfolio Strategy

• A passively managed index fund, the Fund posted positive gains for the quarter before the effect of sales charges, but fell short of its benchmark, the S&P 500 Dividend Aristocrats Index, and its broad market target.
• When comparing the benchmark to the broad market target, the sector allocation contributed to underperformance, which was partially offset by favorable stock screening.
• At the sector level, the Fund’s underweight position to technology hurt relative performance and was the largest detractor the quarter. An overweight to consumer staples, which was the second worst performing sector, also detracted from relative performance.
• Partially offsetting these effects were favorable stock screening impacts from the industrials and financials sectors.

Outlook

• The Fund’s portfolio remains focused exclusively on companies within the S&P 500 Index that have grown their dividends for at least 25 consecutive years. While not necessarily providing the highest dividend yield, a strategy based on high-quality companies with a consistent track record of dividend growth provides the potential for attractive long-term outperformance.
• Our outlook on economic expansion and corporate earnings growth remains fairly positive barring a major unforeseen event. We are cautiously optimistic about equities, which should be buoyed by good overall growth and a lack of substantial disruptions. Broadly, we believe the strong inertia to equities will continue.
• The lower corporate tax rate could allow for additional capital expenditures by businesses and potentially create a boost in optimism that could fuel a virtuous cycle of greater investment that buoys business confidence, which in turn leads to even more investment.

The opinions expressed are those of the Fund’s managers 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, 2018, 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 Fund is a passively managed index fund and does not invest in securities based on the managers’ view of the investment merit of a particular security or company, nor does it conduct conventional investment research or analysis or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities that, in combination, provide exposure to the Index without regard to market conditions, trends or direction.

The Fund entails other risks, including imperfect benchmark correlation and market price variance that may decrease performance. While the Fund attempts to track the performance of its stated index, there is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns. The Index may underperform, and the Fund could lose value, while other indices or measures of market performance increase in value. 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. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

The S&P 500 Dividend Aristocrats Index measures the performance S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company. The S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Large capitalization companies in which the Index and, by extension, the Fund are exposed may go in and out of favor based on market and economic conditions. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend 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.