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First Quarter 2014 Financial Market Review

Capital markets advanced across all major assets classes in the first quarter but with a noticeably more cautious tone when compared to 2013. For higher risk assets such as equities, the pace of gains slowed materially due to harsh winter conditions in the U.S. This put a chill on economic growth and dampened, at least temporarily, the animal spirits of risk-seeking investors. Adding to investors’ concerns during the quarter was the geopolitical uncertainties arising from the dispute between Ukraine and Russia over the Crimean Peninsula region.

As dynamics within global economies shift and the leadership among asset classes change through time, we continue to extol the virtues of well-balanced and well-diversified portfolios. For us, this generally means strategic exposure to three asset classes (stocks, bonds and real assets), with each smartly constructed within a global opportunity set of investment choices to meet investors’ varying investment objectives and risk tolerances.

Over any given period, one asset class can easily dominate the others, such as in the past year in which global stocks posted double-digit returns and real assets were negative. However, over time and over differing economic environments, each asset class will add to a portfolio’s economic balance and will play an important role in return generation and risk management.

For the quarter, stocks, bonds and real assets all posted returns within a narrow range as well-balanced portfolios continued to produce solid gains. The quarter was led by real assets, represented here by the Barclays U.S. Treasury Inflation Protected Securities (“TIPS”) Index, up 1.95% for the quarter. Commodities and real estate investment trusts (REITs), also important elements of real assets, both had strong quarters. U.S. stocks entered its sixth year of a bull market posting a return of 1.81% for the quarter, as measured by the S&P 500® Index. Finally, interest rates fell during the quarter in response to rising macro-economic and geopolitical concerns. This led to the best quarter for fixed income markets in almost two years, with bonds up 1.84%, as measured by the Barclays U.S. Aggregate Bond Index.

As we move further into 2014, we believe the fundamental underpinnings for this continued slow but steady economic growth cycle remain in place. Low inflation is permitting extraordinary measures by central banks to stimulate economic growth. These pro-growth policies should continue to provide both support and opportunities for risky assets held by long-term investors. However, with two consecutive years of strong performance resulting in stock market valuations now near historical averages and interest rates near historical lows, we expect capital market returns in the coming years are more likely to reflect the slow economic growth pattern of world economies.

Finally, the first quarter reminds us that market uncertainties can spring forth from a number of sources, including economic, geo-political, and yes, even weather. We continue to believe the best defense for investors against market uncertainties is diversification across asset classes, a long investment time horizon that takes emotions out of your investment decisions, and a consistent and robust savings plan to combat periods of low returns. These are all confidence-building tools that will be a tremendous help to you in meeting your investment objectives.


You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds, please call 1-888-98-GUIDE (1-888-984-8433) or download a prospectus. You should read the prospectus carefully before investing.

S&P 500® is a trademark of The McGraw-Hill Companies and has been licensed for use by GuideStone Funds. The Equity Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the Equity Index Fund.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.

GuideStone Capital Management, a controlled affiliate of GuideStone Financial Resources, serves as the investment adviser to GuideStone Funds.