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Second Quarter 2014 Equity Market Review

During the second quarter of 2014, global equity markets registered strong gains, supported by accelerating mergers-and-acquisitions activity and signs of further improvement in the U.S. economy after a difficult winter. In the U.S., the S&P 500® Index advanced in all three months of the quarter resulting in an overall second quarter return of 5.23%, bringing the year-to-date return to 7.14%. The broader U.S. equity market, as measured by the Russell 3000® Index, gained 4.87% for the quarter and 6.94% for the year-to-date period.

From a sector perspective, performance was unanimously in positive territory as all sectors within the Russell 3000® Index advanced during the quarter. Energy was the best performing sector and produced a double-digit gain as a result of higher oil and gas prices stemming from the geopolitical instability in the Middle East and Ukraine. The weakest performers were the consumer discretionary and financial services sectors which still posted modest single-digit gains during the quarter.

Companies with lower earnings growth, lower P/E and lower beta characteristics generally outperformed during the quarter. In terms of equity market capitalization, large-cap companies noticeably outperformed their small-cap counterparts as the Russell 1000® Index posted a second quarter return of 5.12%, while the Russell 2000® Index advanced 2.05%. Regarding investment style, growth and value were very close in the large capitalization segment as the Russell 1000® Growth Index barely outpaced the Russell 1000® Value Index with quarterly returns of 5.13% and 5.10%, respectively. In the small capitalization segment, style differentiation was more evident as the Russell 2000® Value Index posted a second quarter return of 2.38% and outpaced the Russell 2000® Growth Index by 65 basis points.

Developed non-U.S. markets also advanced during the period as the MSCI-EAFE Index (Net), a measure of international developed country returns, posted a second quarter return of 4.09%, bringing the year-to-date return to 4.78%. All regions ended the period in positive territory. From a country perspective, the best performance was experienced in countries such as Norway, Hong Kong and Spain, while Japan and the U.K. also performed well during the quarter. The worst performing markets were in Europe and included countries such as Ireland, Portugal and Sweden. From a sector perspective, all groups generated positive results during the period. The energy sector was the strongest performer and benefited from supply uncertainty related to the continuing turmoil in Iraq and Ukraine. The utilities sector, one of the few remaining sources for yield, also performed well during the quarter. The technology and industrials sectors were the weakest performers and lagged the overall market during the period.

Emerging markets outperformed developed markets during the quarter as the MSCI Emerging Markets Index (Net) posted a quarterly return of 6.60%, bringing the year-to-date performance to 6.14%. All Asian and Latin American markets posted gains during the quarter. From a country perspective, Turkey, Taiwan, Russia and India were among the best performers, while the UAE and Qatar in the Middle East were among the weakest performers for the quarter. All sectors posted positive results during the period. The utilities, technology and energy sectors were the strongest performers, while the materials and consumer staples sectors were the weakest performers for the quarter.

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.