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Fourth Quarter 2015 Equity Market Review

Global equity markets showed resilience in the fourth quarter and erased a good portion of the losses suffered in the prior quarter. Familiar themes such as moderating growth expectations in China, Fed policy related to the timing of potential interest rate hikes and falling commodity prices continued to dominate the headlines and contributed to market uncertainty. In the U.S., equity markets continued to be volatile as the S&P 500® Index advanced in October and November but declined in December. The result was an overall quarterly return of 7.04 percent, bringing the return to a positive 1.38 percent for the full year of 2015. The broader U.S. market, as measured by the Russell 3000® Index, posted returns of 6.27 percent for the quarter and 0.48 percent for calendar year 2015.

From a sector perspective, performance was biased to the upside as eight of nine sectors within the Russell 3000® Index advanced during the quarter. The best performance came from the Technology and Health Care sectors, while the Energy sector was clearly the weakest performer as a result of the continued decline in oil and gas prices.

Companies with higher market capitalization, higher beta and higher P/E characteristics generally performed well during the quarter. In terms of equity market capitalization, large-cap companies outperformed their small-cap counterparts as the Russell 1000® Index posted a fourth quarter return of 6.50 percent, while the Russell 2000® Index advanced 3.59 percent. Style differentiation was evident in the quarter as growth-oriented stocks outperformed value-oriented stocks across all market capitalization segments. In the large capitalization segment, the Russell 1000® Growth Index and Russell 1000® Value Index had quarterly returns of 7.32 percent and 5.64 percent, respectively. In the small capitalization segment, the Russell 2000® Growth Index posted a fourth quarter return of 4.32 percent, while the Russell 2000® Value Index advanced 2.88 percent. The fact that growth-oriented stocks outperformed their value-oriented counterparts is consistent with performance normally experienced in the late stages of an economic cycle.

Developed non-U.S. markets underperformed their U.S. counterparts and were impacted by the U.S. dollar, which strengthened against most currencies during the quarter. The MSCI-EAFE Index (Net), a measure of international developed country returns, posted a quarterly return of 4.71 percent, bringing the one-year return to -0.81 percent. Growth styles outperformed value styles and small capitalization stocks generally outperformed large capitalization stocks during the quarter. From a country perspective, New Zealand, Belgium, Australia and Japan were among the best-performing countries, while Italy, Spain and Norway were the only negative performers for the quarter. From a sector perspective, all groups generated positive results during the period. The best performance came from the Technology, Telecommunications and Industrials sectors, while the weakest performance was experienced within the Energy, Materials and Utilities sectors.

Emerging markets underperformed developed markets and continued to face the headwinds of slower Chinese growth, weak commodity prices and a strong U.S. dollar. The MSCI Emerging Markets Index (Net) posted a positive quarterly return of 0.66 percent, bringing the one-year trailing performance to -14.92 percent. Within emerging markets, growth styles also outperformed value styles and small capitalization stocks outperformed large capitalization stocks during the quarter. Countries such as Greece, Poland and the UAE were among the worst performers for the quarter, while Indonesia, Hungary and China were among the few positive performing countries for the quarter. From a sector perspective, Technology, Health Care and Consumer Discretionary registered positive returns, while the remaining groups all posted negative returns during the fourth quarter.

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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.