Multi-Factor Large Cap Value Fund (class I) returned -2.80% in the first
quarter versus a return of -2.83% for the benchmark Russell 1000 Value Index.
factors — both price and earnings momentum — continued to show strength during
the quarter, while value factors were weak and stability of earnings factors
were neutral. Collectively, these factors had a mildly positive impact on alpha
during the quarter.
stock selection detracted slightly from the Fund's relative performance during
the quarter with holdings in the Financials, Health Care, Consumer
Discretionary, Industrials, and Consumer Staples sectors detracting the most,
partially offset by contributions from holdings in Information Technology.
allocation was a contributor to the Fund's relative performance with the
underweight to the Energy and Real Estate sectors contributing the most. That
was partially offset by the overweight to Consumer Staples.
equity markets ended the quarter slightly down after a volatile ride, a
contrast against the backdrop of continued solid economic growth and strong
corporate earnings. The quarter started on a high note, as analysts and company
managements revised earnings estimates to reflect the impact of the Tax Cuts
and Jobs Act. U.S. equity markets rose in response, as positive earnings
estimate revisions significantly surpassed negative revisions, due to an
expected continuation of strong company fundamentals.
Market optimism lasted
until almost the end of January when the first wave of macro worries hit
equities. After peaking on January 26, U.S. equity markets declined for the
better part of two weeks amid fears of wage inflation and interest-rate
increases. The yield on 10-year U.S. Treasuries climbed to a peak of 2.94% in
February, but gyrated to a lower 2.74% by the end of the quarter. Concurrently,
U.S. equity market volatility increased significantly for the first time in two
investors tried to refocus on the positives of strong, synchronized global
economic growth and rising earnings expectations, two additional macro factors
surfaced during the quarter. On March 1, President Trump announced that he
intended to impose a 25% tariff on steel imports and a 10% tariff on aluminum
imports, which negatively impacted U.S. equity markets, as investors feared
these actions would have negative consequences for companies and consumers.
the quarter progressed, trade concerns escalated and tensions increased. Market
participants worried that retaliation from U.S. trading partners might lead to
a full-scale trade war, although tensions seem to be easing more recently. In
late March, data privacy concerns emanating from developments at Facebook
sparked a sell-off among many large-cap technology stocks. It was revealed that
a third party mined Facebook user data without permission, which called into
question the company's data governance and data privacy controls. These
concerns bled through to peer companies in the Information Technology
ongoing concerns regarding inflation, a potential trade war, interest rates,
and data privacy, the investment team believes the fundamental earnings growth
picture continues to look quite strong. Fourth-quarter earnings grew 15.0% year
over year, returning to the double-digit growth the market saw in the first
half of 2017. First-quarter 2018 earnings growth estimates for the S&P 500
are forecasted to be 17.3%, which, if reached, would be the highest
year-over-year quarterly earnings growth since the first quarter of 2011.