New York, United States – The second quarter of 2024 brought challenges to the U.S. stock and bond markets due to hot inflation readings impacting expectations for U.S. Federal Reserve rate cuts. However, towards the end of the quarter, the situation improved as positive May inflation data increased investor confidence in potential Fed rate reductions by September. This, combined with continued strength in the labor market and rising earnings optimism, helped boost broad equity markets to post gains during the period. Large-cap stocks outperformed small caps, and growth stocks surpassed value stocks. Within the S&P 500 Index, technology, communication services, and utilities sectors led the way, while materials, industrials, and energy lagged behind.
Internationally, stocks saw an upward trend, with emerging markets outperforming developed markets. China and India, the two largest countries within the EM equity Index, performed particularly well. Despite this, Japanese stocks underperformed due to uncertainties surrounding the Bank of Japan’s monetary policy normalization and the expected appreciation of the yen, raising concerns about the competitiveness of Japanese exports.
The fixed income markets had mixed performance but declined overall as the U.S. Treasury yield curve rose slightly. High-yield bonds performed well, driven by strong corporate earnings tightening spreads. Similar to international equities, EM bonds outperformed developed market issues, with French government bonds suffering from political uncertainty.
The Fund’s manager target allocations as of June 30, 2024, were 50% to Victory Capital Management, LLC and 50% to Acadian Asset Management, LLC. For the quarter, the Fund’s Acadian Asset Management, LLC sleeve outperformed the S&P Developed ex-U.S. Small Cap Index, driven by stock selection and country allocations contributing to returns.
Furthermore, bottom-up stock selection continued to drive the portfolio, with key sources of positive active return coming from a combination of stock selection, country allocations, and sector exposures. On the other hand, security selection within the Victory Capital Management, LLC sleeve slightly underperformed the S&P Developed ex-U.S. Small Cap Index, with modestly negative results in certain regions and economic sectors.
Overall, the Fund remains focused on stock selection while adhering to disciplined country and sector risk exposures, aiming to navigate the evolving market landscape and capitalize on opportunities for growth and success.
