Sustainable Equity Balanced Fund

The SEBF set the bar high in its first year of performance amidst market uncertainty revolving commodity pricing, a strong U.S. dollar, weak emerging market growth, and looming Federal Reserve monetary policy decisions. The timing of these market conditions influenced our sector allocation and security selection throughout the year. Our top-down strategy positioned our portfolio for limited downside risk during volatile market conditions that allowed the SEBF to outperform its custom benchmark by 1.81% in 2015.

The first quarter of 2015 was scattered with uncertainty as the price of oil dropped, the US dollar grew stronger and anticipation grew for an interest rate hikes. Although unable to entirely avoid such risks, the portfolio managers directed capital away from fixed income in the direction of high quality equities that possess durable competitive advantages. We were able to strategically capitalize on market trends by overweighting equity allocation in the healthcare, consumer discretionary and energy sectors with limited exposure to commodity pricing. Over the quarter, we saw above average returns for Biogen ($BIIB), Disney ($DIS), Apple ($AAPL), and Google ($GOOGL) offset by heavy losses in Alcoa ($AA) and Microsoft ($MSFT). With an overall performance of 2.17% during the first 3 months of the year, our disciplined approach and tactical execution lead the Sustainable Equity Balanced Fund to outperform the relative 70/30 blended benchmark by 1.41%.

Going into the second quarter of 2015, we further positioned the fund for limited downside risk in the event of a market pullback. Our top-of down perspective of slow global growth, high P/E multiples led to conservative measures and a heavy cash position over the period. A number of market conditions influenced our decision to overweight financials, healthcare and technology. Market returns were flat over the quarter as the Federal Reserve postponed interest rate hikes from fears of slowing economic growth. However, Disney ($DIS) and Gilead Sciences ($GILD) attributed substantial returns. Overall, the SEBF recorded a 0.14% return and 0.85% of outperformance relative to the custom benchmark.

The BUIG took a more active management approach for 3Q2015 as the Federal Reserve delayed its decision to increase interest rates. Low commodity prices became the norm and reports of slowed growth produced the heavily anticipated market pullback. We primarily used this period to add to some underperforming positions and add exposure to the consumer discretionary holdings. Over the volatile quarter, we saw modest gains in L Brands ($LB), Chipotle Mexican Grill ($CMG), Proctor & Gamble ($PG), Home Depot ($HD), and Gilead Sciences ($GILD). We also experienced large declines in Halliburton ($HAL), Discover Financial Services ($DFS), and Biogen ($BIIB). Due to our asset mix of underweighting fixed income, we lost performance relative to our benchmark as the Barclay’s Agg experienced a 1.34% gain during the period. Ultimately this drove our underperformance relative to the benchmark by 0.59%. The SEBF recorded a -5.05% return for the months July through September. However, our performance ranked among the top 34th percentile of balanced portfolios.

The increasing likelihood of a Federal Reserve decision to increase interest rates for the first time in nine years became the theme of 4Q2015. Despite anticipating a rally in the market, the BUIG remained conservative by continuing to invest in holdings with long-term sustainable qualities and maintained a heavy cash allocation. We reduced exposure to the healthcare sector in light of increased risk of negative sentiment during the presidential election year. We also reduced our exposure to the consumer discretionary sector after receiving consistently disappointing data throughout 4Q. With the holiday season approaching we moved to an overweight equity allocation to the technology and consumer staples sectors, which we expected to outperform the market during the period. These decisions were made at a critical point in the year that allowed us to benefit from the market rally to end the year in the green. The SEBF returned 4.42% over the quarter compared to the benchmark return of 4.36% which ranks our performance in the top 9th percentile of moderate allocation style funds.

Our dynamic top-down approach throughout the year helped us hedge risk, capitalize on down markets, and exploit inefficiencies. We saw sustainable returns in excess of the benchmark returns each quarter by staying true to our philosophy of investing in high quality companies with a healthy financial position that trade at a discount to their fair value. These methods, paired with active research and fundamental and technical analysis, drove the SEBF returns in a 2015 to outperform the benchmark by 1.81% with an absolute return of 1.45% which ranks our portfolio in the top 5th percentile of 958 professionally managed balanced funds.

Portfolio Snap Shot