as of March 31, 2014
Fund Commentary
The riskier segments of the small-cap equity market rallied sharply to start 2014. But uncertainty surrounding earnings growth and weaker-than-expected economic data, combined with the U.S. Federal Reserve’s ongoing tapering of quantitative easing (QE) and its comments about potentially raising short-term interest rates six months after QE ends, dampened the enthusiasm for lower-quality stocks late in the quarter. Yet, despite this reversion to higher-quality stocks in March, the lower-quality segments of the small cap market generally maintained their edge for the full quarter.

The Small Cap Value Fund posted a total return of 1.64% for the quarter, compared with 1.78% for the Fund’s benchmark, the Russell 2000® Value Index. Stock selection detracted from results in the financials sector, particularly among our higher-quality property and casualty insurers, which failed to keep up with the rest of the group. Stock selection contributed to performance in the technology sector, where the Fund’s higher quality holdings in the semiconductor and communication equipment industries were particularly helpful. Overall, the first quarter results favored lower quality, more-volatile stocks, creating a headwind for the Fund, which is biased toward higher quality companies. Valuation was mixed, a reflection of the general reversal in investor preferences from growth stocks to value stocks across the broader small-cap market. As intended, sector and style differences were not primary drivers of performance, but they were modest positive contributors.

We will continue to focus on seeking reasonably priced and profitable small company stocks, while avoiding stocks with lower-quality characteristics and maintaining our focus on style objectives.
Investor Profile

If you're a more aggressive investor looking for the value potential offered by the stocks of smaller companies — those the adviser believes are worth more than is indicated by current market prices — this Fund may be right for you. It is intended for equity investors with an above-average tolerance for volatility who want to diversify their investments and plan to invest for the long term without concern for current income.

  • Follow a quantitative, active equity strategy to select stocks based on a statistical analysis of historical relationships among value characteristics, stock prices and market capitalization ranges.
  • Use a screening process designed to reduce exposure to stocks with negative fundamental indicators.
  • Maintain a highly diversified portfolio, consistent with small-cap value benchmarks, in an effort to reduce the risks associated with any specific stock or industry.
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Not FDIC insured | May lose value | No bank guarantee

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