Investor Shares Performance Commentary
The Fund invests primarily in mid- and large-cap U.S. equities. It is managed through a two-step process designed to capitalize on the strengths of Domini Impact Investments and Wellington Management Company, the Fund’s subadvisor. Domini creates an approved list of companies based on its social, environmental and governance analysis, and Wellington seeks to add value and manage risk through a systematic and disciplined portfolio construction process. Download Commentary as a PDF.
Total Returns as of March 31, 2017
Market Overview
U.S. equities continued to rally, with the S&P 500 returning 6.07% to mark its sixth straight quarter of gains. As Donald Trump assumed office, investors continued to anticipate lower taxes, deregulation, and increased infrastructure spending. Stocks climbed throughout January and February, as strong economic data continued to encourage: the manufacturing index accelerated on stronger orders and production; nonfarm payrolls rose above expectations in February; the unemployment rate ticked down to 4.7%; consumer confidence rose to its highest level in 16 years; homebuilder confidence surged to its best level since 2005; and new home sales rose to a seven-month high. However, the U.S. trade deficit also grew to its largest since 2012, with the increase driven partly by the stronger dollar, which indicates that trade is likely to be a headwind to economic growth in early 2017.
While the market hit a series of highs throughout the quarter, investors began to voice concerns over stretched valuations. The rally slowed to a stop in March after Republicans failed in their effort to repeal and replace the Affordable Care Act, casting doubt over the Administration’s ability to deliver on its agenda. The Federal Reserve Bank, as anticipated, increased rates by .25% for the second time in three months, but market participants noted that the tone of the policy statement was less hawkish than expected.
Fund Performance
The Fund’s Investor shares returned 5.12% for the quarter, underperforming the S&P 500 Index return of 6.07%. Sector allocation made a positive contribution thanks to an underweight to Energy, which was the worst performing sector for both the Fund and the Index. This was offset, however, by weak security selection, which was the largest driver of underperformance. Strong selection in the Industrials sector was offset by weaker selection in the Consumer Discretionary, Consumer Staples, and Health Care sectors.
Top Relative Contributors
Top Relative Detractors
*Represents return for period in the Fund's Portfolio or return for the entire period if not held.
**Not held in the Portfolio.
The largest contributor to the Fund’s performance relative to the S&P 500 was Applied Materials, which provides manufacturing equipment, services, and software to the global semiconductor, display, and related industries. The stock rose almost 21% for the quarter, after reporting solid results for the fiscal first quarter, driven by record orders across all categories. Lam Research, which also provides equipment and services to semiconductor manufacturers, returned nearly 22% after fiscal-second-quarter results and third-quarter guidance exceeded expectations on both the top and bottom lines.
Global automotive supplier Visteon Corporation, a non-benchmark holding, was another top contributor, gaining more than 22% after reporting strong results fourth quarter, led by positive currency movements and strength in China, where growth in “infotainment” drove year-over-year growth of 26%.
Online shopping company eBay rose almost 13% after reporting fourth-quarter profit that beat estimates and providing a better-than-expected forecast for 2017, giving investors confidence that its rebranding campaign and data initiative are helping to lead a successful turnaround.
The Fund also benefitted from not owning benchmark holding Exxon Mobil, which is not approved for investment by the Domini Funds. The oil and gas company dropped more than 8% for the quarter.
Strong performance by these stocks was offset by weaker performers, including several conventional retailers. Department store chain Kohl’s declined more than 18% after reporting weak fourth quarter results, with a deterioration in store traffic during the holiday season driving sales lower. Fashion retailer Nordstrom was another large detractor, declining 2.5% after reporting mixed fourth-quarter results, which saw sales miss expectations due to a lower mix of promotional items, while profits were higher due to efficient inventory management.
Other significant detractors included Verizon Communications, which declined almost 8%. Verizon’s fourth-quarter profit estimates fell below analysts’ expectations, as holiday promotions and discounts to combat competitors led to diminished margins. Sysco, which distributes food products to restaurants, hospitals, schools, hotels, and other foodservice businesses, declined almost 6%.
Relative performance was also hampered by the Fund not owning benchmark-holding Facebook, which rose more than 23%.
Investor Shares Performance Commentary
The Fund invests primarily in mid- and large-cap U.S. equities. It is managed through a two-step process designed to capitalize on the strengths of Domini Impact Investments and Wellington Management Company, the Fund’s subadvisor. Domini creates an approved list of companies based on its social, environmental and governance analysis, and Wellington seeks to add value and manage risk through a systematic and disciplined portfolio construction process. Download Commentary as a PDF.
Total Returns as of March 31, 2017
2017
2017
2017
2017
Year
Year1
Year1
Year1†
(6/3/91)1†
Market Overview
U.S. equities continued to rally, with the S&P 500 returning 6.07% to mark its sixth straight quarter of gains. As Donald Trump assumed office, investors continued to anticipate lower taxes, deregulation, and increased infrastructure spending. Stocks climbed throughout January and February, as strong economic data continued to encourage: the manufacturing index accelerated on stronger orders and production; nonfarm payrolls rose above expectations in February; the unemployment rate ticked down to 4.7%; consumer confidence rose to its highest level in 16 years; homebuilder confidence surged to its best level since 2005; and new home sales rose to a seven-month high. However, the U.S. trade deficit also grew to its largest since 2012, with the increase driven partly by the stronger dollar, which indicates that trade is likely to be a headwind to economic growth in early 2017.
While the market hit a series of highs throughout the quarter, investors began to voice concerns over stretched valuations. The rally slowed to a stop in March after Republicans failed in their effort to repeal and replace the Affordable Care Act, casting doubt over the Administration’s ability to deliver on its agenda. The Federal Reserve Bank, as anticipated, increased rates by .25% for the second time in three months, but market participants noted that the tone of the policy statement was less hawkish than expected.
Fund Performance
The Fund’s Investor shares returned 5.12% for the quarter, underperforming the S&P 500 Index return of 6.07%. Sector allocation made a positive contribution thanks to an underweight to Energy, which was the worst performing sector for both the Fund and the Index. This was offset, however, by weak security selection, which was the largest driver of underperformance. Strong selection in the Industrials sector was offset by weaker selection in the Consumer Discretionary, Consumer Staples, and Health Care sectors.
Top Relative Contributors
Top Relative Detractors
The largest contributor to the Fund’s performance relative to the S&P 500 was Applied Materials, which provides manufacturing equipment, services, and software to the global semiconductor, display, and related industries. The stock rose almost 21% for the quarter, after reporting solid results for the fiscal first quarter, driven by record orders across all categories. Lam Research, which also provides equipment and services to semiconductor manufacturers, returned nearly 22% after fiscal-second-quarter results and third-quarter guidance exceeded expectations on both the top and bottom lines.
Global automotive supplier Visteon Corporation, a non-benchmark holding, was another top contributor, gaining more than 22% after reporting strong results fourth quarter, led by positive currency movements and strength in China, where growth in “infotainment” drove year-over-year growth of 26%.
Online shopping company eBay rose almost 13% after reporting fourth-quarter profit that beat estimates and providing a better-than-expected forecast for 2017, giving investors confidence that its rebranding campaign and data initiative are helping to lead a successful turnaround.
The Fund also benefitted from not owning benchmark holding Exxon Mobil, which is not approved for investment by the Domini Funds. The oil and gas company dropped more than 8% for the quarter.
Strong performance by these stocks was offset by weaker performers, including several conventional retailers. Department store chain Kohl’s declined more than 18% after reporting weak fourth quarter results, with a deterioration in store traffic during the holiday season driving sales lower. Fashion retailer Nordstrom was another large detractor, declining 2.5% after reporting mixed fourth-quarter results, which saw sales miss expectations due to a lower mix of promotional items, while profits were higher due to efficient inventory management.
Other significant detractors included Verizon Communications, which declined almost 8%. Verizon’s fourth-quarter profit estimates fell below analysts’ expectations, as holiday promotions and discounts to combat competitors led to diminished margins. Sysco, which distributes food products to restaurants, hospitals, schools, hotels, and other foodservice businesses, declined almost 6%.