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Because the Timothy Plan Funds do not invest in excluded securities, the Funds may be riskier than other funds that invest in a broader array of securities. There are risks when a fund limits its investments to particular sized companies, and all companies are subject to market risk. The Fund recently experienced significant negative short-term performance due to market volatility associated with the Covid-19 pandemic.
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To read more about our ETFs, please click this link to access fund information, including fact sheets, performance and holdings for each fund. A prospectus is available from the Fund or your financial professional that contains more complete, important information. Please read it carefully before investing. ETFs distributed by Foreside Fund Services, LLC, Member FINRA. Timothy Partners, Ltd. is not affiliated with Foreside Fund Services, LLC.
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The U.S. economy rebounded meaningfully, with most forecasters predicting annualized GDP growth will exceed 4% in the second quarter. Business confidence remained high, driving employment gains and an uptick in hourly earnings. Federal government spending also increased following the passing of a $1.3 trillion spending bill in March.
Signs of inflationary pressures emerged, however, with companies highlighting tight labor markets, higher freight costs, and rising prices for energy and key raw materials. The Federal Reserve continues to respond with rate increases, resulting in some flattening of the yield curve as long rates rise at a more measured pace due to growing uncertainty about trade policy and its impact on growth.
The market steadied in the second quarter and returns were positive in all size and style segments. Growth styles continued to outpace value in large caps but value led in small cap. Small caps handily outperformed large and midcaps, likely due to being less exposed to trade disruption. The steady introduction of tariff s across several industries and across several countries raises the risk profile of greater inflation and a negative future impact onbgrowth. Developments are being closely monitored.
Q2 2018 Performance Update
The portfolio (+1.7%) underperformed the Russell 1000 Growth (+5.8%) due largely to Producer Durables stocks which were under pressure in the second quarter as investors grew increasingly concerned that higher commodity prices would impact operating margins, as well as general concerns about tariff /trade wars. Other negative effects included the continued outperformance of the Growth style, as we have a “less-growthy” portfolio than the benchmark. This was further seen by strong returns from notowned (restricted) stocks in the Tech arena, like Facebook, Apple, Microsoft, Alphabet, which collectively cost us 115 bps1 of performance.
The top performer was Sarepta Therapeutics (SRPT), which returned 78.4% during the quarter. Sarepta reported incredibly strong clinical data in its first gene therapy program to treat Duchennes Muscular Dystrophy. Also, the company made a strong strategic move in partnering with Myonexus, another biotechnology company with a compelling gene therapy program for the treatment of Limb-Girdle muscular dystrophies.
Our investments within the cyber security software segment continue to generate alpha. The most noteworthy investment has been in Varonis Systems
(VRNS) which gained 23% during the quarter. Greater focus is being spent by enterprises on data security, as corporations are rushing to stay ahead of the latest security threats.
General Dynamics (GD, -15%)2 is an aerospace/defense company, and these stocks were out of favor in the quarter. GD has some additional challenges,
as it works through compressing profit margins, partly due to bringing on new models at Gulfstream (business jets). Some analysts also questioned the wisdom of the CSRA acquisition recently made by GD; CSRA is a premier provider of high-tech IT solutions to government entities.
TE Connectivity (TEL, – 9%) engages in the design and manufacturing of connectivity and sensors solutions. The stock was weak in the quarter as the tariff talk heated up. TEL has almost 20% of revenue coming from China. Additionally, the auto end market is TEL’s largest industry exposure, and this is in the cross-hairs of the tariff s. We think the lower valuation now accorded the stock provides favorable risk/reward, assuming
that the company’s execution in the next few quarters is along the lines of what we’ve become accustomed to.
The issues causing the greatest concerns among investors are the potential of global trade wars and rising commodity costs which cause investors to shift their focus to sectors that have less direct exposure to those wildcards. Specifically, small cap companies that are in the Health Care and Technology sectors have a favorable risk profile as it relates to those issues.
We continue to find compelling investment opportunities, particularly in the medical device industries. Also, consumer spending has recovered, leading to more investment opportunities in gaming and retail industries. We remain focused on generating alpha and producing the strongest investment results over the long run.