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Third Quarter 2013 Equity Market Review

Global equity markets advanced during the third quarter of 2013 despite the anxiety created by U.S. budgetary politics and the partial government shutdown at the end of the period. In the U.S., markets were volatile as stocks rose strongly in July, suffered declines in August and then recovered nicely in September. The S&P 500® Index posted a third quarter return of 5.24%, bringing the YTD return to an impressive 19.79%. The broader U.S. market, as measured by the Russell 3000® Index, posted similar returns of 6.35% for the quarter and 21.30% for the YTD period.

From a sector perspective, performance was biased to the upside as eight of nine sectors within the Russell 3000® Index advanced during the quarter. The best performance came from the materials & processing, producer durables and technology sectors. The weakest performance was experienced within the utilities sector, which posted a very slight negative return for the period.

Companies with high beta and high earnings growth characteristics generally outperformed during the quarter. In terms of equity market capitalization and style, everything (small, mid, large; growth, core, value) advanced during a period where all of the equity indexes maintained by Russell Investments posted positive returns. Small-cap companies outperformed their large-cap counterparts as the Russell 2000® Index posted a third quarter return of 10.21%, while the Russell 1000® Index advanced 6.02%. Within small-cap, microcap stocks continue to post strong results. Style differentiation was evident in the quarter as growth-oriented stocks generally outpaced value-oriented stocks. In the large capitalization segment, the Russell 1000® Growth Index and Russell 1000® Value Index had quarterly returns of 8.11% and 3.94%, respectively. In the small capitalization segment, the Russell 2000® Growth Index posted a stellar third quarter return of 12.80% and outpaced the Russell 2000® Value Index by 521 basis points.

Non-U.S. markets also experienced strong gains during the period. The MSCI-EAFE Index (Net), a measure of international developed country returns, posted a solid third quarter return of 11.56%, bringing the YTD return to 16.14%. From a country perspective, all markets ended the period in positive territory. European equities advanced 13.67% for the quarter as a result of the region's improved outlook. U.K. equities were up 12.07%, while the Japanese market rose by 6.72%. From a sector perspective, all groups generated positive results during the period. The telecommunications, materials and industrials sectors were the best performers, while the health care and consumer staples sectors were the worst performers and lagged the overall market during the period.

Emerging markets generated positive results but underperformed developed markets during the period as the MSCI Emerging Markets Index (Net) posted a quarterly return of 5.77%, bringing the YTD performance to -4.35%. All regions were positive but country returns within each region varied. In the Asia/Pacific Ex-Japan region, China and Korea performed strongly while Indonesia experienced a significant double-digit decline. Other solid performers during the period included countries such as Egypt, Poland and Russia. Additional negative performing countries included Turkey, India and the Philippines. From a sector perspective, other than consumer staples, all groups posted positive returns during the third quarter.

You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds, please call 1-888-98-GUIDE (1-888-984-8433) or download a prospectus. You should read the prospectus carefully before investing.

 S&P 500® is a trademark of The McGraw-Hill Companies and has been licensed for use by GuideStone Funds. The Equity Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the Equity Index Fund.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.

GuideStone Capital Management, a controlled affiliate of GuideStone Financial Resources, serves as the investment adviser to GuideStone Funds.

You should carefully consider the investment objectives, risks, charges and expenses of the GuideStone Funds before investing. A prospectus with this and other information about the Funds may be obtained by calling 1-888-GS-FUNDS (1-888-473-8637) or downloading one. It should be read carefully before investing.

GuideStone Funds shares are distributed by Foreside Funds Distributors LLC, not an advisor affiliate. Foreside is not a registered investment adviser and does not provide investment advice.