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Third Quarter 2016 Equity Market Review

During the third quarter of 2016, Global equity markets continued to advance during a period where investors were concerned about the expected fallout from the late June Brexit-induced sell-off, the potential for a near-term Fed rate hike and the continued slowdown in the U.S. and global economies. However, these concerns did not impact risk appetites, as the S&P 500® Index advanced in all three months of the quarter, resulting in an overall third-quarter return of 3.85%, which brought the year-to-date return to 7.84%. The broader U.S. market, as measured by the Russell 3000® Index, gained 4.40% for the quarter and 8.18% for the YTD period.

From a sector perspective, performance was biased to the upside as seven of nine sectors within the Russell 3000® Index advanced during the quarter. Reversing the trend from the first half of the year, the technology sector produced a double-digit gain and was the best-performing sector for the period. The weakest performance came from the utilities and consumer staples sectors (also a reversal), which both experienced negative returns for the quarter.

Companies with high-beta, low-dividend yield and higher growth characteristics also experienced a reversal relative to the first half of the year and outperformed during the third quarter. In terms of equity market capitalization, small-cap companies outperformed their large-cap counterparts as the Russell 2000® Index posted a third-quarter return of 9.05%, while the Russell 1000® Index posted a return of 4.03%. Style differentiation was evident in the quarter as growth-oriented stocks edged ahead of value-oriented stocks across most market capitalization segments (although value still leads YTD). In the large capitalization segment, the Russell 1000® Growth Index and Russell 1000® Value Index had quarterly returns of 4.58% and 3.48%, respectively. In the small capitalization segment, the Russell 2000® Growth Index posted a quarterly return of 9.22%, while the Russell 2000® Value Index advanced 8.87%.

Outside of the United States, developed non-U.S. markets outperformed their U.S. counterparts as expectations for aggressive central bank policy and the belief that there would be no near-term fallout from Brexit drove these markets. The MSCI-EAFE Index (Net), a measure of international developed country returns, posted a quarterly return of 6.43%, bringing the YTD return to 1.73%. Value styles outperformed growth styles, and small capitalization stocks generally outperformed large capitalization stocks during the quarter. From a country perspective, Austria, New Zealand and Hong Kong were among the best-performing countries, while Denmark, Israel and Singapore were the only negative performers for the quarter. From a sector perspective, performance was mixed, as the best performance came from the materials and technology sectors, while the weakest performance was experienced within the health care and energy sectors.

Emerging markets outperformed developed markets and registered a solid return as the MSCI Emerging Markets Index (Net) posted a quarterly return of 9.03%, bringing the YTD performance to 16.02%. Within emerging markets, growth styles outperformed value styles and large capitalization stocks outperformed small capitalization stocks. From a country perspective, Egypt and China were among the best performers, while Turkey and Singapore were among the few negative performers for the quarter. All sectors experienced positive results during the period. The technology, materials and financials sectors posted double-digit returns, while the utilities and consumer staples sectors were the weakest performers for the quarter. Relatively stable commodity prices and bullish sentiment were additional positives for emerging markets.

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.