The INTECH U.S. Core Fund outperformed the S&P 500® Index for the quarter.
Within specific risk controls, INTECH's disciplined mathematical process establishes target weightings for stocks in the portfolio as a result of an optimization routine. Once the weights are determined and the portfolio is constructed, it is rebalanced and re-optimized on a periodic basis. Rebalancing requires buying some of a stock after a negative relative return and selling some of a stock after a positive relative return. This produces a buy-low and sell-high trading profit, on average, as stocks move up and down relative to the benchmark. The strategy has risk controls embedded in the investment process to aid in minimizing the portfolio's tracking error while also providing potential for excess return from the ongoing rebalancing routine.
The U.S. equity market recorded its biggest quarterly gain since 2015 with the S&P 500 Index posting a return of 6.07% for the quarter. While the information technology, consumer discretionary and health care sectors were the strongest performers, the energy sector became the weakest performing sector during the quarter after strongly outperforming in 2016. The financials sector, another strong performer during the second half of last year, also underperformed for the quarter.
From a sector perspective, while an average overweight allocation to the energy sector detracted, the Fund managed to outperform the S&P 500 Index during the period, benefitting from favorable security selection within the information technology and health care sectors during the quarter.