NOTICE: 2020 Capital Gains Available. View PDF here.

Active Core Fund Commentary

4Q 2019

The Fund’s Institutional shares returned 3.95% in the fourth quarter. The Fund’s equity benchmark, the Russell 1000® Index1, returned 9.04%, while its fixed-income benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1, returned 0.18%.

How did financial markets perform overall?

U.S. gross domestic product1 growth edged up from 2.0% in the second quarter to 2.1% in the third quarter. Although fourth-quarter economic growth could ease slightly, U.S. economic growth is forecast to remain in the 2.0% range. Domestic economic data were generally positive, driven by healthy underpinnings for consumers. The unemployment rate remained at 3.5%, a 50-year-low, retail spending increased, consumer sentiment remained elevated, inflation was near the U.S. Federal Reserve Board’s (the Fed) 2% target rate, and the housing market received a boost from a decline in mortgage interest rates that made housing more affordable. In contrast, CEO confidence and small business optimism gauges were at or near multi-year lows, affected by the global economic slowdown, a decline in U.S. manufacturing activity, and uncertainty over volatile U.S.- China trade tariffs.

The Fed’s about-face on monetary policy propelled markets higher. The central bank’s three interest rate cuts—in July, September, and October—removed a cloud of uncertainty that had hovered over financial markets for months, exacerbated by the simmering U.S.-China trade war.

Accommodative actions by other global central banks, including the European Central Bank, had a similarly positive broad impact. The greater clarity regarding Brexit because of the landslide wins by the Conservative party in the U.K. national election in December also helped to calm markets. In the U.S., the impeachment of President Trump, while historically important, had little impact on financial markets.

As a result, U.S. stocks had strong returns, while bonds had modest performance.

How did stocks fare?

For the quarter, U.S. and non-U.S. stocks enjoyed substantial and widespread gains. The robust 9.07% quarterly advance for the S&P 500 Index1 was surpassed by the 12.47% quarterly rally for the technology-heavy Nasdaq Composite Index1 and the 11.93% gain for the MSCI Emerging Markets Index1. The MSCI EAFE Index, representing non-U.S. developed market stocks, returned 8.21%. For the full year, the S&P 500 gained 31.49%, ahead of the 22.66% and 18.90% respective returns of the MSCI EAFE Index and the MSCI Emerging Markets Index.

During the fourth quarter of 2019, the U.S. small-cap stocks outpaced the broader market, and mid caps lagged in general while still performing strongly. Growth stocks outperformed value peers, although a brief surge in value stocks mid-quarter led some to believe a style rotation could be underway. The S&P 500’s leading sectors during the fourth quarter were information technology, healthcare, and financials, while only real estate had negative quarterly returns. However, the utilities sector barely registered a gain. For the year, all 11 sectors in the S&P 500 had double-digit gains. IT led the way with a 50.29% annual return while energy was easily the weakest sector for 2019.

Was the environment favorable for bonds?

In fixed income markets, both the Bloomberg Barclays U.S. Aggregate Bond Index (+0.18%) and the Bloomberg Barclays Global Aggregate Index1 (+0.49%) scratched out meager quarterly gains, trailing the 3.50% return of the Bloomberg Barclays Global High Yield Index1 as investors embraced risk. Among U.S. fixed income sectors, the Bloomberg Barclays U.S. Corporate High Yield Index1 led gains with a 2.61% return, corporate bonds outpaced government agency bonds, and the Bloomberg Barclays U.S. Treasury Index1 had a negative return. For the year, all bond sectors had robust total returns, ranging from 6.35% (Agency MBS1) to 14.54% for the Bloomberg Barclays Corporate Bond Index1.


During the quarter, the federal funds rate fell 0.25% and the gap between the 2-year Treasury note and the 10-year Treasury steepened by 0.30 percentage points, from 0.05% to 0.35%, moving away from yield curve inversion. The federal funds target rate ended the quarter at a range of 1.50% to 1.75%. The U.S. dollar strengthened further in 2019 despite a growing federal budget deficit and an easing Fed, largely because of weaker global growth.

What were your key strategies during the quarter?

We continued to maintain a broadly diversified portfolio of equity and fixed-income securities. At the end of December, approximately 53.7% of the Fund was invested in stocks, 42.7% was invested in fixed-income securities, and 3.6% was in cash. For comparison, at the end of September, the breakdown was 51.6% in stocks, 44.1% in fixed-income securities, and 4.3% in cash.**

Within the Fund’s equity component, we favored broad style exposure, investing in large- and mid-cap stocks within the core, value, and growth styles. We continued to maintain a modest allocation to non-U.S. stocks.**

Within the Fund’s fixed-income portfolio, we maintained a modestly short duration versus our benchmark along with a higher-quality bias. We also remained underweighted in the corporate sector, which detracted significantly from performance as corporate bond strength continued during the quarter, again led by Baa-rated securities.**

What is your outlook for the Fund?

As we begin a new decade, the U.S. economy appears to be in better shape than it has been in more than a year, aided by the supportive policy of the Fed and the resilience of U.S. consumers. However, five consecutive monthly declines in manufacturing activity, mirroring global economic weakness, have been a concern. This is compounded entering 2020 by a dangerous year-end flare-up of U.S.- Iran tensions, uncertainty over the Trump impeachment proceedings, and the buildup to the November U.S. presidential election.

The Cavanal Hill leading economic index declined in the fourth quarter along with the Cavanal Hill risk aversion indicator, which fell to a decade-long low. As always, we advise using caution and taking a prudent, diversified approach to your investing.**

Each Lipper Mutual Funds average is an equally weighted average of the mutual funds within their respective investment objectives, adjusted for reinvestment of capital gain distributions and income dividends.

Credit-quality ratings are derived from the underlying securities of the portfolio, and are rated by Moody’s. If a rating from Moody’s is unavailable, S&P’s rating is used. If neither Moody’s nor S&P ratings are available, Fitch’s rating is used.


Portfolio composition is subject to change.

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, call 800-762-7085 or visit us at

The Lipper Mutual Funds Average is an equally weighted average of the mutual funds within their respective Lipper classification, adjusted for reinvestment of capital gains distributions and income dividends. Lipper ratings are not intended to predict future results, and Lipper does not guarantee the accuracy of this information. More information is available at Thomson Reuters Copyright 2020, All Rights Reserved.
Morningstar rankings are based on a fund’s average annual total return relative to all funds in the same Morningstar category. Fund performance used within the rankings, reflects certain fee waivers, without which, returns and Morningstar rankings would have been lower. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. © 2020 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.


Bloomberg Barclays Global High Yield Index is a multi-currency flagship measure of the global high yield debt market. The index represents the union of the U.S. High Yield, the Pan-European High Yield, and Emerging Markets (EM) Hard Currency High Yield Indices. The high yield and emerging markets sub-components are mutually exclusive. Bloomberg Barclays U.S. Corporate High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. The U.S. Corporate High Yield Index is a component of the U.S. Universal and Global High Yield Indices. Bloomberg Barclays U.S. Aggregate Bond Index is a broadbased index that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, governmentrelated and corporate securities, mortgage-backed, and foreign bonds traded in the U.S. Bloomberg Barclays U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers. Bloomberg Barclays Global Aggregate Bond Index is a measure of global investment-grade debt from 24 local currency markets, which include treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging markets issuers. Bloomberg Barclays U.S. Treasury Index measures the performance of the public obligations of the U.S. Treasury with a remaining maturity of one year or more are non-convertible and are denominated in U.S. dollars. Securities must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody’s, S&P, and Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. Gross Domestic Product (GDP) measures the market value of the goods and services produced by labor and property within the respective country/economic region. MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. MSCI EM Index is a float-adjusted market capitalization index that is designed to measure equity market performance in global emerging markets. NASDAQ Composite Index is a market price only index that tracks the performance of domestic common stocks traded on the regular NASDAQ market as well as National Market System traded foreign common stocks and American Depository Receipts. Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the U.S. market. S&P 500 Index is regarded as a gauge of the U.S. equities market, this index includes 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. These indexes are unmanaged and do not reflect the fees and expenses associated with a mutual fund. An investor cannot invest directly in an index.

An investor should consider a fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about an investment company can be found in the fund’s prospectus. To obtain a Cavanal Hill Funds prospectus or summary prospectus, please call 800-762- 7085 or visit us at Please read it carefully before investing.

Cavanal Hill Investment Management, Inc. is an SEC registered investment adviser and a wholly-owned subsidiary of BOKF, NA, a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company (“BOKF”). BOKF, NA serves as the custodian for the Cavanal Hill Funds. Cavanal Hill Investment Management, Inc. provides investment advice, administration and other services for the Funds and receives a fee for providing such services as fully described in the prospectus. The Funds are distributed by Cavanal Hill Distributors, Inc., a registered Broker/ Dealer, member FINRA and wholly-owned subsidiary of BOKF. SEC registration does not imply a certain level of skill or training. Bank of Oklahoma and its affiliates Bank of Arkansas, Bank of Albuquerque, Bank of Texas, Bank of Arizona, Mobank and Colorado State Bank and Trust offer investment management and administrative services nationally and administer more than $35 billion in assets for numerous clients, including foundations and endowments, and high-net-worth individuals.
Commentary provided is for the period ended 12/31/2019 is designed to provide a frame of reference and does not constitute investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The opinions expressed herein reflect the judgment of the authors at this date and are subject to change without notice and are not a complete analysis of any sector, industry or security. This document contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the Cavanal Hill Funds, the securities and credit markets and the economy in general. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forwardlooking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve judgments as to expected events and are inherently forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. The potential realization of these forward-looking statements is subject to a number of limitations and risks, which are described in the Funds’ prospectuses, and investors or potential investors, are cautioned to review the Funds’ prospectuses, and the description of such risks. Neither the Funds nor the Funds’ investment adviser, Cavanal Hill, undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise.


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