SEMI-ANNUAL REPORT - First Investors

Market Overview (continued)
FIRST INVESTORS INCOME FUNDS
FIRST INVESTORS EQUITY FUNDS
The overall U.S. economy grew a little more than 2% during this period. All sectors
within equities posted positive results for the six months. Among sectors, the prolonged
cold weather most impacted consumer spending, which affected consumer
discretionary stocks (retail, wholesale, apparel, travel & leisure) which were weaker
on a relative basis during the period; consumer staples were also poorer performers,
while energy, telecom and utilities stocks also lagged. On the positive side, healthcare
and technology stocks were very strong. Other sectors posted more modest gains,
including materials, industrials and financials.
Bond Markets
Benchmark U.S. Treasury rates moved slightly higher during the review period. The
first half of the review period saw the continuation of an increase in interest rates that
had begun in May as the market grappled with the beginning of the end of the Fed’s
very accommodative monetary policy. Treasury yields ended the year at their highest
level since mid-2011. The second half of the review period saw a reversal of the bond
market’s sell-off as the severe winter depressed economic activity, there was slowed
growth in China, and the confrontation in the Ukraine led to a flight-to-safety into U.S.
Treasury securities. For the review period, the 10-year Treasury yield increased from
2.6% to 2.7%. The 2-year Treasury yield, which is anchored by the Fed’s commitment
to keep short-term rates very low, moved from 0.3% to 0.4%.
The broad bond market gained 1.7% during the reporting period, according to the
Bank of America Merrill Lynch U.S. Broad Market Index. Riskier sectors had the best
returns, benefiting from their higher yields and a tightening of spreads versus Treasury
securities. Specifically, high yield bonds gained 6.6%, followed by investment grade
corporate bonds at 4.0%. Non-U.S. government bonds had a relatively strong return of
1.8%. Mortgage-backed bonds were negatively affected by the tapering of the Fed’s
quantitative easing program (a program which has involved large-scale purchases of
bonds to depress interest rates), returning 1.1%. Reflecting the impact of higher interest
rates, the Treasury sector lagged the broad bond market with a 0.7% return. Lastly,
money market rates remained close to zero as the Fed maintained its commitment to
keep short-term interest rates at an exceptionally low level.
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