Performance Updates
Market Commentary

Homestead Funds portfolio managers report on the investment climate, economy and asset class performance. For more information, refer to the most recent annual or semi-annual report.

August 22, 2011

Homestead Funds president, CEO and portfolio manager Peter Morris shares his thoughts on current market conditions (excerpted from the 2011 Homestead Funds 2011 Homestead Funds Semi-Annual Report letter to shareholders):

A brief look at the capital markets shortly before the June 30, 2011 semi-annual report went to print reveals several crosscurrents at work, each having already shown the ability to weigh heavily on stock and bond prices. The debt ceiling agreement reached in Washington in August did little to satisfy investors. Instead, it triggered fears that future budget cuts could harm economic growth and, perhaps more importantly, prompted a downgrade of U.S. and some U.S.-related debt by Standard & Poor's, which criticized the deal as insufficient. Also, Federal Reserve policy left some investors concerned about higher inflation and a weaker dollar. Add to this the European debt situation, and investors are left in a climate of uncertainty. We believe, however, that even in an environment like this one, market fundamentals will overcome the fear and uncertainty associated with steep market declines. First, corporate profits are strong, up more than 10% from last year. Additionally, balance sheets are much improved, and large cash balances are allowing companies to increase dividends and to buy back stock. Stock prices in the aggregate seem very reasonable.

History shows that economic forecasting is a risky enterprise, even when the market environment provides greater clarity than the one we currently face. We do know, however, that businesses will adapt and adjust to changes in this environment. As this happens, we remain steadfast in our commitment to uncover those companies that represent good long-term investments for our shareholders.

The financial markets' swings can serve as a reminder to check your overall asset allocation, a must in all market environments, but especially during more uncertain times. Homestead Funds' representatives can help you keep your portfolio in line with your financial goals and risk tolerance. Please give them a call at 1-800-258-3030 between the hours of 8:30 am and 5:00 pm, ET.

The views expressed in this market commentary are those of the portfolio manager as of the date noted above and may have changed since that date. The opinions stated may contain forward-looking statements and may discuss the impact of domestic and foreign markets, industry and economic trends and governmental regulations of the funds and their holdings. Such statements are subject to uncertainty, and the impact on the funds might be materially different from what is described here.