Q3 2016 • September 30, 2016 | Saturna Capital



Navigating Today's Volatile Markets


Q3 2016 Highlights:

  • Stock markets continued their upward march, with both developed and emerging markets posting gains
  • Potential for a December Fed rate hike but, by no means, certain
  • Possible Fed action and the presidential election heighten the likelihood of increased volatility, so caution is warranted
  • IMF concerned that monetary policy has run out of steam


Stock markets continued their upward march in the third quarter, although there were some shifts in leadership. Over the second quarter value stocks were the clear winners, while growth lagged. That reversed in Q3 with the Russell 1000 Growth Index staging a solid rebound, while the Russell Value Index trailed. International developed markets were weak performers through the first half of the year, but in Q3 the MSCI EAFE Index rallied strongly, pulling the index into positive territory for the year, despite the Brexit vote (approving the UK's exit from the European Union) and continuing economic challenges in Japan. Meanwhile, emerging markets continued their surge, and the MSCI Emerging Markets Index, up 16.02% through the end of Q3, is the strongest performing major index year-to-date.

So what can we expect for the remainder of the year? It seems certain that the lack of any action by the Federal Reserve to raise rates has contributed to stock market resilience. With fixed income instruments providing low to no to negative returns, the stock market and real estate become default options for many investors; at least for those not stashing cash and gold in abandoned Swiss military caves.¹ With the next Fed meeting scheduled the week before the presidential election, it seems an unlikely time to raise rates. In addition, no press conference is scheduled for the November meeting, and we do not think the Fed would raise rates without an explanation by Chairwoman Janet Yellen. Therefore, we, along with much of the rest of the market, believe December to be the most likely time for a rate hike. What happens after that is anybody's guess, but we might recall that last year's December rate increase was a factor in stock markets declining sharply through the first six weeks of this year. We must also factor in a changing of the guard in the White House and the reality that neither candidate is especially well-liked.

In short, we view the fourth quarter and the first months of 2017 as a time for considerable caution.

Apart from potential interest rate increases and a new president, one other factor raising concerns for the stock market is desultory economic expansion around the world. The International Monetary Fund recently updated its global GDP growth forecasts and the changes are not for the better.² While the IMF states, "…our baseline forecast sees improving world growth in the years ahead," caveats quickly follow the assertion. Meanwhile, the IMF identifies a conundrum that has long given us pause: "But while lower-for-longer interest rates have their upsides, they also reflect difficult economic realities." So how do we address these difficulties? Like many before them, the IMF argues that "overstretched monetary policies" must be supported by fiscal action and structural reform. Surveying the political establishment across the developed world, where might we expect such changes? Certainly not in the increasingly polarized US Congress or the hectoring Bundestag. Japan's Diet has demonstrated no ability to enact reform, and the UK has its hands full with negotiating the terms of its exit from European Union, while several countries in the EU face the prospect of new leadership with decidedly more nativist leanings. Any structural reform that arises in such circumstances would likely be less than market friendly.

The good news in all of this is that the United States economy is expected to continue growing, if at a lackluster pace.

The IMF sees real GDP in the US expanding 1.6% this year and 1.8% in 2017. Equally, the IMF projects EU area growth of 1.7% and 1.5% for this year and next, and sees Japan clocking in at a pedestrian 0.5% and 0.6%. Given a shrinking population and workforce, the glacial Japanese expansion comes as no surprise. The world will not be entirely devoid of economic activity, however, as the IMF expects India to expand its economy 7.6% this year and next, while China continues a slow deceleration to 6.6% growth this year and 6.2% next. The ASEAN area, which we often discuss, is expected to maintain its growth rate at 4.8% this year and accelerate to 5.1% in 2017.³


Sextant Growth

After a difficult first half of the year, the Sextant Growth Fund regained its footing in the third quarter, appreciating 4.66%, slightly ahead of the 4.58% gain in the Russell 1000 Growth Index and well ahead of the 3.85% gain the S&P 500.

Stock selection was broadly positive across sectors, with the one exception of Consumer Discretionary, where traditional stalwarts such as Nike, Starbucks, TJX, and Lowe's all suffered negative returns during the quarter. Fortunately, Amazon and Harman were there to soften the blow. We have closely reviewed these investments and remain committed. While Nike may have suffered at the hands (feet?) of a rebounding Adidas, we believe it is positioning itself most effectively for the continued migration to e-commerce. Starbucks still has an exceptional international growth opportunity. Even here in Saturna's hometown of Bellingham, Washington, reputed to have the most coffee shops per capita in the US, Starbucks is opening new stores. We believe TJX is possibly the best positioned store-based apparel retailer and that housing will continue to rebound in the US, providing a solid base of growth for Lowe's.
Information Technology accounts for the largest exposure in the Fund, and every one of our tech investments appreciated in the quarter, with especially strong performances from Apple, FLEETCOR, Facebook, Alphabet, and Adobe. Despite the weakness at Lowe's, Stanley Black & Decker also enjoyed strong performance during the quarter.

Bristol-Myers Squibb was responsible for the biggest hit during the quarter as its cancer drug Opdivo failed to meet the endpoint in a lung cancer study. Opdivo is approved for other uses and we are sticking with the stock for now. Most of the other detractors were consumer related, which is somewhat surprising considering that employment and wage statistics have been relatively buoyant of late.

Amazon and Adobe have replaced CVS Health and Ecolab among the top 10 Holdings due to relative share price movement.

As of September 30, 2016

Ten Largest Contributors Return Contribution
Apple 18.89% 0.86
Alphabet, Class A 14.29% 0.55
FLEETCOR Technologies 21.38% 0.55
Amazon.com 17.00% 0.52
Facebook, Class A 12.24% 0.50
Adobe Systems 13.31% 0.39
Microsoft 13.27% 0.35
Harman International 18.07% 0.35
Stanley Black & Decker 11.09% 0.34
Mastercard, Class A 15.82% 0.34
Ten Largest Detractors Return Contribution
Bristol-Myers Squibb -29.46% -0.67
Starbucks -4.88% -0.22
CVS Health -6.64% -0.22
Lowe's -8.40% -0.22
Signet Jewelers -9.29% -0.21
Nike, Class B -4.36% -0.17
VF -12.66% -0.15
TJX Companies -2.86% -0.14
Costco Wholesale -2.62% -0.07
Under Armour, Class A -3.61% -0.05
Top Ten Holdings Portfolio Weight
Apple 5.4%
TJX Companies 4.9%
Facebook, Class A 4.6%
Alphabet, Class A 4.5%
Starbucks 4.2%
Nike, Class B 3.6%
Amazon.com 3.6%
RPM International 3.5%
Stanley Black & Decker 3.4%
Adobe Systems 3.3%

Sextant International

The Sextant International Fund accelerated its appreciation, gaining 7.25% in the third quarter, bringing the year-to-date return to 10.44%. Meanwhile, the MSCI EAFE Index reversed its earlier declines, gaining 6.50% in the quarter and pulling its year-to date return into positive territory at 2.20%.

Stock selection was good in Q3, particularly in the Industrials and Consumer Discretionary sectors. Panamanian airline Copa Holdings was the strongest performer in the entire Fund in Q3, rising nearly 70%, while Japanese electric motor manufacturer Nidec and Dutch conglomerate Koninklijke Philips also enjoyed strong performances. In Consumer Discretionary we experienced excellent returns from luxury hotel operator Belmond.

From a regional perspective, the largest contribution to Fund returns came from Western Europe, which is to be expected since our largest exposure is to the region. That was followed by South and Central America, definitely not one of our largest exposures but a beneficiary of the strong performance of aforementioned Copa Holdings. That was followed by Asia Pacific, the best-performing region in terms of share price appreciation, where we are substantially underweight, primarily in Japan. Despite our low Asia Pacific exposure, our returns were solid due to excellent stock selection.

Information Technology represents our largest sector exposure and contributed three of our 10 largest contributors. We have written about lithography company ASML several times, and MercadoLibre, South America's eBay, should also be familiar. French software firm Dassault has been an excellent performer since the Global Financial Crisis.

Novo Nordisk, which usually appears among top contributors, was hit when results indicated slower than expected sales growth, but we remain committed to the long-term diabetes thesis. The appearance of Novartis indicates it was a tough quarter for Health Care. Other than those two, the worst performers were more or less flat.

As of September 30, 2016

Ten Largest Contributors Return Contribution
Copa Holdings, Class A 69.34% 1.61
Belmond, Class A 28.38% 1.21
Dassault Systemes ADR 13.85% 0.75
MercadoLibre 31.60% 0.66
ASML Holding 10.45% 0.65
BASF ADS 11.54% 0.52
Toyota Motor ADS 16.07% 0.46
Wolters Kluwer 6.01% 0.41
Australia & New Zealand Banking ADS 17.47% 0.37
Nidec ADS 21.81% 0.32
Ten Largest Detractors Return Contribution
Novo Nordisk ADS -21.91% -0.86
Novartis ADR -4.30% -0.21
BCE -1.28% -0.05
Korea Electric Power ADS -5.98% -0.05
Statoil ADS -1.60% -0.03
Banco Santander ADS -4.59% -0.03
Unilever ADS -0.30% -0.02
Fomento Economico Mex ADS -0.49% -0.02
Turkcell Iletisim Hizmet ADR -0.11% 0.00
Total ADS 0.60% 0.01
Top Ten Holdings Portfolio Weight
ASML Holding 6.8%
Dassault Systemes ADR 6.4%
Wolters Kluwer 6.3%
Belmond, Class A 5.4%
Unilever ADS 5.2%
Toronto-Dominion Bank 5.2%
Novartis ADR 4.7%
Fomento Economico Mex ADS 4.1%

Sextant Core

For the quarter ended September 30, the Sextant Core Fund returned 1.82% versus 3.11% for its Morningstar "Allocation – 50% to 70% Equity" peer group. Despite excellent performance from the Fund's fixed income investments, equity performance lagged. "Benchmark risk" is the risk taken when a portfolio deviates from its benchmark's allocations. In the case of the Sextant Core Fund, its 8.4% weight in Technology stocks, compared to nearly 21% in the S&P 500 Index, detracted significantly from performance. In addition, Technology's total return of 12.86% vastly outpaced the 3.85% return for the S&P 500 Index and all other industry sectors this quarter. Adding to the misery was a significant drawdown in certain Health Care assets: Novo Nordisk and Pacira Pharmaceuticals both saw double digit declines. Apple, Xilinx, and Taiwan Semiconductor were among the largest contributors to the Fund's return, but it was not enough. While Technology stocks have delivered outsized performance relative to other industry sectors over the last 25 years, the standard deviation of annual performance is 80% higher than that of the S&P 500 Index, suggesting that stock gains comes in spurts.4 Indeed, increases in valuation multiples for the sector largely explain the gains this quarter. Though this is not a recipe for sustainable performance, we recognize that there is significant benchmark risk to address without attempting to explicitly shadow the benchmark.

Treasury yields continued to fall in the quarter with the benchmark 10-year Treasury yield sitting at 1.60% on September 30. Adding more fuel to fixed income returns was further spread compression among corporate bonds. In this regard, the Fund benefited as it is overweight relative to the benchmark. Statements from several regional Federal Reserve presidents suggest a positive bias toward hiking the Fed Funds rate. Such actions tend to have a broad-based negative effect on fixed income assets. Even so, we doubt the capital markets will be put into a position of being surprised by either more frequent or outsized increases in rates given the central bank's stated cautious approach.

Despite this year's slow start for stocks, markets appear to be making up for it in the back half of 2016. We believe part of these gains reflect a search for yield and part reflect an increase in willingness to accept risk. This is occurring in an environment of lower than expected economic growth and unusually low asset yields around the world, which suggests higher risk at this point in the cycle and reason for caution. In such environments, diversification becomes increasingly important.

As of September 30, 2016

Ten Largest Contributors Return Contribution
Apple 18.89% 0.49
Biogen 29.45% 0.47
Skandinaviska Enskilda Banken, Class A 16.77% 0.23
Xilinx 18.55% 0.23
Australia & New Zealand Banking ADS 17.47% 0.21
Devon Energy 21.86% 0.20
RPM International 8.12% 0.15
PNC Financial Services Group 11.42% 0.15
Taiwan Semiconductor ADS 16.62% 0.15
Procter & Gamble 6.83% 0.13
Ten Largest Detractors Return Contribution
Novo Nordisk ADS -21.91% -0.35
Pacira Pharmaceuticals -19.18% -0.28
Lowe's -8.40% -0.22
NRG Energy -25.06% -0.21
Pandora -10.82% -0.16
Express Scripts Holding -6.95% -0.14
NextEra Energy -5.53% -0.10
Oracle -3.68% -0.07
Sempra Energy -5.33% -0.07
Welltower -0.73% -0.02
Top Ten Holdings Portfolio Weight
Apple Equity 3.1%
Federal Farm Credit Bank 1.21% 06/20/2019 Bond 2.7%
Nestle ADS Equity 2.6%
Republic of Chile 3.875% 08/5/2020 Bond 2.4%
Lowe's Equity 2.4%
Vodafone 4.625% 07/15/2018 Bond 2.3%
Jefferies Group 5.125% 04/13/2018 Bond 2.3%
Bellsouth Capital Funding 7.875% 02/15/2030 Bond 2.2%
PepsiCo Equity 2.1%
RPM International Equity 2.0%

Sextant Global High Income

The Sextant Global High Income Fund returned 7.68% in the third quarter of 2016, and ended the period with $7.4 million in total net assets, which included 5.1% in cash.

The Fund's quarterly return was the highest of its 18 quarters of operation (since March 30, 2012). This is a sharp contrast to the same quarter a year ago, for which the -10.38% return remains the Fund's worst-ever quarterly result. The continued strong performance this year has been largely supported by turnabouts of investments initiated 12 to 18 months ago, including emerging markets debt and equity securities, and equity investments in natural resources sectors. This quarter, however, we also got a boost from events involving several longer-term portfolio holdings.

In August, Vail Resorts announced its agreement to acquire Whistler Blackcomb Holdings, which we have owned in the Fund since 2012. The deal, which included a considerable premium for Whistler shareowners, contributed to Whistler's 55.02% return during the quarter. Separately, Microchip Technologies, another Fund holding going back to 2012, reported strong quarterly earnings results in August that contributed to its 23.14% quarterly return. Besides these, the Fund's bevy of commodities producers, including South32 (59.91%), Anglo American (30.17%), and BHP Billiton (22.46%) helped drive the Fund's gains.

Detractors in the quarter were modest by comparison: they included Royal Dutch Shell (-7.58%), French telephone carrier Orange (-5.12%), and the Government of Mexico peso bond due in 2021 (-4.93%), the latter appearing to suffer from worries of repercussions in the event of a Trump presidency.

Looking forward, global central banks appear ready to gradually tighten monetary policy. Still, economic growth in most of the developed and much of the developing world remains weaker than desired, the political order appears vulnerable, and central banks are now stepping away from unprecedented efforts to stimulate growth. For these reasons, we continue to believe a cautious and prudent approach is warranted.

As of September 30, 2016

Ten Largest Contributors Return Contribution
South32 ADR 59.91% 1.39
Whistler Blackcomb Holdings 55.02% 1.00
Microchip Technology 23.14% 0.65
BHP Billiton ADS 22.46% 0.52
Anglo American ADR 30.17% 0.51
Hopewell Highway Infrastructure 22.59% 0.50
Itau Unibanco Holding ADS 17.30% 0.45
Outerwall 6.00% 03/15/2019 13.23% 0.42
Apollo Global Management, Class A 20.90% 0.39
Allegheny Technologies 5.875% 08/15/2023 17.91% 0.31
Ten Largest Detractors Return Contribution
Mexico Bonos Desarrollo 6.5% 06/10/2021 -4.93% -0.26
Royal Dutch Shell ADS, Class A -7.58% -0.17
Orange ADS -5.12% -0.11
Novartis ADR -4.30% -0.09
Engie ADR -3.52% -0.06
Statoil ADS -1.60% -0.03
CCR -0.62% -0.02
Colombia Republic 8.375% 02/15/2027 -1.03% -0.02
Colony TX NFM Sales Tax Revenue 7.625% 10/01/2042 0.01% 0.00
GlaxoSmithKline ADS 0.64% 0.01
Top Ten Holdings Portfolio Weight
South32 ADR Equity 3.6%
Jefferies Group 5.125% 01/20/2023 Bond 3.6%
Outerwall 6.00% 03/15/2019 Bond 3.5%
Microchip Technology Equity 3.3%
Burlington Northern Santa Fe Equity 3.3%
Itau Unibanco Holding ADS Equity 2.9%
Federal Republic of Brazil 8.50% 01/05/2024 Bond 2.9%
BHP Billiton ADS Equity 2.8%
San Miguel 4.875% 04/26/2023 Bond 2.8%
Grupo Bimbo 4.875% 06/27/2044 Equity 2.7%

Sextant Short-Term Bond
Sextant Bond Income

Next year's short US bond market may be a lot like last year's. Short US rates will remain tethered to the speed of policy changes by the US Federal Reserve Bank. The US yield famine will continue for another year. The general default rate may inch higher and the credit ratings of select tax-exempt issuers like Illinois may continue to slip. This will be a good time to know your credits. Short rates may rise modestly. The Fed's endless guidance of slow, small policy changes may mean another year of slight positive returns with near-zero volatility.

While negative interest rate policy (NIRP) in Europe has cut the value of the euro, NIRP has been less effective in debasing the yen recently. Currency wars generally do not boost economic growth. They simply re-allocate growth among the combatants. The negative signals emanating from the need for currency manipulation reduce confidence in the growth of the economies involved. The growing awareness of the damaging side effects of NIRP for all savers mean these experiments maybe closer to their end than their beginning. However, central banks' reticence to explore new depths in negative rates does not imply a sharp reversal in short rates is imminent.

The global grip on US bond yields will continue. European Central Bank quantitative easing in concert with an explicit 10-year zero yield target announced by Japan's central bank will continue to bind US bond yields and depress volatility. Moderating global growth will continue to offset US economic growth and limit any upward pressure on US yields. The velocity of the US money supply continues to slip. Declining long-term inflation expectations will persist despite the recent uptick in energy prices. If hyperlow funding costs have produced one outcome for sure, it would have to be an abundance of cheap energy. The tension between where yields are and where they "should be" in the absence of central bank intervention will remain the source of the "taper tantrums" we can reasonably expect to happen again.

The International Monetary Fund and the Bank of International Settlements have stated that monetary policy may have reached its limit and that debt-funded fiscal stimulus should take its place. Should G-7 policymakers follow this advice, the supply of government debt around the world may rise significantly. Should the European Central Bank or Bank of Japan taper quantitative easing programs at the same time, US yields could move higher. However, it will be important to discriminate between the end of a deliberate yield-suppressing policy regime and a cyclical bottom in US inflation and US yields.

Relatively high US yields and firm US monetary policy will continue to attract the world's surplus savings. While much of the currency-swapped yield advantage for US bonds has disappeared, any widening will bring the bid for US bonds back and limit any uptick in US yields.

Great Britain's departure from the European Union known as "Brexit" is a major wild card in the outlook for next year. The strength of the UK economy since the vote may be a rush to complete business while the drawbridge to Europe is still down. Great Britain is one of the eurozone's largest trading partners, and any meaningful disruption in these relationships could seriously hamper the eurozone recovery. The uncertainty of Brexit should keep Great Britain and European central bank policy hyper-accommodative. Should Brexit evolve as a "soft" exit, the eurozone common market construct may come into question.

Finally, Italy's referendum on constitutional reform set for December 2 should be on everyone's calendar. Should this reform effort fail, the foundation of the European common market may become more unstable. High quality US bonds remain an integral part of a well-diversified portfolio in today's highly uncertain times. Any meaningful increase in investment grade US bond yields is still a good opportunity to secure steady income in a yield starved world.

As of September 30, 2016

Sextant Short-Term Bond
Top Ten Holdings Portfolio Weight
Emerson Electric  4.875% 10/15/2019 3.8%
US Treasury Note  2.00% 9/30/2020 3.5%
US Treasury Note 2.25% 07/31/2018 3.5%
Jefferies Group 8.50% 07/15/2019 3.4%
Berkshire Hathaway Finance 2.00% 8/15/2018 3.4%
Murray Street Trust 1-Goldman Sachs 4.647% 03/09/2017 3.4%
LaClede Gas 2.00% 08/15/2018 3.4%
Statoil 5.25% 04/15/2019 3.4%
Lexmark 6.65% 06/01/2018 3.3%
Cintas Corp No. 2 6.125% 12/01/2017 3.2%
Sextant Bond Income
Top Ten Holdings Portfolio Weight
US Treasury Bond 5.375% 02/15/2031 5.6%
Apple 4.50% 02/23/2036 3.8%
Intel 4.00% 12/15/2032 3.8%
Microsoft 4.20% 11/03/2035 3.7%
US Treasury Bond 6.25% 05/15/2030 3.3%
Cincinnati Financial 6.92% 05/15/2028 3.1%
Becton Dickinson 6.70% 08/01/2028 3.1%
Puget Sound Energy 7.02% 12/01/2027 3.0%
Statoil 7.15% 01/15/2029 3.0%
EMC 3.375% 06/01/2023 3.0%


¹ Miller, H., Baker, S. Secret Alpine Gold Vaults Are the New Swiss Bank Accounts, Bloomberg BusinessWeek, September 30, 2016.

² International Monetary Fund World Economic Outlook, October 2016: Subdued Demand, Symptoms and Remedies. 

³ International Monetary Fund World Economic Outlook, October 2016: Subdued Demand, Symptoms and Remedies. 
http://www.imf.org/external/pubs/ft/weo/2016/02/pdf/text.pdf, pg. 2

4 Stovall, Sam. Leveraging Low Correlations: A 50/50 sector portfolio outpaced the best performing sector, U.S. Equity Research Sector Watch, S&P Global Market Intelligence, September 26, 2016.


Morningstar Sustainability Ratings™

As of September 30, 2016

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Sextant International Fund


Sextant Core Fund

SSIFX Morningstar Sustainability Rating - High SCORX Morningstar Sustainability Rating - High
Among 716 Foreign Large Blend Funds Among 829 Allocation 50% — 70% Equity Funds

Sextant Short-Term Bond Fund


Sextant Global High Income Fund

STBFX Morningstar Sustainability Rating - High SGHIX Morningstar Sustainability Rating - Low
Among 496 Short-Term Bond Funds Among 472 World Allocation Funds

Sextant Growth Fund

  The Sextant Bond Income Fund has not yet received a Sustainability Rating.
SSGFX Morningstar Sustainability Rating - Above Average
Among 1,470 Large Growth Funds

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Performance data quoted herein represents past performance and does not guarantee future results.

The Morningstar Sustainability Rating and the Morningstar Portfolio Sustainability Score are not based on fund performance and are not equivalent to the Morningstar Rating ("Star Rating").

© 2016 Morningstar®. All rights reserved. Morningstar, Inc. is an independent fund performance monitor. 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.

Morningstar Sustainability Ratings and Portfolio Sustainability Scores are as of August 31, 2016. The Morningstar Sustainability Rating™ is intended to measure how well the issuing companies of the securities within a fund's portfolio are managing their environmental, social, and governance ("ESG") risks and opportunities relative to the fund's Morningstar category peers. The Morningstar Sustainability Rating calculation is a two-step process. First, each fund with at least 50% of assets covered by a company-level ESG score from Sustainalytics receives a Morningstar Portfolio Sustainability Score™. The Morningstar Portfolio Sustainability Score is an asset-weighted average of normalized company-level ESG scores with deductions made for controversial incidents by the issuing companies, such as environmental accidents, fraud, or discriminatory behavior. The Morningstar Sustainability Rating is then assigned to all scored funds within Morningstar Categories in which at least ten (10) funds receive a Portfolio Sustainability Score and is determined by each fund's rank within the following distribution: High (highest 10%), Above Average (next 22.5%), Average (next 35%), Below Average (next 22.5%), and Low (lowest 10%). The Morningstar Sustainability Rating is depicted by globe icons where High equals 5 globes and Low equals 1 globe. A Sustainability Rating is assigned to any fund that has more than half of its underlying assets rated by Sustainalytics and is within a Morningstar Category with at least 10 scored funds; therefore, the rating it is not limited to funds with explicit sustainable or responsible investment mandates. Morningstar updates its Sustainability Ratings monthly. Portfolios receive a Morningstar Portfolio Sustainability Score and Sustainability Rating one month and six business days after their reported as-of date based on the most recent portfolio. As part of the evaluation process, Morningstar uses Sustainalytics' ESG scores from the same month as the portfolio as-of date.

The Funds were rated on the following percentages of Assets Under Management:

Sextant International Fund    78%
Sextant Core Fund                  72%
Sextant Growth                       91%
Sextant Short-Term Bond       55%
Sextant Global High Income  59%

The Morningstar Portfolio Sustainability Scores and Morningstar Sustainability Ratings are new and it is anticipated that Morningstar will issue the scores and ratings monthly. The Funds' portfolios are actively managed and is subject to change, which may result in a different Morningstar Sustainability Score and Rating.


Performance Summary

As of September 30, 2016

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Average Annual Total Returns (Before Taxes) 1 Year 3 Year 5 Year 10 Year Expense Ratio
  Gross¹ Net
Sextant Growth (SSGFX) 3.98% 6.62% 12.20% 5.73% 0.90% 0.90%
S&P 500 Index 15.43% 11.15% 16.35% 7.23% n/a
Sextant International (SSIFX) 11.05% 1.55% 4.07% 3.35% 1.05% 1.04%
MSCI EAFE Index  7.06% 0.93% 7.87% 2.29% n/a
Sextant Core (SCORX)² 7.95% 3.84% 6.01% n/a   1.02% 1.01%
Dow Jones Moderate Portfolio Index 10.98% 5.54% 8.65% 5.68% n/a
Sextant Global High Income (SGHIX)³ 18.30% 3.64% n/a   n/a   1.06% 0.89%
S&P 500 Global 1200 Index 12.60% 6.41% 12.19% 5.15% n/a
Bloomberg Global High Yield Corporate Bond Index 12.49% 4.04% 7.57% n/a   n/a
Sextant Short-Term Bond (STBFX) 1.89% 1.38% 1.06% 2.56% 1.21% 0.75%
Citi USBIG Govt/Corp 1-3 Year Index 1.28% 1.04% 1.01% 2.56% n/a
Sextant Bond Income (SBIFX) 6.62% 4.92% 3.56% 4.73% 1.03% 0.90%
Citi US Broad Investment-Grade Bond Index 5.32% 4.02% 3.07% 4.87% n/a

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Performance data quoted represents past performance, is before any taxes payable by shareowners, and is no guarantee of future results. Current performance may be higher or lower than that stated herein. Performance current to the most recent month-end is available by calling toll-free 1-800-728-8762 or visiting Month-end Performance. Average annual total returns are historical and include change in share value as well as reinvestment of dividends and capital gains, if any. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Shares of a Fund may only be offered for sale through the Fund's prospectus or summary prospectus.

1 By regulation, gross expense ratios shown are as stated in a Fund's most recent prospectus or summary prospectus, dated March 29, 2016, and incorporate results from the fiscal year ended November 30, 2015. Higher expense ratios may indicate higher returns relative to a Fund's benchmark. The Adviser has voluntarily capped actual expenses of Sextant Short-Term Bond at 0.75% and actual expenses of Sextant Bond Income and Sextant Global High Income at 0.90% through March 31, 2017.

2 Sextant Core Fund began operations March 30, 2007.

3 Sextant Global High Income Fund began operations March 30, 2012.

The S&P 500 Index is an index comprised of 500 widely held common stocks considered to be representative of the US stock market in general. The MSCI EAFE Index is an international index focused on Europe, Australasia, and the Far East. The S&P Global 1200 Index is a global stock market index covering nearly 70% of the world's equity markets. The Bloomberg Global High Yield Corporate Bond Index is a rules-based, market-value weighted index engineered to measure the non-investment grade, fixed-rate, taxable, global corporate bond market. The Dow Jones Moderate Portfolio Index is a broad-based index of stock and bond prices. The Citi USBIG Govt/Corp 1-3 Year Index is a broad-based index of shorter-term investment grade US government and corporate bond prices. The Citi US Broad Investment-Grade Bond Index is a broad-based index of medium and long-term investment grade bond prices. Investors cannot invest directly in the indices.


Important Disclaimers and Disclosure

This publication should not be considered investment, legal, accounting, or tax advice or a representation that any investment or strategy is suitable or appropriate to a particular investor's circumstances or otherwise constitutes a personal recommendation to any investor. This material does not form an adequate basis for any investment decision by any reader and Saturna may not have taken any steps to ensure that the securities referred to in this publication are suitable for any particular investor. Saturna will not treat recipients as its customers by virtue of their reading or receiving the publication.

The information in this publication was obtained from sources Saturna believes to be reliable and accurate at the time of publication.

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A Few Words About Risk

The Growth Fund may invest in smaller companies, which involve higher investment risks in that they often have limited product lines, markets, and resources, or their securities may trade less frequently and have greater price fluctuation than those of larger companies.

The International Fund involves risks not typically associated with investing in US securities. These include fluctuations in currency exchange rates, less public information about securities, less governmental market supervision, and lack of uniform financial, social, and political standards.

The Core Fund involves the risks of both equity and debt investing, although it seeks to mitigate these risks by maintaining a widely diversified portfolio that includes domestic stocks, foreign stocks, short and long-term bonds, and money market instruments.

Investment in the Global High Income Fund entails the risks of both equity and debt securities, although it seeks to mitigate these risks through a widely diversified portfolio that includes foreign and domestic stocks and bonds. Issuers of high-yield securities are generally not as strong financially as those issuing higher quality securities. Investments in high-yield securities can be speculative in nature. High-yield bonds may have low or no ratings, and may be considered "junk bonds."

The risks inherent in the Short-Term Bond and Bond Income Funds depend primarily on the terms and quality of the obligations in their portfolios, as well as on bond market conditions. When interest rates rise, bond prices fall. When interest rates fall, bond prices go up. Bonds with longer maturities (such as those held by the Bond Income Fund) usually are more sensitive to interest rate changes than bonds with shorter maturities (such as those held by the Short-Term Bond Fund). The Funds entail credit risk, which is the possibility that a bond will not be able to pay interest or principal when due. If the credit quality of a bond is perceived to decline, investors will demand a higher yield, which means a lower price on that bond to compensate for the higher level of risk.