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Q4 2023

We typically refrain from market or economic prognostications because, to quote Hall of Fame catcher Yogi Berra, “It’s tough to make predictions, especially about the future.” Last year was a master class in the wisdom of that statement. In early January 2023, most economic forecasters anticipated a recession to result from the Federal Reserve’s aggressive series of interest rate hikes to tame inflation. Instead, no single quarter experienced an economic contraction and the US gross domestic product (GDP) growth figure for 2023 is expected to be around 2.4%. Meanwhile, the stock market briefly stumbled in the wake of regional bank failures before achieving liftoff with the emergence of generative artificial intelligence (AI), Large Language Models (LLM), and AI chip leader Nvidia’s historic May results announcement and earnings upgrade. Following a summer lull, the market received a booster shot from rapidly falling inflation despite the economy and employment remaining strong. Futures markets started anticipating 2024 rate cuts, and the heretofore mythical “soft landing” became conventional wisdom.


Of course, the land of conventional wisdom can be a dangerous place. Conventional wisdom from 12 months ago proved to be wrong, as it was 12 months before that. A recent bulge bracket firm survey reported that investors ended 2023 the most bullish they had been since early 2022, and we know how that year turned out. Might the dominant expectation be shattered again as we move through 2024?

We don’t know, but one lesson we can draw from 2023’s performance is that market indices don’t always reflect the performance of stocks in the aggregate, which brings us to the Magnificent Seven. Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia dominated index returns throughout most of 2023, rising from 19% of the S&P 500 at year-end 2022 to 26% by year-end 2023 and contributing 59% of Index returns. When the largest capitalization stocks appreciate by significant amounts, indices can push higher despite modest performance across the broad market. We can best explain this phenomenon by comparing the returns of the market capitalization-weighted S&P 500 against the equal-weighted S&P 500.

For the first two months of 2023, the indices moved in tandem. With the regional bank failures in March, mega-cap Tech stocks diverged on the assumption that their businesses would avoid fallout from the bank difficulties. This divergence widened at Nvidia’s above-mentioned announcement, lighting the fuse on AI-adjacent Tech stocks. Over the first six months of 2023, the market cap-weighted S&P 500, led by the Magnificent Seven, jumped 15.91% versus only 6.93% for the equal-weighted index, a gap of 898 basis points (bps).

Entering the second half of 2023, concerns of a “higher for longer” interest rate environment weighed on the market, sending both indices into negative territory for the summer. Despite conventional wisdom (there’s that phrase again) that longer-duration and more expensive Tech stocks should have suffered more in a higher rate environment, the equal-weighted S&P 500 declined by a greater amount before catching up in November and December, courtesy of the soft-landing scenario gaining traction. By year-end, the indices were only 86 bps apart. During the final two months of the year, the equal-weighted index outperformed the other. It seems reasonable to expect a more balanced market that is less skewed by the movements of a handful of stocks in 2024.

We are hopeful that such an environment may be more favorable to our approach. As managers of diversified funds, our exposure to mega-cap stocks will be limited to levels below what the companies represent in major benchmarks. Few stocks driving returns presents a relative performance headwind, while a more diversified return profile removes that disadvantage.


Saturna Sustainable Equity Fund

For the quarter ended December 31, 2023, the Saturna Sustainable Equity Fund rose 13.29%. The S&P Global 1200 Index trailed the Fund at 11.29%, while the Morningstar Global Large- Stock Blend category average was 10.55% for the same period. Year-to-date, the Fund grew to 18.81% relative to 23.38% for the Index.

Novo Nordisk was the top contributor to the Saturna Sustainable Equity Fund for the second consecutive fiscal year. Ozempic and Wegovy were big winners for the drug manufacturer, and the demand for weight loss drug therapy doesn’t seem to be ebbing. The second largest contributor was Adobe. We believe that Adobe will hold its market leading position, especially considering the new technologies the company introduced recently, like the Firefly AI image generator. Microsoft was the third largest contributor to the portfolio this year, and we still like its prospects based on Azure, the large investment Microsoft made in OpenAI, and gaming options becoming available now that the long-awaited purchase of Activision is closed.

The biggest detractor to the Saturna Sustainable Equity Fund this year was Pfizer. As the pandemic wound down, Pfizer struggled with plummeting demand for vaccines and Paxlovid. We have since exited the position in favor of other pharmaceutical companies such as Eli Lilly. Chemical giant Johnson Matthey also proved disappointing this year, and we have sold the name from the portfolio. Finally, the third largest detractor was once again US-based PayPal, which we are keeping. We hold our conviction that there is plenty of room for the payments giant to grow.

Interest rates and inflation stabilized toward the end of 2023, allowing for general optimism regarding economic markets. We see geopolitical concerns and unrest as the greatest threats to equities in the coming year. We have increased our US position to close to the 40% maximum allowed by our prospectus as a defensive position against geopolitical instability. Regardless of country, we continue to purchase solid companies aligned with our values and investment fundamentals and sell those whose ethos or financials no longer adhere.

As of December 31, 2023

10 Largest Contributors YTD Return Contribution
Novo Nordisk, ADR 54.79% 2.12
Adobe 77.28% 1.43
Schneider Electric, ADR 46.79% 1.21
Microsoft 58.19% 1.12
Wolters Kluwer 38.72% 1.10
Apple 49.00% 1.07
Assa Abloy, ADR 37.10% 0.94
Nintendo, ADR 29.12% 0.89
L'Oreal, ADR 41.45% 0.88
Legrand SA 33.06% 0.87
10 Largest Detractors YTD Return Contribution
Pfizer -41.22% -0.92
Johnson Matthey -11.55% -0.38
Corteva -21.38% -0.22
Johnson & Johnson -8.60% -0.21
BioNTech, ADR -29.74% -0.20
PayPal Holdings -13.77% -0.16
Tractor Supply Company -2.55% -0.11
Vestas Wind Systems -6.45% -0.10
Roche Holdings, ADR -4.08% -0.09
Unicharm, ADR -5.09% -0.09
Top 10 Holdings Portfolio Weight
Novo Nordisk ADS 4.73%
Nintendo ADR 3.29%
Wolters Kluwer 3.19%
Schneider Electric ADR 3.08%
Legrand 2.89%
CGI Group, Class A 2.88%
Assa Abloy, ADR 2.87%
Adobe 2.67%
Apple 2.61%
Accenture, Class A 2.51%

Saturna Sustainable Bond Fund

For the fourth quarter ended December 31, 2023, Saturna Sustainable Bond Fund returned 5.64%, and the FTSE WorldBIG Index returned 8.28% for the same period. The one-year performance for the Fund was 6.94%, relative to 6.44% for the Index.

In 2023, financial assets largely demonstrated favorable performance and inflation metrics declined. Some central banks signaled an early victory against rampant inflation. Considering the extraordinary measures that central banks took over the past two years in response to the pandemic, such celebrations may have some merit. Out of the 97 central banks that the International Monetary Fund (IMF) tracks, 88 had raised their policy rates by an average of 212 basis points (bps) since the start of 2023.1 This represents the most widespread and synchronized tightening of monetary policy in decades.

Global inflation metrics declined in 2023, in line with generally anticipated consensus views. This provided some global central banks with sufficient cover to take a wait-and-see approach to the fourth quarter of 2023. The Federal Reserve, in response to lower inflation prints in the US, took a similar wait-and-see stance. When the Fed held their meeting in December 2023, Chairman Jerome Powell surprised investors with the enticing possibility that the committee may reduce benchmark interest rates sometime in 2024. Market participants estimated three rate cuts in the first half of 2024, which would reduce interest rates by 75 basis points (bps).2 While market expectations shifted during the last few weeks of 2023, the fixed income markets experienced a significant rally. The 30-year Treasury yield declined more than 67 bps and the 10-year Treasury yield fell 69 bps.

Many investors have largely embraced the belief that the inflation “dragon” has been slain, but this may not be the reality. Over the last few years, inflation rates have reached levels not seen since the 1980s.3 It is entirely possible that these inflationary pressures cooled temporarily and are hibernating in the face of recent monetary tightening policies.

The Fed’s indication of easing benchmark rates could potentially undermine policy measures employed over the past two years and reinvigorate aggregate demand and inflation. A working paper published by the IMF in September 2023 found that in the more than 100 inflation shock episodes that have occurred since the 1970s, inflation was resolved in under five years for only 60%. Even in those “successful” cases, resolving inflation took an average of more than three years. “Most unresolved [inflationary] episodes involved ‘premature celebrations’ where inflation declined initially, only to plateau at an elevated level or re-accelerate,” said the IMF. “Countries that resolved inflation had tighter monetary policy that was marinated more consistently over time, lower nominal wage growth, and less currency depreciation, compared to unresolved cases.”4

The working paper from the IMF is an important cautionary warning for investors. Taming inflation generally takes time— potentially, more time than what policymakers and market participants estimate.


Between the end of the third quarter and the end of the fourth quarter of 2023, the Sustainable Bond Fund lowered its exposure to bonds with maturities of 10 years or more from 13% to 10%. The Fund reallocated its portfolio to more bonds with maturities between one and three years. The overall effective duration of the Fund decreased during the quarter as well, starting at 3.97 years and falling to 3.29 years at quarter end. The FTSE WorldBIG Index maintains a significantly longer effective duration at around 6.6 years. This differential was the primary reason for the Fund’s underperformance during the fourth quarter, as longer bonds generally outperformed shorter positions. Six out of the seven top performing bonds in the Fund for the quarter had maturities outside of 2030. The top performing position was the 2051 Indonesia sovereign green sukuk, which returned 18.52%. The two lowest performing bonds were both US Treasury Bills with the shortest maturities in the Fund, maturing in January of 2024. They returned 0.37% and 0.31%. The portfolio continues to maintain a barbell position, focusing on bonds with maturities between one and three years and outside of 10 years.

Portfolio Maturity Breakdown Q4 2023


At the end of the fourth quarter, the Sustainable Bond Fund had a total exposure of 43.53% to bonds denominated in foreign currency, up from 36.01% at the end of the third quarter. Positions were increased in euro-denominated bonds and Mexican peso-denominated bonds. The Fund initiated a position denominated in the Columbian peso for the first time since the third quarter of 2021.

During the fourth quarter, the Australian dollar appreciated 5.86% versus the US dollar. Most foreign currency positions also saw appreciation compared to the US dollar over the one-year period, except for the Norwegian kroner, which depreciated -3.63%. A major currency mover was, notably, the Columbian peso. The peso rose more than 25% relative to the dollar since year-end 2022, and more than 5.5% in the fourth quarter. This appreciation drove the performance for the peso-denominated International Bank of Reconstruction & Development green bond, which returned 16.91% during the fourth quarter and was the second-best performer in the Sustainable Bond Fund.

Currency Performance and Exposure Q4 2023

Credit Ratings

Corporate credit yields fell across the curve, with very large yield shifts for “B” and “BB” rated bonds. The Fund increased positions in “BBB” rated bonds and “AAA” rated green supranational bonds, allocating away from “AA” and “A” securities. The Sustainable Bond Fund ended the fourth quarter with 8.13% of the portfolio in “BB” securities and 4.36% in “B” rated securities.

Change in Corporate Yield Curve Q4 2023


Credit Ratings Distribution Q4 2023

Green and Sustainable Bonds

At the end of the fourth quarter, the Sustainable Bond Fund’s portfolio had 37.16% in green bonds, 7.42% in sustainable and social bonds, and 3.51% in sustainability linked bonds. Green bonds are primarily used to support specific climate-related or environmental projects. Social bonds raise funds to address or mitigate a specific social issue, and/or seek to achieve positive social outcomes. Sustainable bonds generally can have a wider scope that simultaneously address environmental and social ambitions. Sustainability linked holdings are issues where the failure to meet a target (such as a reduction in carbon intensity over a specific timetable) results in increased payments to the bondholder, either through a higher payment upon the maturity of the security or through raising the bond’s coupon payment.

As of December 31, 2023

Top 10 Holdings Portfolio Weight
Canadian Imperial Bank 4.97%
Asian Development Bank 4.89%
Inter-American Development BK 4.74%
MAF Global Securities 4.05%
Munich RE 4.04%
NOKIA 3.59%
Koninklijke Philips NV 3.38%
First Abu Dhabi Bank PJSC 3.34%
Starbucks 3.16%

Performance Summary

As of December 31, 2023

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  Expense RatioA
Average Annual Total Returns (Before Taxes) YTD 1 Year 3 Year 5 Year Since InceptionB Gross Net
Sustainable Equity Fund (SEEFX) 18.81% 18.81% 1.30% 11.11% 7.37% 0.93% 0.75%
S&P Global 1200 Index 23.38% 23.38% 7.66% 13.08% 9.52% n/a
S&P 500 Index 26.29% 26.29% 10.02% 15.70% 12.11% n/a
Sustainable Bond Fund (SEBFX) 6.94% 6.94% -1.36% 1.88% 1.35% 0.74% 0.65%
FTSE WorldBIG Index 6.44% 6.44% -5.87% -0.48% 0.45% n/a
MSCI All Country World Index 22.81% 22.81% 6.26% 12.27% 8.86% n/a

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A By regulation, expense ratios shown are as stated in a fund’s most recent prospectus or summary prospectus, dated March 31, 2023 and incorporate results from the fiscal year ended November 30, 2022. Saturna Capital, the Funds’ investment adviser, has voluntarily capped actual expenses of the Sustainable Equity Fund at 0.75% and actual expenses of the Sustainable Bond Fund at 0.65% through March 31, 2024.

B Saturna Sustainable Equity Fund and Saturna Sustainable Bond Fund began operations on March 27, 2015.

Performance data quoted herein represents past performance, which is no guarantee of future results.  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. Current performance may be higher or lower than the performance data quoted herein. Performance current to the most recent month-end can be obtained by visiting or calling toll-free 1-800-728-8762.

The S&P 500 is an index comprised of 500 widely held common stocks considered to be representative of the US stock market in general. The S&P Global 1200 Index is a global stock market index covering nearly 70% of the world’s equity markets.  The FTSE WorldBIG Bond Index is a multi-asset, multi-currency benchmark, which provides a broad-based measure of the global fixed-income markets. The MSCI ACWI covers approximately 85% of the global investable universe, with large- and mid-cap representation across 23 developed market and 23 emerging market countries. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.   When available, Saturna uses total return components of indices mentioned.  Investors cannot invest directly in the indices.


Performance Summary

As of December 31, 2023

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Morningstar RatingsC Overall 1 Year 3 Year 5 Year Sustainability RatingD
Sustainable Equity Fund (SEEFX) ★ ★ ★ n/a ★ ★ ★ ★             
Morningstar Sustainability Rating: 5 Globes

Percent Rank in Category: 4
            Among 8,155 Global Equity Large Cap Funds

% Rank in Global Large-Stock Blend Category n/a 54 93 44
Number of Funds in Category 339 359 339 300
Sustainable Bond Fund (SEBFX) ★ ★ ★ ★ n/a ★ ★ ★ ★ ★ ★ ★ ★             
Morningstar Sustainability Rating: 5 Globes

Percent Rank in Category: 8
            Among 2,155 Global Fixed Income Funds

% Rank in Global Bond Category n/a 38 16 13
Number of Funds in Category 185 190 185 165

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The Morningstar Sustainability Rating is not based on fund performance and is not equivalent to the Morningstar Rating (“Star Rating”). 

© 2024 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.

C Morningstar Ratings (“Star Ratings”) are as of December 31, 2023. The Morningstar Rating™ for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance (not including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

D Morningstar Sustainability Ratings are as of November 30, 2023. 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 67% 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 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 Fund’s portfolios are actively managed and are subject to change, which may result in a different Morningstar Sustainability Score and Rating each month. 

The Saturna Sustainable Equity Fund was rated on 99% and the Saturna Sustainable Bond Fund was rated on 91% of Assets Under Management.

Percent Rank in Category is the fund’s percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1.  Percentile ranks within categories are most useful in those categories that have a large number of funds.


Footnotes to commentary

1 International Monetary Fund. “Global Financial Stability Report: Financial and Climate Policies for a High-Interest-Rate Era.” IMF, Washington, DC, October 2023. Publications/GFSR/Issues/2023/10/10/global-financial-stability-report-october-2023

2 Buchwald, Elisabeth. “Here’s why the fed thinks it can cut rates in 2024.” CNN, December 19, 2023.

3 Ari, Anil, et al. “One Hundred Inflation Shocks: Seven Stylized Facts.” IMF Working Papers. International Monetary Fund, September 15, 2023. Issues/2023/09/13/One-Hundred-Inflation-Shocks-Seven-Stylized-Facts-539159

4 Ibid.

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.

All material presented in this publication, unless specifically indicated otherwise, is under copyright to Saturna. No part of this publication may be altered in any way, copied, or distributed without the prior express written permission of Saturna.

The Saturna Sustainable Funds limit the securities they purchase to those consistent with sustainable principles. This limits opportunities and may affect performance.

Investing involves risk, including possible loss of principal. Generally, an investment that offers a higher potential return will have a higher risk of loss. Stock prices fluctuate, sometimes quickly and significantly, for a broad range of reasons that may affect individual companies, industries, or sectors. When interest rates rise, bond prices fall. When interest rates fall, bond prices go up. A bond fund’s price will typically follow the same pattern. 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.” Investing in foreign securities involves risks not typically associated directly with investing in US securities. These risks include currency and market fluctuations, and political or social instability. The risks of foreign investing are generally magnified in the smaller and more volatile securities markets of the developing world.

A fund’s 30-Day Yield, sometimes referred to as “standardized yield” or “SEC yield,” is expressed as an annual percentage rate using a method of calculation adopted by the Securities and Exchange Commission (SEC). The 30-Day Yield provides an estimate of a fund’s investment income rate, but may not equal the actual income distribution rate. Without the voluntary expense cap, the 30-Day Yield for Saturna Sustainable Bond Fund would have been 3.936% and the 30-Day Yield for Saturna Sustainable Equity Fund would have been 0.524%. Unsubsidized yield does not adjust for any fee waivers and/or expense reimbursements in effect.

Effective duration is a measure of a fund’s sensitivity to changes in interest rates and the markets. Effective duration differs from modified duration in that it accounts for the optionality embedded in call options and other security-specific covenants that can change expected cash flows as the result of the movement of interest rates. Longer durations tend to indicate greater sensitivity to interest rate changes than shorter durations.

Variable rate securities risk: Variable rate debt securities (which include floating rate debt securities) pay interest based on an interest rate benchmark. When the benchmark rate changes, the interest payments on those securities may be reset at a higher or lower rate and, as a result, such securities generally are less price sensitive to interest rate changes than fixed-rate debt securities. However, the market value of variable rate debt securities may decline, or not appreciate as quickly as expected, when prevailing interest rates rise, particularly if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, variable rate securities will not generally increase in market value if interest rates decline. However, when interest rates fall, there may be a reduction in the payments of interest received by the Fund from its variable rate securities.

About the Authors

Jane Carten

Jane Carten MBA
Portfolio Manager,
Saturna Sustainable Equity Fund

Patrick Drum

Patrick Drum MBA, CFA®, CFP®
Senior Investment Analyst
Portfolio Manager,
Saturna Sustainable Bond Fund

Elizabeth Alm

Elizabeth Alm CFA®
Senior Investment Analyst
Deputy Portfolio Manager,
Saturna Sustainable Bond Fund

Scott Klimo

Scott Klimo CFA®
Chief Investment Officer
Deputy Portfolio Manager,
Saturna Sustainable Equity Fund