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.

February 26, 2010

Homestead Funds president and portfolio manager Peter Morris shares his thoughts on current market conditions (excerpted from the 2009 Homestead Funds Annual Report letter to shareholders):

Equity and fixed-income markets both rallied sharply during the year as economic conditions began to improve. The stock market, as measured by the S&P 500 Index, returned nearly 26.5% in 2009. Stocks began 2009, however, by falling another 35% from 2008’s close as many financial companies struggling from declining asset values were forced into mergers, with some accepting substantial government monetary support. From the March 2009 lows, stocks moved higher as signs of economic improvement began to emerge.

In the credit markets, yield spreads declined significantly, resulting in double-digit returns for many bond funds. U.S. Treasury securities fared poorly as investors sought higher yields in other sectors of the market. Treasury yields rose modestly from the secular lows seen in late 2008.

Overall, investors showed a renewed sense of confidence in the markets for much of 2009, despite ongoing concerns over the recession, unemployment and the banking system. Government intervention played a role in stabilizing the economy, but in doing so, it created a substantial fiscal and monetary burden that will have to be addressed in the near future. On the plus side, consumers began paying down credit card bills, and financial institutions began allocating credit in a more responsible manner. Looking ahead to 2010, we believe that companies are poised to emerge leaner and more efficient, a positive sign for corporate profits to come. Uncertainty and volatility, however, remain important considerations in the New Year.

In order to position yourself properly for market volatility, make sure that your asset allocation is in line with your financial goals, keeping in mind your tolerance for risk. A Homestead Funds’ representative is available to help you with this at no additional charge between the hours of 8:30 a.m. and 5:00 p.m. ET by calling 1-800-258-3030.

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.