By Redwood Investments LLC In the second quarter, the US equity market climbed to new all-time highs due to sustained macro-economic tailwinds and a consistently accommodative Fed. As of June 30, the S&P 500 Index (SPX) appreciated by more than 6% in 2014 and the NASDAQ Composite Index (COMP) rose by more than 5%. Leading the market in the second quarter were stocks in the information technology, financials, healthcare and consumer discretionary sectors. The market’s strength from 2013 continued but witnessed a rotation into less volatile larger capitalization stocks. As a result, the two-year cumulative returns for both large and small capitalization indices as of June 30 are roughly equal, approximating 45%. Equity markets have been buoyed by both corporate and consumer strength and despite the weather related slowdowns in the first quarter, the domestic economy appears to be back on track. Economists anticipate a resumption of the slow and steady growth trajectory with GDP in the 3% range in the second half of 2014. Positive economic indicators include the lowest unemployment rate in six years, continued growth in real weekly earnings, the Purchasing Managers’ Index trending higher in each month of 2014, and an acceleration of durable goods orders. Combining these macro-economic reports with benign inflation and more access to credit for consumers and corporations with solid corporate profitability has also added fuel to the market rally. In 2013, Redwood Investments, which manages the U.S. Equity Large Cap Core portfolio, emphasized secular growth stocks. Starting in late 2013 and continuing in 2014, however, Redwood reduced its exposure to higher growth, higher valuation stocks while increasing exposure to more attractively valued cyclical growth stocks. Near the end of 2013, valuations of high growth stocks appeared excessive and Redwood anticipated broader economic growth, which would discount the scarcity value assigned to secular growth stocks. This investment thesis has played out as anticipated and these changes have benefited clients. Redwood’s absolute and relative investment performance results have been strong.