By Rodric E. Cummins, CFA , Senior Vice President and Chief Investment Officer

A strong rally late in the quarter launched the global capital markets to a fast start in 2011. The first quarter was a reminder of the unpredictable nature of world events and how they can dramatically impact capital markets. The tragic earthquake in Japan and political turmoil in the Middle East were added to a long and growing list of concerns. For investors though, the prospect for future economic growth continues to be the central issue, and on that front, the picture remains bright.

With the economy continuing to improve, albeit at a slow pace, risk assets posted another very strong quarter. The S&P 500^® Index was up 5.92% during the period, while many other stock segments, such as small cap stocks, continued to post even better returns. Interest rates increased slightly across the U.S. Treasury yield curve, dampening returns for bond holders. Nonetheless, the Barclays Capital Aggregate Bond Index squeezed out a positive return of 0.42% for the quarter.

The last two years reinforce the old saying in the investment industry that investors should not fight the Fed. It is hard to imagine a better environment for investing in financial assets than what we have experienced since the market trough of March 2009. Largely by the Federal Reserve’s design, very accommodative government policies and low interest rates have fueled strong corporate profits and revived investors’ risk appetites, leading to one of the strongest market recoveries in history. An investment in the S&P 500^® Index has more than doubled since the market trough in March of 2009 by posting a cumulative return of 104%. Small cap stocks are up 153% since the 2009 market low and reached an all time high during the first quarter. Risk assets are not limited to stocks only. For example, within the fixed income markets, high yield bonds have returned over 77% in the last 2 years. Compare that to long-term U.S. government bonds which have returned less than 1% over that time period. This all speaks to the important principle of taking a disciplined approach to your investment portfolio through good times and bad and properly diversifying your portfolio in order to take advantage of the entire opportunity set of investments.

As we move further into 2011, investors will want to keep a keen eye on the horizon for any issues that could threaten the sustainability of global economic growth. Some issues have taken up an extended residency on the list of concerns, including: high unemployment, deleveraging pressures, a depressed housing market and massive government deficits at the federal, state and local levels. In addition to these threats, investors should be mindful of a couple of subtle, but important, trends that may be developing as this global economic recovery matures. First, global inflationary pressures are beginning to surface, most notably in food and energy prices. Secondly, after several years of highly coordinated policy-making, we are beginning to see a divergence in monetary policies around the world as some central banks are “tapping the brakes” on economic growth in order to manage economic growth and combat rising prices within their own countries and regions. As we have said before, be prepared to endure market swings as economic growth ebbs and flows in the sea of unpredictable world events. Also, remember that a well-diversified global portfolio that is properly aligned with your investment objectives, your risk tolerance and your time horizon is your best ticket to meeting your investment goals.

You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds, please call 1-888-98-GUIDE (1-888-984-8433) or download a prospectus. You should read the prospectus carefully before investing.

S&P 500® is a trademark of The McGraw-Hill Companies and has been licensed for use by GuideStone Funds. The Equity Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the Equity Index Fund.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.

GuideStone Funds shares are distributed by BNY Mellon Distributors Inc., a registered broker-dealer and underwriter of the funds, 760 Moore Road, King of Prussia, PA 19406. GuideStone Capital Management, a controlled affiliate of GuideStone Financial Resources, serves as the investment adviser to GuideStone Funds.