Mid- and small-cap shares stumbled during the third quarter amid concerns about above-average valuations following several years of robust returns. Major large-cap indexes ground their way to several all-time highs during the period, despite ongoing geopolitical tensions in the Middle East and Ukraine and the Fed's tapering of its asset purchase program. The advance was supported by generally favorable U.S. economic data and broadly positive corporate revenues and earnings reports.
The Extended Equity Market Index Fund returned −4.90% in the quarter compared with −4.81% for the S&P Completion Index and −3.33% for the Lipper Mid-Cap Core Funds Index. For the 12 months ended September 30, 2014, the fund returned 9.40% versus 9.66% for the S&P Completion Index and 12.48% for the Lipper Mid-Cap Core Funds Index. The fund's average annual total returns were 9.40%, 16.47%, and 9.96% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.45% as of its fiscal year ended December 31, 2013.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Extended Equity Market Index Fund charges a 0.5%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The portfolio tracks the Standard & Poor's Completion Index, which offers investors exposure to small- and mid-cap U.S. stocks. The health care sector produced a small positive return. All other sectors declined, with consumer staples, consumer discretionary, financials, and information technology outpacing the index. The telecommunication services sector was flat while the materials, industrials and business services, and consumer staples sectors underperformed. However, the energy sector suffered the steepest decline as oil prices fell and supply disruption fears were not realized.
We anticipate moderate U.S. economic growth and low inflation in the months ahead. Interest rates are likely to rise next year, but we believe they will occur at a modest pace, which would not derail our long-term growth projections. We believe that stock performance will likely track corporate earnings growth. In our view, price/earnings multiples-or how much investors are willing to pay for a dollar of those earnings are neither overly expensive nor undervalued at this time. However, on a relative and historical basis small-cap stocks appear expensive compared with large-caps. While we do not make investment decisions based on market forecasts or the prospects for individual companies, we would not be surprised to see a 10% to 15% correction after a multiyear stretch without one.