Mid-cap growth stocks produced moderate returns in the second quarter and in the first half of 2014, adding to last year's brisk gains. Corporate earnings growth remained positive, merger and acquisition activity picked up, and the extraordinary low interest rate environment persisted. Market volatility levels were quite low. There are emerging pockets of speculation, for example, initial public offering activity has increased sharply, and the quality of companies coming to market has deteriorated, which suggest that investors should have a healthy dose of caution in the near term.
The Diversified Mid-Cap Growth Fund returned 2.45% in the quarter compared with 4.37% for the Russell Midcap Growth Index and 2.89% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended June 30, 2014, the fund returned 24.42% versus 26.04% for the Russell Midcap Growth Index and 24.62% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were 24.42%, 20.05%, and 9.15% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.91% 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.
Our underperformance versus Russell was primarily due to our stock selection in various sectors. As our longer-term investors know, we prefer to own stocks of companies that consistently produce solid earnings growth over time and have reasonable valuations and relatively low earnings variability. While our investments may not be as flashy as headline-grabbing "momentum" stocks that sometimes seem to rise relentlessly, we do not believe it would be prudent to abandon a solid long-term strategy of investing in good (but often unexciting) businesses in favor of chasing high-flying stocks that have an increasingly unfavorable risk/reward trade-off.
While the environment for long-term equity investing generally remains favorable, especially in comparison with fixed income alternatives, we encourage investors to be cautious about expected returns. Rather than "chase performance" or seek out trendy investments that may ultimately disappoint, we believe investors should maintain a diversified portfolio of companies with good long-term business prospects that trade at reasonable valuations, keep performance expectations in check, and wait patiently for sustainable gains to accumulate over time.