Mid-cap growth stocks produced solid returns in the fourth quarter of 2014, resulting in strong returns for the year. Macroeconomic conditions and corporate fundamentals remained favorable, and companies benefited from extraordinarily low interest rates, falling energy costs, and healthy balance sheets that enabled them to return capital to shareholders or pursue investment opportunities. Long-term interest rates declined, even as the Federal Reserve concluded its monthly asset purchases. We continue to believe that stocks are the best alternative for investors seeking long-term capital appreciation.
The Diversified Mid-Cap Growth Fund returned 6.85% in the quarter compared with 5.84% for the Russell Midcap Growth Index and 5.82% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended December 31, 2014, the fund returned 11.47% versus 11.90% for the Russell Midcap Growth Index and 7.91% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were 11.47%, 16.41%, and 9.11% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 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.
The fund had a great year versus competing mid-cap growth portfolios, thanks to the favorable stock selection made possible by our analysts' rigorous research. Stocks generally rose with earnings in 2014, which is what we would expect to see over the long term. "Steady Eddie" companies with consistent earnings growth had a good year, which fits our style of investing very well. In the fourth quarter, fund performance versus the Russell benchmark was helped by stock selection in the consumer discretionary and information technology sectors and an overweight in health care. Stock selection in health care and financials eroded our performance advantage, as did our consumer staples underweighting. Most consumer staples companies are fairly valued, and some are too expensive.
Despite several years of strong gains, we still think this is a good environment for long-term mid-cap growth investors. The economy and corporate earnings are growing, global central banks remain very accommodative, though the Fed is preparing to raise rates, and equities generally seem reasonably valued. While it is prudent to temper performance expectations after a strong 2014 and nearly six years of significant gains for mid-cap growth stocks, we are by no means bearish. We remain committed to finding and investing in mid-cap growth companies with a demonstrated ability to increase revenues, earnings, and cash flow; high returns on equity; capable managements; and a sustainable competitive advantage.