The U.S. economic expansion was largely unfazed by the global financial market turmoil during the summer, and domestic stocks rebounded in the fourth quarter. Mid-caps lagged large-cap shares, but growth stocks outperformed value in the mid-cap universe. While inflation has been very low and is likely to remain low in the near term due to declining oil and other commodity prices, Federal Reserve officials decided to raise short-term rates on December 16 because of labor market improvement and their confidence that inflation will return to 2% over the medium term.
The Diversified Mid-Cap Growth Fund returned 4.83% in the quarter compared with 4.12% for the Russell Midcap Growth Index and 3.40% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended December 31, 2015, the fund returned 2.06% versus −0.20% for the Russell Midcap Growth Index and −0.96% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were 2.06%, 11.27%, and 8.32% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.89% as of its fiscal year ended December 31, 2014.
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.
Stock selection in the health care, information technology, and materials sectors helped the fund's performance versus the Russell index. Stock selection in the energy sector, although a very small part of the fund and the benchmark, was also a big contributor, as our holdings outperformed those in the index. Sector allocations had a marginal negative impact on our relative performance. While our mid-cap holdings may not always be exciting or high-profile businesses, we believe they are steady, reliable growth companies that have many desirable attributes and can be held for long periods.
Stocks have had a rough start in 2016, as last year's global growth concerns seem to have intensified. Given today's modest growth and fair valuations, it is reasonable to expect equity market returns in the years ahead to be lower than historical norms. We believe that, in a slow-growth world, the market will be more discerning of corporate earnings and fundamentals. This should be good for our strategy and our relative performance, given our focus on quality companies with a demonstrated ability to increase revenues, earnings, and cash flow consistently; capable management; attractive business niches; and a sustainable competitive advantage.