Mid-cap growth stocks produced good returns in the second quarter. Equities rallied through late June, continuing a rebound that started in mid-February, as central banks in Japan and Europe pushed interest rates into or deeper into negative territory, the dollar weakened due to diminishing expectations for U.S. interest rate increases, and commodity prices rebounded sharply. As the period ended, global markets fluctuated wildly in response to a referendum in which UK citizens voted in favor of leaving the European Union.
The Diversified Mid-Cap Growth Fund returned 1.96% in the quarter compared with 1.56% for the Russell Midcap Growth Index and 2.45% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended June 30, 2016, the fund returned −2.30% versus −2.14% for the Russell Midcap Growth Index and −5.33% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were −2.30%, 9.88%, and 8.32% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.87% as of its fiscal year ended December 31, 2015.
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, particularly in the information technology (IT), consumer discretionary, and consumer staples sectors, helped the fund's relative performance. Sector allocations also helped, especially our underweight to the consumer discretionary sector. We are underweighting the consumer staples sector because many company valuations are extremely high. With some P/E ratios around 25, the sector is currently more expensive than the IT sector, which is unusual. Risk-averse investors have flocked to the consumer staples sector for yield and perceived safety, but our holdings have less of a defensive bias.
World markets have been rallying in anticipation of additional central bank stimulus in hopes of offsetting economic weakness stemming from the UK's recent decision to leave the EU. With benchmark interest rates near or below 0% in many developed countries, however, it would seem that central banks' ability to counter the global economic deceleration is very limited. As a result, we believe that the slow-growth, low total return environment is likely to persist and that investors should expect periodic bouts of volatility. Although broad U.S. corporate earnings growth has been negative for several quarters, there are many mid-cap companies whose earnings are growing. We remain committed to finding and owning quality companies that are growing their earnings steadily but are not too expensive. We believe such companies will stand out in a growth-starved world.