U.S. equities enjoyed strong gains in the third quarter of 2013 as continued monetary stimulus and signs of a global economic rebound outweighed concerns about slowing corporate profit growth. The Federal Reserve bolstered investor sentiment early in the quarter by quelling worries that it would soon increase short-term interest rates. Markets peaked in mid-September after the Fed unexpectedly delayed tapering its asset purchase program. Stocks also received a boost from signs that the eurozone recession had ended and that emerging market economies seemed to be regaining traction. Markets fell in the period's closing weeks, however, due to concerns about the underlying strength of the U.S. recovery and a looming budget stalemate in Washington. Small- and mid-cap stocks outpaced large caps, while growth stocks outperformed value across all market capitalizations.
The Tax-Efficient Equity Fund returned 10.15% in the quarter compared with 8.48% for the Russell 3000 Growth Index and 10.13% for the Lipper Multi-Cap Growth Funds Index. For the 12 months ended September 30, 2013, the fund returned 23.24% versus 20.30% for the Russell 3000 Growth Index and 24.08% for the Lipper Multi-Cap Growth Funds Index. The fund's average annual total returns were 23.24%, 11.97%, and 8.42% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.98% as of its fiscal year ended February 28, 2013.
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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 Tax-Efficient Equity Fund charges a 1%
redemption fee on shares held less than 365 days.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
At the end of the period, the fund's largest sector allocations were information technology, consumer discretionary, health care, and industrials and business services. Our smallest allocations were to materials, telecommunication services, and utilities, which are sectors that traditionally do not have many of the growth-oriented stocks favored by our investment approach. Our health care shares were strong performance contributors for the period. Health care remains a challenging sector in which to invest, but we have found good long-term opportunities in biotech companies. Health care providers and service companies continue to be an area of focus due to favorable demographic trends and growing demand for health care services. IT is our largest sector allocation because of the high number of companies with attractive long-term growth potential, but we have a significant underweight versus our benchmark.
We expect modest U.S. economic growth over the next several quarters, supporting by the continued recovery of the domestic housing market, moderate employment growth, and muted inflation. Although the Fed will likely begin to taper its asset purchase program in coming months, we expect overall monetary policy to remain accommodative for some time. Partisan budget battles in Washington could weigh on growth. In light of the stock market's substantial gains over the last year, equity investors should not be surprised to see a period of milder returns, though we do not believe this is the time to be risk averse. Over the long term, the environment for equity investing should remain favorable for patient investors who are willing to take prudent risks. On the other hand, bond investors should be prepared for negative returns as interest rates return to more normal levels in the years ahead.