U.S. equities posted strong gains in the first quarter, with several indexes hitting multiyear highs. Stocks advanced despite domestic fiscal uncertainty and eurozone instability as the U.S. economic recovery continued to grind ahead, buoyed by improvements in the housing and employment markets. The Federal Reserve's accommodative monetary policy and heightened merger and acquisition activity provided further support. The positive sentiment was tempered by concerns about higher taxes and budget sequester in the U.S., while an Italian election stalemate and a controversial bank deposit tax in Cyprus highlighted the eurozone's ongoing challenges. The traditionally defensive health care, consumer staples, and utilities sectors fared best, while materials and information technology (IT) shares lagged. Mid- and small-cap shares outpaced large-caps, although all ranges gained.
The Tax-Efficient Equity Fund returned 9.19% in the quarter compared with 9.82% for the Russell 3000 Growth Index and 11.62% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended March 31, 2013, the fund returned 8.84% versus 10.42% for the Russell 3000 Growth Index and 10.05% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were 8.84%, 6.53%, and 9.57% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 1.03% as of its fiscal year ended February 29, 2012.
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 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.
Benchmark Definitions
Our industrials and business services stocks were strong during the period, and we remain overweight the sector versus our benchmark. While industrial firms' earnings vary widely due to the cyclical nature of their businesses, we believe that our emphasis on higher-quality, market-leading companies can provide greater earnings stability throughout a full business cycle. Our health care stocks were also solidly positive. We maintain a slight underweight relative to our benchmark. Health care remains a challenging sector in which to invest, given that innovation is difficult, expensive, and increasingly unaffordable. Still, the sector features some good long-term investment opportunities. IT remains our largest sector allocation due to the high number of companies with attractive long-term growth potential.
We continue to position the portfolio for modest economic growth in 2013, supported by accommodative monetary policy and recent improvements in the housing and employment markets. The environment for equities still appears generally favorable. Corporate balance sheets are in outstanding condition, and recent tax hikes on capital gains and dividend income were not as significant as some had anticipated. Stock valuations remain reasonable relative to fixed income and cash alternatives. Regardless of prevailing tax policies or the economic environment, our investment approach remains the same: We look to buy and hold attractively valued companies with consistent earnings growth, capable managements, and favorable business niches with sustainable competitive advantages.
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