Large-cap U.S. stocks fell sharply in the third quarter amid worries about a China-led global economic slowdown and concerns about the timing, pace, and wider impact of looming Federal Reserve interest rate hikes. Energy and materials stocks, many of which are closely tied to slowing Chinese demand and a stronger U.S. dollar, were particularly weak. The decline dragged 12-month returns into negative territory despite signs of modest U.S. economic growth, including improvements in business and consumer spending, employment, and wages. Corporate balance sheets and cash flows remain generally healthy outside energy-related sectors.
The Tax-Efficient Equity Fund returned −6.34% in the quarter compared with −5.93% for the Russell 3000 Growth Index and −7.83% for the Lipper Multi-Cap Growth Funds Index. For the 12 months ended September 30, 2015, the fund returned 5.98% versus 3.21% for the Russell 3000 Growth Index and 2.21% for the Lipper Multi-Cap Growth Funds Index. The fund's average annual total returns were 5.98%, 13.86%, and 7.66% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.87% as of its fiscal year ended February 28, 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.
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. We had relatively small allocations to materials and energy, which are sectors that traditionally do not have many of the growth-oriented companies that are the focus of our investment approach. Our exposure to these sectors is focused on differentiated service companies and low-cost producers with strong balance sheets. We believe that our holdings are reasonably well positioned to endure the current commodity price downturn and emerge in a stronger competitive position once prices normalize.
Although we are not bearish on the equity market, we are not especially enthusiastic about the near-term prospects for stocks. Shares have appreciated significantly over the last six years and rewarded investors who have stayed the course, but valuations are now above long-term averages. Also, corporate earnings growth has moderated as the expansion has aged, so investment gains in the years ahead are likely to be less robust than what we have seen thus far in the current market cycle. Still, stocks have dramatically better long-term prospects than bonds. Whether the market rises, falls, or stays flat, we will use our proprietary global research platform to identify attractive investment opportunities.