U.S. stocks posted good gains in the second quarter of 2014 despite an uncertain geopolitical and economic environment. Downside concerns included violence in Crimea and Ukraine, slowing growth in China, sectarian strife in Iraq, and disappointing first-quarter U.S. economic data. Investor sentiment overcame these concerns amid signs of recovery from the first quarter's economic contraction, while improved corporate merger and acquisition activity was also supportive. Federal Reserve monetary policy remained broadly accommodative despite continued tapering of its asset purchase program. Large-cap stocks outperformed their mid- and small-cap peers. Growth shares outpaced value in the large-cap space but trailed in the mid- and small-cap arenas.
The Tax-Efficient Equity Fund returned 2.77% in the quarter compared with 4.86% for the Russell 3000 Growth Index and 3.39% for the Lipper Multi-Cap Growth Funds Index. For the 12 months ended June 30, 2014, the fund returned 24.29% versus 26.75% for the Russell 3000 Growth Index and 27.30% for the Lipper Multi-Cap Growth Funds Index. The fund's average annual total returns were 24.29%, 18.86%, and 7.81% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.89% as of its fiscal year ended February 28, 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.
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.
Portfolio performance was positive across sectors. Energy and materials stocks were among our top-performing sectors and outpaced the broader market with strong returns. Small positions in telecommunication services and utilities also recorded good gains. Consumer discretionary, financials, and information technology saw modest gains but underperformed the broader market. We are underweight information technology versus the benchmark. However, it remains our largest sector allocation due to the high number of companies with attractive long-term growth potential. Health care is among the more attractive of the traditional defensive sectors, and we are focused on service providers that should benefit from growing demand as the economy strengthens.
The U.S. economy should continue to grow modestly in 2014, supported by broadly accommodative monetary policy despite Fed tapering, improvements in the housing and labor markets, decent consumer spending, and muted inflation. Given the disparity between recent returns and the relatively modest pace of earnings growth for many companies, however, equity valuations have become less attractive, and companies will need to deliver solid earnings and revenue growth to justify further gains. Bottom-up research and careful stock selection will be essential as fundamental factors like earnings growth and cash flow become more important in assessing the health of companies and the economy. We believe the current environment continues to provide patient investors willing to take prudent risks with a great opportunity to invest in equities for long-term capital growth.