Stocks enjoyed strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. Most of the major stock indexes moved further into record territory before pulling back late in the period. Small-cap stocks, which typically see bigger price swings than large-caps, fared particularly well. Global technology stocks were strong and modestly outperformed the broader market, with especially good returns from Internet media and consumer electronics firms.
The Global Technology Fund returned 15.00% in the quarter compared with 8.73% for the MSCI All Country World Index Information Technology and 12.60% for the Lipper Global Science / Technology Funds Index. For the 12 months ended September 30, 2013, the fund returned 22.50% versus 11.75% for the MSCI All Country World Index Information Technology and 20.96% for the Lipper Global Science / Technology Funds Index. The fund's average annual total returns were 22.50%, 19.20%, and 12.14% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.97% as of its fiscal year ended December 31, 2012.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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We are overweight in the software sector and prefer companies with unique intellectual property and strong market positions. Cloud software companies have performed well, however, and we are mindful that the valuation for certain companies may be extended, making distinguishing the durable longer-term winners especially important. Conversely, we currently have very little exposure to IT services, resulting in our significant underweight in this sector. We believe it is a secularly challenged business, as companies are rapidly moving toward cloud-based software that requires less implementation work than traditional large, complex installations at each customer's premises.
While underlying economies are faring well, equities have far outpaced fundamentals as investors have anticipated future profits. Pockets of speculation have persisted in this narrow market, and we are cautious given the tremendous runup during the past several quarters. We believe sentiment can only drive share prices so far, meaning stock-specific drivers are likely to become more important going forward. While our outlook on the market is a bit more subdued, we remain optimistic on technology investing. Our portfolio bets are spread across multiple subsectors and regions, backed by names with solid fundamentals and company-specific catalysts.