Stocks recorded very strong gains in the final quarter, and media shares performed even better than the overall market. Telecommunication services stocks lagged a bit but also recorded good gains. Investors were encouraged by good economic data and signs that monetary policy would remain stimulative for some time to come.
The Media & Telecommunications Fund returned 10.57% in the quarter compared with 9.80% for the Lipper Telecommunication Funds Average. For the 12 months ended December 31, 2013, the fund returned 40.78% versus 27.87% for the Lipper Telecommunication Funds Average. The fund's average annual total returns were 40.78%, 29.83%, and 16.53% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.81% as of its fiscal year ended December 31, 2012. Investors should note that the fund's short-term performance is highly unusual and unlikely to be sustained.
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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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Media represents more than half of the portfolio and a significant overweight relative to the benchmark. The fund continues to have the vast majority of its sector exposure in the Internet media, media and entertainment, Internet e-commerce, and cable/satellite industries. During the quarter, we trimmed our exposure to media and entertainment and moved some of the proceeds into Internet media and Internet e-commerce. Conversely, we are significantly underweight relative to our peers in the telecommunication services sector. We are considerably underweight relative to the benchmark but continue to take notice of the growth of mobile communication in both emerging markets and North America, where the wireless tower infrastructure continues its build-out.
Valuations in our area of the market have expanded considerably, and a contraction in price-to-earnings multiples is possible in 2014, even if the global economy remains on track. Further, when large opportunity exists and confidence levels are high it often leads companies to invest more aggressively. While this can be the proper decision for the long-term, it can also cause volatility in stock performance in the interim. We remain optimistic about fundamentals in the sector, however. Earnings performance by media and telecommunications companies has been largely favorable, despite the slow pace of growth in the global economy. Many companies in our investment universe have proven resilient in the face of numerous challenges and have improved their balance sheets over the past several years.