Although the large-cap benchmarks managed modest gains for the quarter, mid-caps recorded losses, and small-caps saw sharp declines. The weakness in smaller-caps reflected a general rise in risk aversion among investors, who worried about slowing growth and turmoil overseas, an appreciating U.S. dollar, the possibility of a change in Federal Reserve policy, and other threats. Telecommunication services stocks outperformed the broader market within the large-cap S&P 500 Index, but many segments of the Lipper Media and Telecommunications Index performed poorly.
The Media & Telecommunications Fund returned −0.04% in the quarter compared with −2.57% for the Lipper Telecommunication Funds Average. For the 12 months ended September 30, 2014, the fund returned 14.22% versus 9.24% for the Lipper Telecommunication Funds Average. The fund's average annual total returns were 14.22%, 19.72%, and 16.14% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.80% as of its fiscal year ended December 31, 2013.
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 telecommunication services sector represents about one quarter of the portfolio but well over half of the index. Our considerable underweight is driven by a challenging telecom environment, as operators in most markets are facing either regulatory or competitive issues. Within the sector, we have a sizable investment in cellular tower companies given the ongoing 3G to 4G wireless technology transition and rapidly growing wireless demand for games, music, and video services. Conversely, media represents nearly two-thirds of the portfolio and a significant overweight relative to the benchmark. The portfolio continues to have the vast majority of its exposure to the sector in the Internet media, media and entertainment, cable/satellite, and Internet e-commerce industries.
Although the sharp swings in sentiment in 2014 have periodically taken us by surprise, the market has largely performed over the year as we thought it would, with stocks seeing modest gains fed by earnings growth rather than multiple (P/E) expansion. Lately, the market has become somewhat more unsettled than it was at midyear, which has once again resulted in more attractive valuations in certain segments. While the direction of the overall economy in coming months is likely to affect the multiples at which our holdings trade, we are confident that the fundamentals of our core positions will remain intact.