Stocks recorded strong returns for the quarter, but markets were volatile after a period of relatively stable gains. After enduring some of their largest daily declines in over two years, most of the major benchmarks were able to reach new highs shortly before the end of the year. Breaking with the pattern for the year as a whole, small-caps performed best for the quarter. Small-cap value stocks slightly lagged their growth counterparts. Health care, utilities, and consumer staples shares performed best within the small-cap value universe, while energy shares fell sharply.
The Small-Cap Value Fund returned 6.86% in the quarter compared with 9.73% for the Russell 2000 Index and 7.68% for the Lipper Small-Cap Core Funds Index. For the 12 months ended December 31, 2014, the fund returned 0.14% versus 4.89% for the Russell 2000 Index and 4.09% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 0.14%, 14.27%, and 8.34% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.96% 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 Small-Cap Value Fund charges a 1%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The portfolio is significantly underweight in the financials sector, which makes up over 40% of the benchmark. We have been adding to most areas within the sector recently, however, as fundamentals have improved for this often volatile segment. Conversely, the portfolio is underweight the energy sector, which has lately come under a cloud due to the decline in oil prices. We are monitoring for situations where valuations balance the extreme risk in the space ahead, and will continue to pursue these opportunities. However, we are also mindful of exposure to the sector through holdings, such as industrials firms, that depend on energy end markets.
As with the plunge in oil prices, the surprising decline in long-term interest rates in recent months has had a large impact on small-cap value shares, although a positive one. Financials stocks, and real estate investment trusts (REITs), in particular, have enjoyed a substantial tailwind from the decline in Treasury yields, as have utilities shares. While the portfolio's underweight in financials and utilities and overweight in industrials has weighed on relative performance in recent months, we do not believe now is the time to shift gears in anticipation that either trend will continue. As it has for well over two decades, our focus remains on long-term performance, and we believe a contrarian approach will ultimately best serve the interests of unitholders.