Stocks recorded stellar gains in the fourth quarter, bringing most of the major indexes to record highs. Health care and materials stocks were strongest within the Russell 2000 Value Index, while energy and consumer staples shares lagged. Small-cap stocks surrendered market leadership to large-caps for the quarter but ended with generally stronger gains for the year, while small-cap value stocks outpaced their growth counterparts for the quarter but lagged substantially for the year as a whole.
The Small-Cap Value Fund returned 9.74% in the quarter compared with 8.72% for the Russell 2000 Index and 8.80% for the Lipper Small-Cap Core Funds Index. For the 12 months ended December 31, 2013, the fund returned 32.74% versus 38.82% for the Russell 2000 Index and 36.13% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 32.74%, 19.81%, and 10.83% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.98% as of its fiscal year ended December 31, 2012.
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.
We saw good results in the quarter from the portfolio's extensive investments in the industrials sector. A significant overweight in this sector is primarily a residual effect of bottom-up analysis, but we are encouraged by the early signs of a resurgence in American manufacturing and what that could mean for a range of industrials firms. The portfolio's overweight in materials detracted from returns relative to the benchmark. While inflation fears have diminished recently, we believe metals stocks will prove a useful hedge against inflation over the long term.
2013 was a great year for U.S. equity investors, and because of that, valuations are no longer cheap by most measures. Add in a robust initial public offering market, speculative activity in technology and biopharmaceutical stocks, and the heating up of merger activity, and we think the caution light has gone on for investors. Our outlook for the U.S. economy is more positive. We think interest rates may rise some in 2014, but not enough to greatly threaten stock prices. In terms of our asset class, small-caps appear somewhat expensive relative to large-caps. We do not believe that small-cap investors should run for the exits, but we would urge shareholders, as we have several times over the years, to take a look at their portfolios to determine if some rebalancing is in order.