Although the large-cap benchmarks managed modest gains for the quarter, the smaller-cap indexes fared much worse. The weakness in small-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. Small-cap value shares lagged their growth counterparts and performed worst among all major equity categories. Energy stocks recorded the biggest losses among small-cap value shares, as oil prices fell sharply. Industrials, utilities, and consumer discretionary shares were also particularly weak.
The Small-Cap Value Fund returned −8.56% in the quarter compared with −7.36% for the Russell 2000 Index and −6.89% for the Lipper Small-Cap Core Funds Index. For the 12 months ended September 30, 2014, the fund returned 2.83% versus 3.93% for the Russell 2000 Index and 5.18% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 2.83%, 13.90%, and 8.89% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 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.
We strive to maintain a widely diversified portfolio, and we added to holdings in a range of sectors in the period. Although we believe that oil and gas prices will remain under pressure as domestic energy supplies expand, we recently added several companies to the portfolio that are favorably positioned in unconventional drilling operations. The portfolio is significantly underweight in the financials sector, which represents nearly 40% of the benchmark, but we believe some banks offer good values and are poised to benefit from an eventual increase in interest rates.
We have not been surprised to see the underperformance of small-caps in recent months. Small-cap valuations had also grown extended relative to large-caps, and it may take some further underperformance by small-caps for the relative valuations of the two asset classes to resume their typical patterns. Somewhat more surprising has been the continued trailing performance of value stocks, as these typically fare better than their growth counterparts in a down market, but we caution that some perseverance may be warranted here as well. While value stocks have lagged growth shares for several years now, they are still somewhat expensive on a relative basis. Despite this generally challenging environment for our asset class, we continue to find many attractive opportunities among companies poised to enjoy better business conditions. We are investing across a range of industries, and a patient and long-term approach will remain the hallmark of our strategy.