Stocks recorded solid gains in the final quarter of the year, helping reverse the previous quarter's slide and pushing large-cap benchmarks back into positive territory for 2015 on a total return (including dividends) basis. Most of the rebound occurred in the first month of the quarter. Stocks were also volatile in the closing weeks of the year as terrorist attacks, geopolitical instability, and uncertainty over monetary policies periodically took tolls on sentiment. Small-caps trailed large-caps, and small-cap value share trailed their growth counterparts.
The Small-Cap Value Fund returned 3.22% in the quarter compared with 3.59% for the Russell 2000 Index and 2.80% for the Lipper Small-Cap Core Funds Index. For the 12 months ended December 31, 2015, the fund returned −4.70% versus −4.41% for the Russell 2000 Index and −4.23% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were −4.70%, 8.20%, and 6.92% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.96% as of its fiscal year ended December 31, 2014.
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.
In recent months, we have reduced our sector bets and structured the portfolio in a way that will allow us to exploit our careful fundamental research to find the best opportunities in any given segment. Indeed, we saw favorable results overall from our stock selection, with particularly good relative results in the materials and industrials and business services sectors. The one area in which the portfolio remains substantially underweight is the financials sector, which forms over 40% of the Russell 2000 Value Index. This weighed on returns as financials performed somewhat better than the overall market.
2015 continued a several-year pattern of small-cap growth outperforming small-cap value. While it is far from clear that this pattern will reverse in 2016, small-cap value shares seem likely to hold up better in a downturn if equity market recent weakness continues. The large weightings of traditionally defensive real estate investment trusts (REITs) and utilities in the small-cap value benchmark may provide some downside protection. That said, our outlook for 2016 is not particularly bearish, as the U.S. economy appears poised to weather slowly rising interest rates and overseas weakness. More importantly, we believe all sorts of market environments offer long-term opportunities to patient value investors, as firms can be mispriced for a number of reasons, including poor overall market sentiment, industry-specific challenges, or temporary missteps that can be righted by improved management.