Stocks rose in the second quarter of 2014, adding to first-quarter gains and lifting many indexes to all-time highs in June. Equities climbed amid signs that the U.S. economy was recovering from a weather-driven contraction in the first quarter and hopes that new stimulus measures in Europe would boost eurozone economies. Corporate merger activity was supportive, and signs of a de-escalation of the crisis in Ukraine were encouraging. Small-caps trailed larger shares, while small-cap value stocks outpaced their growth counterparts. Within the small-cap value universe, energy and utilities stocks performed very well, while information technology shares lagged. Materials, telecommunication services, and consumer staples recorded a loss for the period.
The Small-Cap Value Fund returned 1.51% in the quarter compared with 2.05% for the Russell 2000 Index and 2.57% for the Lipper Small-Cap Core Funds Index. For the 12 months ended June 30, 2014, the fund returned 21.38% versus 23.64% for the Russell 2000 Index and 23.49% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 21.38%, 19.67%, and 10.01% for the 1-, 5-, and 10-year periods, respectively, as of June 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.
Our investment process is premised on the idea that fundamental research, anchored by face-to-face meetings with company management, is critical to uncovering successful investment opportunities. Recently, we have found some compelling opportunities in the energy space, which had fallen out of favor by investors. We prefer names with the opportunity to aid in petroleum extraction and allow for the new wave in liquid natural gas and oil through horizontal drilling, hydraulic fracturing, and other new technologies, as well as the return of offshore drilling in the Gulf of Mexico. Despite our additions, however, the portfolio remains underweight within the sector.
The economy appears to be on firmer footing as we enter the middle of the year. The labor market has improved substantially, and business confidence has increased, as evidenced by the pickup in mergers and acquisitions activity. We are cautiously optimistic that continued loose monetary policy will result in economic expansion and provide a tailwind to stock prices. Nevertheless, the brief but sharp sell-off this spring in highflying segments such as therapeutics-oriented biotechnology firms, software-as-a-service providers, and certain social media stocks served as a reminder of the importance of maintaining a valuation discipline. This may be particularly true among small-caps, where valuations are generally less attractive than among larger shares.