Stocks enjoyed strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. Most of the major stock indexes moved further into record territory before pulling back late in the period. Mid-cap stocks outpaced larger shares but trailed small-caps, while mid-cap growth shares saw bigger gains than their value counterparts.
The Mid-Cap Growth Fund returned 10.41% in the quarter compared with 7.54% for the S&P MidCap 400 Index, 9.34% for the Russell Midcap Growth Index, and 10.12% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended September 30, 2013, the fund returned 29.01% versus 27.68% for the S&P MidCap 400 Index, 27.54% for the Russell Midcap Growth Index, and 26.84% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were 29.01%, 14.73%, and 11.90% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.80% as of its fiscal year ended December 31, 2012.
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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.
Gains in the mid-cap growth universe have lately been concentrated on fast-growing companies in a limited number of segments, such as biotech firms, social media, and software-as service providers, electric car manufacturers, and some higher-end consumer names . Recently, some exploration and production companies in the energy sector were added to the favored list. As our long-term investors are well aware, this growth-at-any-price environment does not accord with our valuation-aware investment approach and focus on long-term gains. While we have shared in the gains, we have been actively trimming back stocks from the portfolio that fall into this valuation-free zone; in most cases, holdings that we added well before the momentum took hold.
We cannot make any firm predictions about when the recent rally will fade although history suggests that the bull market that began several years ago is growing long in the tooth. Along with containing the momentum exposure of the portfolio, we are also seeking to reduce its vulnerability to a cyclical downturn, and we have made a particular effort to trim capital markets holdings that have benefited from the long runup in stock prices. The rancorous showdown in Washington over the budget and debt ceiling is also a real concern, of course, if one that we are less able to manage around. Should policymakers manage to avoid a self-inflicted blow to the recovery, we are optimistic that the economy will continue its slow expansion and offer real, if perhaps more modest, opportunities to long-term investors.