U.S. mid-cap stocks advanced in the first quarter of 2016 as gains in the quarter's second half outweighed earlier losses. U.S. stocks followed global markets lower in the first six weeks of the year as investors reacted to poor manufacturing data out of China and a renewed decline in crude oil prices, which touched a 13-year low in February. Starting in mid-February, stocks recovered as oil prices climbed on speculation that oil-producing countries might agree to freeze or even cut output. Sentiment improved after the Federal Reserve left short-term interest rates unchanged at its March policy meeting and signaled a slower-than-expected pace of rate increases this year. Most sectors in the Russell Midcap Value Index posted positive returns, led by utilities, but health care and financials stocks declined. Value stocks exceeded growth across all market capitalizations.
The Mid-Cap Value Fund returned 6.46% in the quarter compared with 3.92% for the Russell Midcap Value Index, and 3.25% for the Lipper Mid-Cap Value Funds Index1.08% for the Lipper Multi-Cap Value Funds Index. For the 12 months ended March 31, 2016, the fund returned −0.05% versus −3.39% for the Russell Midcap Value Index, and −4.57% for the Lipper Mid-Cap Value Funds Index−4.69% for the Lipper Multi-Cap Value Funds Index. The fund's average annual total returns were −0.05%, 10.00%, and 8.07% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.80% as of its fiscal year ended December 31, 2014.
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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.
The fund's strategy is to buy and hold fundamentally solid companies whose shares are trading below their intrinsic value. These companies typically have fallen out of favor due to setbacks that we think are more solvable and transient than the market believes. Consumer staples was the biggest overweight at quarter-end, followed by health care and materials. Consumer staples is a sector offering up attractive valuations, and our holdings are mostly in the food products and food and staples retailing industries. In health care, we have added to positions in health care equipment and supplies and in biotechnology, whose recent sell-off has created some compelling buying opportunities. In materials, we have exposure to the metals and mining, construction materials, and chemicals industries. Utilities was the largest underweight sector, followed by financials.
Major U.S. stock indexes ended a turbulent quarter little changed. The elevated market volatility of the past three months has created a more fertile ground for stock picking than we have seen in a long time. We took advantage of bouts of uncertainty to add to our existing holdings and to initiate positions in petroleum exploration and production, biotechnology, independent power, and financial services. Headwinds to the global growth outlook include China's ability to manage its slowdown, fragile economies and negative interest rates in Europe, and a weakening credit cycle in the U.S. These sources of uncertainty show little sign of resolution in the near term. We look forward to taking advantage of periodic market volatility to buy our preferred investments at cheaper prices.