U.S. mid-cap stocks advanced in the final quarter of 2015 but ended the year down slightly more than 2%. Volatility surged near year-end as signs of China's economic slowdown mounted, commodities prices plunged, and investors braced for tighter U.S. monetary policy. The U.S. economic outlook remained bright enough for the Federal Reserve to raise the benchmark fed funds rate on December 16, its first rate hike after seven years of near-zero rates. Sector returns were mostly positive in the Russell Midcap Value Index, led by information technology. Energy stocks fared the worst as oil prices kept dropping. Value stocks trailed growth in the mid-cap universe, extending a streak of underperformance in 2015, according to various Russell indexes.
The Mid-Cap Value Fund returned 3.21% in the quarter compared with 3.12% for the Russell Midcap Value Index, and 2.21% for the Lipper Mid-Cap Value Funds Index 3.76% for the Lipper Multi-Cap Value Funds Index. For the 12 months ended December 31, 2015, the fund returned −3.41% versus −4.78% for the Russell Midcap Value Index, and −5.01% for the Lipper Mid-Cap Value Funds Index −4.53% for the Lipper Multi-Cap Value Funds Index. The fund's average annual total returns were −3.41%, 9.86%, and 8.02% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. 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 portfolio's strategy is to buy and hold good 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. As of December 31, 2015, consumer discretionary was the biggest overweight, followed by materials. In the discretionary sector, we have found several attractively valued, durable franchises with strong market positions in the media industry, which is undergoing disruption as content moves online. In materials, we have exposure to the metals and mining, construction materials, and paper and forest products industries. However, we have been net sellers in the materials sector in recent months. Information technology was the portfolio's biggest underweight sector, followed by energy. Despite the past year's drop in oil prices, we have lately increased our exposure in energy companies with the ability to withstand a sustained downturn and whose valuations fell to compelling levels.
Mid-cap stock valuations remain elevated even after declining in 2015, while stock market volatility has increased in recent quarters. We have used risk-off periods to initiate positions in select financials and health care companies while adding to existing positions in energy and consumer staples. We look forward to taking advantage of the heightened market volatility, which has lately created more opportunities to buy high-quality companies at cheaper prices. The recent rise in shareholder activism and corporate takeovers has had a positive impact on several of our holdings. Because we focus on identifying undervalued or underperforming assets, some of our holdings are bound to draw the notice of acquisition-hungry companies or activist shareholders.