U.S. equities rebounded from third-quarter losses with good fourth-quarter gains. Corporate earnings proved to be better than many had initially expected, and U.S. economic and employment growth were solid despite tepid or slowing expansion in other parts of the world. Corporate merger activity and anticipation of additional stimulus measures in Europe were also supportive. The Federal Reserve began to raise short-term interest rates in mid-December, but this widely expected move did not derail the broad equity market, nor did continued commodity price weakness. Large-cap shares outperformed small- and mid-caps for the quarter, and growth stocks outperformed value stocks across all market capitalizations.
The Tax-Efficient Equity Fund returned 6.62% in the quarter compared with 7.09% for the Russell 3000 Growth Index and 6.06% for the Lipper Multi-Cap Growth Funds Index. For the 12 months ended December 31, 2015, the fund returned 6.32% versus 5.09% for the Russell 3000 Growth Index and 3.09% for the Lipper Multi-Cap Growth Funds Index. The fund's average annual total returns were 6.32%, 12.52%, and 8.00% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.87% as of its fiscal year ended February 28, 2015.
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 Tax-Efficient Equity Fund charges a 1%
redemption fee on shares held less than 365 days.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
A modest exposure to the materials sector generated the portfolio's largest absolute gains for the period, helped by a focus on chemical companies that stand to benefit from low input costs resulting from ongoing weakness in global commodities prices. Our information technology (IT) holdings also recorded double-digit gains, with IT software and services names among the biggest contributors. Energy was the portfolio's only sector exposure to lose ground for the period, but our holdings significantly outpaced their counterparts in the benchmark index.
Although we are not bearish on the equity market, we are not especially enthusiastic about the near-term prospects for stocks. Shares have appreciated significantly over the last six years and rewarded investors who have stayed the course, but valuations are now above long-term averages. Also, corporate earnings growth has moderated as the expansion has aged, so investment gains in the years ahead are likely to be less robust than what we have seen thus far in the current market cycle. Still, stocks have dramatically better long-term prospects than bonds. Whether the market rises, falls, or stays flat, we will use our proprietary global research platform to identify attractive investment opportunities.