U.S. stocks posted decent gains in the first quarter of 2014. Shares fell in January as the Federal Reserve began to taper its monthly asset purchases but rebounded strongly in February amid favorable U.S. economic data and good corporate earnings. Equities gave back some ground in March, despite positive U.S. economic data, with investors keeping a wary eye on Fed policy, geopolitical tensions in Ukraine, and renewed signs of an economic slowdown in China. Mid-cap shares outperformed their larger and smaller counterparts, and value stocks outpaced growth stocks across all market capitalizations, according to various Russell indexes.
The Tax-Efficient Equity Fund returned −0.25% in the quarter compared with 1.07% for the Russell 3000 Growth Index and 1.70% for the Lipper Multi-Cap Growth Funds Index. For the 12 months ended March 31, 2014, the fund returned 23.76% versus 23.53% for the Russell 3000 Growth Index and 26.48% for the Lipper Multi-Cap Growth Funds Index. The fund's average annual total returns were 23.76%, 22.07%, and 7.81% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.98% as of its fiscal year ended February 28, 2013.
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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 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.
Portfolio performance was mixed across sectors. Our health care and materials stocks outpaced the broader market with good returns. Positions in consumer staples and energy posted more modest gains. The fund's consumer discretionary, industrials and business services, and information technology shares declined. Health care is one of our larger positions and our biggest overweight relative to the benchmark. Health care is among the more attractive of the traditional defensive sectors, and, consistent with our position in information technology, we are focused on service providers that should benefit from growing demand as the economy strengthens. We are less optimistic about consumer staples, where our positions are focused on specialty food retailers, drug retailers, and food and beverage companies with strong brands that we have owned for several years.
The U.S. economy should continue to grow modestly in 2014, supported by broadly accommodative monetary policy despite Fed tapering, improvements in the housing and labor markets, decent consumer spending, and muted inflation. Although we do not expect a repeat of 2013's outsized gains, we remain optimistic about the environment for equities. Economic improvements should support corporate revenues and earnings, while stock valuations remain reasonable despite recent strong performance. We could see pockets of volatility, however, sparked by geopolitical events or monetary policy uncertainty. We believe the current environment continues to provide patient investors willing to take prudent risks with a great opportunity to invest in equities for long-term capital growth.