Small-cap stocks performed well in the quarter and reached record highs in mid-March. Reversing the pattern of 2014, small-caps outperformed large-caps, helped in part by their lower exposure to foreign markets, which have become more challenging for U.S. firms because of the strong U.S. dollar. Small-cap value stocks trailed their growth counterparts considerably, however. Health care shares performed best among small-cap value shares, while energy stocks fell sharply and were the only segment to record a loss for the period.
The Small-Cap Value Fund returned 1.13% in the quarter compared with 4.32% for the Russell 2000 Index and 3.75% for the Lipper Small-Cap Core Funds Index. For the 12 months ended March 31, 2015, the fund returned 0.32% versus 8.21% for the Russell 2000 Index and 6.70% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 0.32%, 12.83%, and 8.77% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.96% as of its fiscal year ended December 31, 2013.
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 Small-Cap Value Fund charges a 1%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
A notable development among small-caps over recent months has been the stellar performance of biotechnology stocks, which also partly explains why small-cap value shares have lagged their growth counterparts. We acknowledge that some of these companies are making remarkable advances, and we gain excellent insight on them from the firm's extensive team of health care analysts. Nevertheless, it appears clear that the segment is in the midst of a speculative bubble, fed by abundant seed money from venture capital firms and a frothy initial public offering market. Bubbles can keep expanding for some time, however, and small-cap value shares may continue to lag in the coming months. When the bubble does pop, we will view it as an opportunity to deploy our careful fundamental research and contrarian approach in an effort to find bargains in the segment.
It is unclear when the Federal Reserve will begin raising short-term interest rates, but when it does occur, we expect that it will have wide-ranging but disparate effects on the financials stocks that are a large part of the portfolio's investment universe. Banks should benefit from an increase in rates and widening loan spreads, but real estate investment trusts are likely to feel a substantial pinch. Similarly, the dramatic decline in oil prices last year benefited some of the portfolio's consumer holdings while weighing heavily on its relatively modest energy positions and weakening some of its more prominent industrials holdings. Recent stabilization in the oil patch has brightened the prospects of energy companies, and our bottom-up research has led to increased or new positions in the sector, particularly in services firms.