Stocks recorded modest overall gains in the second quarter, but only after enduring significant volatility at the end of the period. Small-cap value stocks outperformed their growth counterparts but trailed large-cap value shares. Materials, utilities, and telecommunication services stocks were particularly strong within the small-cap value benchmark.
The Small-Cap Value Fund - I Class returned 4.22% in the quarter compared with 4.31% for the Russell 2000 Value Index and 2.82% for the Lipper Small-Cap Core Funds Index. For the 12 months ended June 30, 2016, the fund returned 1.99% versus −2.58% for the Russell 2000 Value Index and −3.52% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 1.99%, 8.66%, and 6.67% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.83% as of the most recent Prospectus.
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 - I Class 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.
Despite recently adding some holdings and a decline in the benchmark's allocation, we remain significantly underweight in financials. Conversely, we are overweight in industrials and business services, but this is primarily a residual of our bottom-up stock selection.
While the current regime of extremely low or even negative global interest rates has had major implications for the overall market, it has had a particular impact on the small-cap value universe. With financials representing over 41% of our index, many banks have felt the pressure of compressed lending margins. On the other hand, the many small-cap real estate investment trusts in the index have benefited from low financing costs and the relative attractiveness of the high yields they pay investors (REITs must pay out at least 90% of their profits to shareholders in order to avoid paying taxes). Utilities are also a relatively large share of the small-cap value universe (over 10%), and they have similarly benefited from investors' search for yield. We are somewhat underweight in both financials and utilities, and we are generally trying to moderate our exposures to interest rates; while the current low-rate regime may persist for or even intensify for some time, exposed sectors are likely to be volatile when rates eventually rise back toward normal levels. Instead, we are focusing on factors that we believe we can control, investing in companies with solid management teams and the potential gain market share or otherwise improve profitability and stock performance.