Stocks recorded stellar gains in the fourth quarter, bringing most of the major indexes to record highs. All sectors within the Russell Midcap Growth Index recorded gains for the quarter, with returns strongest for industrials and business services, financials, and consumer discretionary stocks. Energy shares managed only a slight gain. Mid-cap stocks surrendered market leadership to large-caps for the quarter but ended with generally stronger gains for the year
The Mid-Cap Growth Fund returned 7.86% in the quarter compared with 8.23% for the Russell Midcap Growth Index, 8.33% for the S&P MidCap 400 Index, and 8.50% for the Lipper Mid-Cap Growth Funds Index. For the 12 months ended December 31, 2013, the fund returned 36.89% versus 35.74% for the Russell Midcap Growth Index, 33.50% for the S&P MidCap 400 Index, and 36.52% for the Lipper Mid-Cap Growth Funds Index. The fund's average annual total returns were 36.89%, 23.47%, and 11.45% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.80% as of its fiscal year ended December 31, 2012.
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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.
Although the portfolio's sector weightings are a residual of our fundamental research into individual securities, it is significantly overweight in the health care sector. Despite potential challenges to the sector from reform efforts, we continue to be optimistic about numerous positive long-term drivers for the health care sector: an aging population; Americans' willingness to spend on health care to achieve a higher-quality life; and the pace of scientific advancement and the resulting prospects for safer and better drugs. It is likely that companies developing innovative medical products or delivering high-quality, low-cost treatments will see their stock prices rewarded.
The market's strong advance continued in the fourth quarter, extending a bull market that has already grown somewhat long in the tooth. In recent months, we have become somewhat more defensive in the portfolio, and we have harvested gains in segments where valuations have become especially extended. Our focus on valuation distinguishes us from many mid-cap growth investors, who have fueled what has increasingly become a momentum-driven market.