Stocks continued to advance during the quarter, bolstered by strong gains in July and September. Decent earnings reports and ongoing Federal Reserve accommodations pushed stocks higher in July. Then, concerns about military intervention in Syria and a likely pullback in Fed bond buying dampened investor enthusiasm. But, the Syrian crisis ultimately faded, and the Fed announced in mid-September it would stay the course. Equity markets advanced sharply before a looming federal government shutdown stalled the rally at quarter-end. Overall, growth stocks sharply outperformed their value counterparts, reversing a five-consecutive-quarter trend of value outperformance.
The Large Cap Growth Fund posted a total return of 9.64% for the quarter, compared with 8.11% for the Funds benchmark, the Russell 1000® Growth Index. Stock selection accounted for the Funds relative outperformance, primarily in the information technology and healthcare sectors. In particular, exposure to social media, internet and biotechnology companies aided results. Stock selection in the industrials and financials sectors weighed on the Funds relative performance. Concerns about the economic slowdown in China pressured stocks in the industrials sector. In the financials sector, higher interest rates led to weak performance from real estate investment trusts (REITs).
Despite the near-term volatility stemming from federal budget wrangling, the market outlook appears positive. We believe large-cap growth stock valuations remain attractive, which we view as a precondition, but not a catalyst, for continued gains. We expect the eventual Fed taper, which likely will accompany higher interest rates, to trigger an important catalyst for future market gains a rotation out of fixed income and into equities offering growing dividends and/or inexpensive earnings growth.
If you fit the profile of a more aggressive investor able to accept greater volatility in exchange for higher potential return than is offered by the Growth Equity Fund, you will want to consider this Fund as a core holding for your portfolio. Because companies with these characteristics often retain their earnings, investors should expect low to no dividends.
- Combine top-down, theme-driven approach with bottom-up fundamental stock selection to construct a portfolio of primarily large-cap growth stocks.
- Select stocks with emphasis on growth potential, quality of earnings and management experience.
- Seek to provide long-term capital appreciation for investors looking to participate in longer-term investment themes, which may contribute to increased volatility.