as of June 30, 2014
Fund Commentary
A strong rally among the lower-quality small-cap stocks in June altered the second quarter’s results meaningfully, as expectations for continued easy monetary conditions on the back of weaker economic news gave life to the riskier elements in the market. Deeper valued stocks and lower-quality stocks rebounded on investor expectations for low interest rates for the foreseeable future.

The Small Cap Value Fund posted a total return of 2.84% for the quarter, compared with 2.38% for the Fund’s benchmark, the Russell 2000® Value Index. Stock selection was strong in the industrials and information technology sectors, as higher-quality stocks in these sectors held up in the latter half of the quarter. Stock selection was weak in the financials and utilities sectors. Within financials, monetary policy expectations kept a check on interest-rate sensitive holdings. In the utilities sector, underperformance was due to a single high-performing company that we underweighted because of its low quality rating.

Sharp reversals in performance of healthcare stocks from the beginning to the end of the quarter resulted in a largely neutral contribution, as low-rated stocks snapped back sharply after falling quickly earlier in the year. For example, in June the lowest-rated healthcare stocks outperformed the highest-rated stocks by 15%, completely reversing previous underperformance. Despite the rebound of lower-quality companies, higher margin and profitability were more beneficial attributes overall. Valuation, in contrast, was less correlated, as deeper and high valuation outperformed, depending on the metric used.

We will continue to focus on seeking reasonably priced and profitable small-company stocks, while avoiding stocks with lower-quality characteristics and maintaining our focus on style objectives.
Investor Profile

If you're a more aggressive investor looking for the value potential offered by the stocks of smaller companies — those the adviser believes are worth more than is indicated by current market prices — this Fund may be right for you. It is intended for equity investors with an above-average tolerance for volatility who want to diversify their investments and plan to invest for the long term without concern for current income.

Philosophy
  • Follow a quantitative, active equity strategy to select stocks based on a statistical analysis of historical relationships among value characteristics, stock prices and market capitalization ranges.
  • Use a screening process designed to reduce exposure to stocks with negative fundamental indicators.
  • Maintain a highly diversified portfolio, consistent with small-cap value benchmarks, in an effort to reduce the risks associated with any specific stock or industry.
 
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Not FDIC insured | May lose value | No bank guarantee

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