as of December 31, 2013
Fund Commentary
Despite the arrival of the much-anticipated taper announcement from the Federal Reserve, small-cap stocks finished the year strongly. Overall, improving economic conditions outweighed concerns about the rising interest rates associated with the tapering of the Fed's bond-buying program. Although small-cap stocks (Russell 2000® Index) outperformed large-cap stocks (Russell 1000® Index) for the one-year period and the Russell 2000® Index hit all-time highs, small-cap stocks nevertheless trailed their large-cap counterparts during the fourth quarter.

The Small Cap Core Fund posted a total return of 8.91% for the quarter, compared with 8.72% for the Fund's benchmark, the Russell 2000® Index. As intended, stock selection provided the most meaningful contributions to performance, particularly in the healthcare and information technology sectors. Stock selection detracted from performance primarily within the materials sector.

The Fund's avoidance of lower-quality stocks also contributed positively to performance, as the stocks identified by our stock selection model as having low-quality characteristics underperformed the benchmark. This was particularly helpful in the health care sector, where low-quality stocks were notable underperformers. Micro-cap stocks, which we slightly overweighted, performed in line with the benchmark and were not meaningful contributors to results. Stocks of companies with lower price-to-book valuation generally outperformed, but some sectors saw higher performance from the more richly valued companies. Valuation based on other metrics had more mixed performance results. We will continue to focus on providing diverse exposure to domestic small-cap stocks, including those within the smallest segments of the market, while maintaining a disciplined process to manage active risk and transaction cost.
Investor Profile

If you're a more aggressive investor looking for the growth potential offered by the stocks of smaller companies this Fund may be right for you. The Fund employs a quantitative-managed, core style investment approach. 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 an active quantitative, core equity strategy to select stocks based on a statistical analysis of historical relationships among small-cap 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 core 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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