as of March 31, 2014
Fund Commentary
The riskier segments of the small-cap equity market rallied sharply to start 2014. But uncertainty surrounding weaker-than-expected economic data, combined with the U.S. Federal Reserve’s ongoing tapering of quantitative easing (QE) and its comments about potentially raising short-term interest rates six months after QE ends, dampened the enthusiasm for lower-quality stock. Yet, despite a reversion to more defensive and higher-yielding sectors toward the end of the quarter, the lower-quality segments of the small-cap market generally maintained their edge for the full quarter.

The Small Cap Core Fund posted a total return of 1.15% for the quarter, compared with 1.12% for the Fund’s benchmark, the Russell 2000® Index. The Fund’s stock selection was strongest in health care, where several biotech stocks drove performance. Stock selection was also strong in the consumer discretionary sector, the benchmark’s weakest-performing sector. Stock selection detracted from results in the industrials sector, particularly among our building products and airline holdings, and in the technology sector, where our choices in the semiconductor industry weighed on relative results. Overall, the smallest-cap stocks did not keep pace with the broader benchmark, modestly detracting from returns. The Fund’s underweight to lower-quality stocks also detracted from returns. Valuation was important, as deeper value stocks outperformed, breaking the growth-stock domination of the previous year. The Fund’s neutral style exposure reduced the impact of this switch.

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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