as of June 30, 2014
Fund Commentary
Global information technology (IT) spending remained muted overall, given the lackluster macroeconomic environment, limited business visibility and ongoing weakness in emerging markets, which have been large drivers of growth in recent years. Nevertheless, IT stocks continued to advance in the second quarter. Within the broad S&P 500® Index, the IT sector outperformed the Index average.

The Technology Fund posted a total return of 1.46% for the quarter, compared with 5.23% for the Fund’s benchmark, the S&P 500® Index. The shift to technology architectures that support cloud-computing is having a negative effect on most large legacy IT companies, disrupting their infrastructures and business models, which has limited earnings growth for most large-cap growth stocks in the hardware and software industries. Meanwhile, the mid-cap secular growth companies, which are generally lacking in profits and cash flow, have traded at relatively high valuations, even after a recent significant sell-off. Given these transitional challenges in the IT sector, we added to our healthcare holdings. In health care, we believe the Affordable Care Act (ACA) largely will be a positive force in health care for the next three to five years.

We continue to employ a barbell approach to IT investing, holding what we believe are the better-positioned legacy companies and secular pure plays. We prefer Internet and software stocks rather than hardware stocks, given intensifying commoditization across computers, networking and storage. We remain positive on the healthcare sector, encouraged by pockets of innovation among mid-sized companies and consolidation among larger companies. We believe the underlying demand for health care should remain strong due to the aging U.S. population and the 15 million people gaining healthcare coverage through the ACA.
Investor Profile

If you're a growth-oriented investor intrigued by the appreciation potential of technology-driven companies, you may want to explore the opportunities this Sector Fund offers. It is designed for investors with a long-term time horizon, who are willing to withstand inevitable short-term market swings and who understand the risks and potential rewards of sector investing.

  • Buy stocks that develop, produce or distribute products and services related to technology.
  • Base stock picks on financial condition, market share, earnings growth rates, product leadership or market niches, as compared to competitors, market valuation and price trends.
  • In addition to traditional technology companies, the Fund may also invest in biotechnology, health care and health-care equipment, aerospace and defense and financial administration.
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