as of March 31, 2014
Fund Commentary
Information technology (IT) stocks advanced during the first quarter. Within the S&P 500® Index, the IT sector outperformed the overall index average.

The Technology Fund posted a total return of 3.64% for the quarter, compared with 1.81% for the Fund’s benchmark, the S&P 500® Index. Stock selection and an overweight position in the IT sector drove the Fund’s outperformance versus the broad-based index. Overall, strong gains in high-growth stocks, combined with better performance in the slower-growing legacy IT companies, helped the Fund’s performance. Stock selection in the healthcare sector also aided relative results.

We generally prefer stocks from software and Internet companies over hardware companies, which are commoditizing rapidly given technology disruptions in traditional IT infrastructure. We continue to favor stocks with company-specific catalysts, such as product cycles or market share gains, along with stable or improving margin and cash flow profiles. We continue to hold legacy companies we believe are better positioned along with high-growth companies.

IT spending is projected to grow in the low single digits in 2014, due to an uncertain global macro environment, which is limiting business visibility. In addition, emerging markets, which have been an outsized driver of growth in recent years, are facing continued weakness. Also, the impact of the accelerating shift to cloud-computing is having an increasingly negative effect on spending for legacy technologies. Given the extreme volatility in high growth technology stocks, we attempt to identify long-term winners and opportunistically wait for market pullbacks to add new names to the portfolio. Longer term, we are hopeful cloud-computing will drive a multi-year technology investment cycle, as enterprises begin to explore new digital business models and write native cloud-based applications that drive improved productivity.
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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