The Large Cap Growth Fund posted a total return of -1.96% for the quarter, compared with 1.12% for the Funds benchmark, the Russell 1000® Growth Index. Stock selection detracted from relative performance in all sectors, with the weakest results in the industrials, information technology, healthcare and consumer staples sectors. Most of the underperformance occurred in the last 10 days of the quarter, as concerns about biotech drug pricing triggered a powerful and widespread rotation away from high-growth companies. Overall, the Funds sector allocation was slightly positive.
Looking ahead, we remain optimistic toward large-cap growth stocks. Overall, valuations appear favorable, given the slow-growth, low-inflation economic backdrop. Also, from a historical perspective, growth stocks remain attractively priced relative to the broad market and small-cap and value stocks. We believe the environment for stock selection has improved, as correlations have fallen and remain conducive to active management. From an investment theme perspective, we expect demographics and healthcare reform to present opportunities in the biotech and healthcare industries, while improving consumer confidence should positively influence the housing market and consumer durables industry. Furthermore, we believe the internet of things theme (connecting machines, appliances, autos and more to the Internet) will present attractive investment opportunities for years to come.
If you fit the profile of a more aggressive investor able to accept greater volatility in exchange for higher potential return than is offered by the Growth Equity Fund, you will want to consider this Fund as a core holding for your portfolio. Because companies with these characteristics often retain their earnings, investors should expect low to no dividends.
- Combine top-down, theme-driven approach with bottom-up fundamental stock selection to construct a portfolio of primarily large-cap growth stocks.
- Select stocks with emphasis on growth potential, quality of earnings and management experience.
- Seek to provide long-term capital appreciation for investors looking to participate in longer-term investment themes, which may contribute to increased volatility.