The Income Equity Fund posted a total return of 7.27% for the quarter, compared with 10.51% for the Fund's benchmark, the S&P 500® Index. The Fund's underperformance primarily was due to company selections within the financials, information technology and energy sectors. Overall, company selections in the telecommunications services sector and an underweight position in utilities contributed to performance. The Fund's convertible securities, which are more defensive, generally lagged the rallying benchmark and contributed to the Fund's relative underperformance.
The Fund continues to seek equity-like returns with more income and less volatility than the benchmark and low turnover. Convertible securities are important equity substitutes and help us achieve these objectives. Although the supply of convertibles increased during the fourth quarter, the availability of the value-oriented convertibles we prefer remained low. Therefore, we continued to invest more heavily in large-cap common stocks, particularly companies with attractive dividend payments. These stocks generally lagged non-dividend-paying stocks during the quarter, given their sensitivity to rising interest rates.
Looking ahead, we will continue to focus on company selection with consistent emphasis on valuation. Security selection between stocks and convertibles will remain a secondary consideration. We remain hopeful that new issuance in the convertibles market will continue to improve.
If you are a moderate-risk investor looking for a relatively high level of current income, but don't want to forego the capital appreciation potential of the stock market, you may like this Fund.
- Select securities with the potential to generate high current yields, such as dividend-paying common stocks, preferred stocks and convertible securities, as well as selected fixed income securities.
- Maintain a conservative, broadly diversified portfolio of companies with strong prospects for growth and appreciation potential.
- Analyze the upside/downside ratio of individual securities in relation to the underlying stocks in an effort to identify those issues that are priced to have more exposure to the upside.