The Small Cap Value Fund posted a total return of 10.08% for the quarter, compared with 9.30% for the Fund's benchmark, the Russell 2000® Value Index. Stock selection, particularly among financial services firms and technology companies, accounted for most of the Fund's outperformance. Within the Russell 2000® Value Index, real estate investment trusts (REITs) continued to lag the other sectors, while other financials, particularly commercial banks and insurance companies, performed strongly. The Fund's sector weightings relative to the benchmark led to positive, but modest, contribution to performance. Stock selection was weaker in the materials sector, the best-performing benchmark sector, as the Fund's holdings in metals and mining companies underperformed.
In general, more profitable and higher margin companies outperformed, but so did smaller and riskier stocks characteristics usually associated with lower-quality companies. A handful of strongly performing stocks with lower quality ratings led this counter-balancing performance. Differences among valuation metrics did not present obvious performance patterns, as both the highest and lowest quintiles of price-to-earnings and price-to-book measures underperformed the center of the distribution. But this was beneficial to the Fund's performance, given our avoidance of the more extreme valuations. We will continue to focus on seeking reasonably priced and profitable small-company stocks, while avoiding stocks with lower-quality characteristics and maintaining our focus on style objectives.
If you're a more aggressive investor looking for the value potential offered by the stocks of smaller companies those the adviser believes are worth more than is indicated by current market prices this Fund may be right for you. 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.
- Follow a quantitative, active equity strategy to select stocks based on a statistical analysis of historical relationships among value 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 value benchmarks, in an effort to reduce the risks associated with any specific stock or industry.