Market Commentary as of 12/31/09
The Fund significantly outperformed its S&P 400 Mid-Cap Index benchmark and the S&P 500 Index during the fourth quarter, capping an exceptionally successful 2009 on both an absolute and relative performance basis. Returns during the quarter were driven primarily by better-than-expected earnings results at a number of holdings that had implemented restructuring measures during the previous year. While individual stocks were the star performers, outperformance came predominately from the Technology and Consumer Discretionary sectors. An underweight position in Financials of 3.4% of assets compared with 21.5% for the S&P 400 also contributed to relative outperformance.
The top contributor to returns, and the largest holding in the portfolio, was the New York Times Company. The stock continued its rebound from extremely oversold levels at the end of 2008, more than doubling during the past 12 months. Our addition to the Fund's position early in the year at much lower levels also served to enhance gains. Other top performers included four Technology holdings—Unisys, Akamai Technologies, Jabil Circuit, and Harris Corporation. We continue to maintain the portfolio's significant overweight stake in Technology sector, which is a reflection of our desire to own companies that provide products or services that make their customers more efficient or productive, a trait often found in tech companies.
The largest detractors to performance during the quarter were CGG Veritas, Con-Way, and Charles River Laboratories. CGG dropped after the oil and gas service company announced major changes to its management team ahead of disappointing financial results. The latter two both declined largely in response to disappointing earnings reports.
During the fourth quarter, we initiated a position in global publisher McGraw-Hill. The company provides financial data through its Standard & Poor's unit and publishes educational materials for elementary through university and professional markets. Although traditionally known as an educational publisher, approximately 70% of McGraw-Hill's current operating profits come from its global financial service products. We believe the stock is not only misunderstood but also undervalued relative to its long-term growth prospects.
Questions about the sustainability of the economic recovery were a major factor in the extreme price volatility during the most recent earnings season. Adding to this continuing uncertainty is concern that the equity market rebound has anticipated a much stronger recovery than will materialize. In this environment, we thus continue to focus on the long-term investment horizon by seeking opportunities to invest in strong companies at attractive valuations. While we will take advantage of short-term fluctuations to adjust positions, the Fund's strategy remains focused on companies with proven management, strong balance sheets, geographic diversification and earnings resilience.
We thank you for your continued support and confidence in our strategy and look forward to a prosperous 2010.
Thyra E. Zerhusen, Managing Director and Portfolio Manager Marie L. Lorden, Co-Portfolio Manager Mary L. Pierson, Co-Portfolio Manager
As of December 31, 2009, New York Times Company comprised 4.68% of the portfolio's assets, Unisys – 3.43%, Akamai Technologies – 4.22%, Jabil Circuit – 3.00%, Harris Corporation – 2.84%, CGG Veritas – 2.13%, Con-Way – 1.96%, Charles River Laboratories – 2.60%, and McGraw-Hill – 2.51%.
Note: Mid-cap stocks are considered riskier than large-cap stocks due to greater potential volatility and less liquidity.
The views expressed above are for informational purposes only and is not intended as investment advice. Since the date of the commentary, economic, market conditions and the portfolio manager's views may have changed. Holdings and weightings are subject to change daily. Holdings are provided for informational purposes only and should not be construed as a recommendation to buy or sell the securities mentioned.
Past performance does not guarantee future results. Investment return and principal value of mutual funds will vary with market conditions, so that shares, when redeemed, may be worth more or less than their original cost.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Contact 800 992-8151 for a prospectus containing this and other information. Read it carefully. Aston Funds are distributed by PFPC Distributors, Inc.