Market Commentary as of 6/30/08
Mid-growth stocks outperformed mid-cap value stocks during the second quarter, as evident by the Russell Midcap Growth Index gaining a healthy 4.6% compared with the Russell Midcap Value Index's meager return of 0.1%. In general, stocks exhibiting favorable earnings revisions and companies showing relative strength performed the best. Stocks of companies with attractive valuations and those demonstrating good earnings quality tended to underperform.
The Energy and Telecommunications sectors outperformed during the period, while Consumer Discretionary and Financials sectors lagged. Energy companies performed exceptionally well as oil prices rose from roughly a $100 a barrel at the beginning of the quarter to $140/barrel by the end. The Saudi Oil Summit, the intent of which was to devise a way to reduce oil prices, appeared to produce no immediate relief. Natural gas prices followed suit, rising roughly 32% in just three months.
Winners and Losers
During the quarter, the Fund outperformed its Russell Midcap Growth Index benchmark thanks primarily to stock selection. Overall, picks in the Consumer Discretionary and Financials sectors contributed the most to performance versus the benchmark, while holdings within Energy and Industrials experienced more difficulty.
Individual standouts included overweight stakes in National Oilwell Varco and US Steel. A worldwide provider of equipment and components used in oil and gas drilling as well as production, oilfield services, and supply chain integration services, Varco benefitted from increased offshore rig demand and a strong recovery in North American natural gas drilling. Long-term contracts for iron ore and coal kept raw material costs steady for US Steel whilst the price of steel itself rose significantly.
A broad-based sell-off in defense and aerospace stocks, possibly stemming from a negative outlook for the industry, hurt the performance of the portfolio's holdings in government contractor L-3 Communications. An overweight position in Fresh Del Monte Produce also negatively affected performance as the producer, marketer and distributor of fruits and vegetables, beverages, and snacks disappointed investors with its first quarter earnings announcement—despite beating consensus estimates. The company also warned investors of increasing costs, including higher bunker fuel and fertilizer expenses.
As of the end of the quarter, the Fund was overweight Industrials and Materials and underweight Financials and Consumer Discretionary.
ClariVest Asset Management
San Diego, CA
As of June 30, 2008, National Oilwell Varco comprised 2.85% of the portfolio's assets, United States Steel - 1.58%, L-3 Communications - 1.92%, and Fresh Del Monte Produce - 1.15%.
Note: Small and Mid-cap stocks are generally riskier than largecap stocks due to greater 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.