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Holly LaFon
Holly LaFon
Articles (8062) 

Brian Rogers' Equity Income Fund Q3 Letter

October 16, 2013 | About:

U.S. stocks rose in the third quarter, extending this year's impressive rally, despite moderating corporate fundamentals. The market also overcame an increase in long-term interest rates, which was driven by expectations that the Federal Reserve would begin reducing its asset purchases after its September monetary policy meeting. The central bank surprised investors by deciding to delay the taper until it receives "more evidence" that the economic recovery "will be sustained." Although several major stock market indexes reached multiyear or all-time highs in mid-September, shares sagged as the quarter ended amid concerns about the underlying strength of the economy and the growing probability of a federal government shutdown and debt ceiling showdown in October.

PerformanceThe Equity Income Fund returned 4.57% in the quarter compared with 5.24% for the S&P 500 Index and 4.16% for the Lipper Equity Income Funds Index. For the 12 months ended September 30, 2013, the fund returned 21.63% versus 19.34% for the S&P 500 Index and 18.88% for the Lipper Equity Income Funds Index. The fund's average annual total returns were 21.63%, 9.36%, and 7.96% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.68% as of its fiscal year ended December 31, 2012.

For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.

Portfolio Highlights

Stock selection in the materials sector contributed strongly to portfolio performance during the quarter. Other strong performers included positions in the industrials and business services and consumer discretionary areas. Portfolio performance was restrained by telecommunication services and utilities holdings. At the end of the third quarter, financials represented the largest sector weighting in the portfolio, followed by industrials and business services, energy, and consumer discretionary shares. During the past six months, small- and mid-cap stocks surpassed large-caps, and growth stocks outperformed value stocks across all market capitalizations. The portfolio is positioned conservatively for the lower overall stock market returns we foresee during the final three months of the year.


We remain somewhat cautious about the outlook for U.S. stocks. While earnings have largely been supportive of the overall move in equities, performance appears to have outpaced the improvement in corporate fundamentals. Corporate balance sheets are in outstanding condition, with low debt and high cash levels, but revenue growth remains muted and consensus earnings estimates seem overly optimistic in this moderate growth environment. We are, therefore, finding fewer opportunities for investment and would not be surprised to see a correction in the near term. The economic underpinning for the equities market is strengthening, with mending housing and labor markets and rising corporate spending. The global economy is gathering strength and liquidity, and banks are more thoroughly capitalized than they were a few years ago. So while we anticipate some weakness near term, our long-term view is upbeat. As always, we will continue to look for promising investments with good dividend yields and appealing stock valuations.

Rating: 5.0/5 (2 votes)


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