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Review of the Quarter
The U.S. equity market continued to move higher in the month of September, as the Russell 3000 Index, serving as a broad proxy for equities, posted a 4.19% return. This rise in equity prices capped off another great quarter for the market as the Russell 3000 Index returned 16.31%, making it the second consecutive quarter of returns in excess of 16%. Many cautious investors feared that a pullback would be inevitable heading into September, which historically has been a weak month for equity markets. Fortunately, the market continued to climb, pushing its string of positive months to seven in a row. Over the course of the last 12 months, investors have had quite the ride. This time last year, it felt as if the market could only head lower, a feeling which abruptly gave way in March to the dramatic rally witnessed over the last six months. In a market of extremes, investors have had many events and a great deal of information to react upon over the period. This included TARP, TALF, stress tests and the cash for clunkers program. The debate continues on how long the rally will last and to what degree. Considering the sentiment shift from the worst case scenarios of bankruptcies and nationalizations to the optimism of “green shoots” and the possible end of the Great Recession, the market heads into the fourth quarter considerably higher from its lows with an economy eagerly awaiting confirmation that better times could be ahead.
Value stocks outperformed growth stocks for the quarter, with the Russell 1000 Value Index return of 18.24% outpacing the 13.97% return posted by the Russell 1000 Growth Index. Small-cap stocks outperformed large-cap stocks, with the Russell 2000 Index returning 19.28% vs. 16.07% for the Russell 1000 Index. Within the benchmark S&P 500 Index, all sectors posted positive returns for the quarter led by financial services, materials and industrials. Columbia Large Cap Core Fund underperformed its benchmark, the S&P 500 Index, in an up quarter for the index.
Performance1
From a sector perspective, we generated strong relative returns in energy, health care and utilities. On an individual stock basis, five key contributors in the third quarter were Apache, Cameron, Occidental Petroleum, Medco Health Solutions and AES.
Industrials and materials were a relative drag on performance during the period. Holdings in Lockheed Martin, Dun & Bradstreet, Navistar, Monsanto and Norfolk Southern hindered our performance.
Portfolio Activity
We sought out holdings in names that we believed would especially benefit from a recovery in market levels and an improving macroeconomic picture. We initiated positions in Principal Financial Group, Discover Financial Services and XL Capital during the quarter, each of which positively contributed to fund performance.
Outlook
Market volatility has increased and we believe it is likely to continue in the coming year. We are prepared to weather this volatility with a continued focus on companies with strong balance sheets and consistent free cash flow generation. By drawing on our three independent research sources — fundamental research, quantitative models and portfolio management team input — and employing a disciplined valuation process, we believe we are well positioned to take advantage of opportunities arising from the price disruptions that often accompany market volatility.
Performance data quoted represents past performance, and current performance may be lower or higher. Past performance is no guarantee of future results.
Please read and consider the investment objectives, risks, charges and expenses for any fund carefully before investing. For a prospectus, which contains this and other important information about the fund, contact your Columbia Management representative or financial advisor or go to www.columbiamanagement.com
The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
The Standard & Poor’s (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S. stocks.
The Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 1000 Growth Index is an unmanaged index that measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
The Russell 1000 Index is an unmanaged index that tracks the performance of 1,000 of the largest U.S. companies based on market capitalization.
Unlike mutual funds, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. 1Determinations of contributors and detractors are based on performance relative to the fund’s benchmark.
Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts will come to pass. The views and opinions expressed are those of the portfolio managers and analysts of the affiliated advisors of Columbia Management Group, are subject to change without notice at any time, may not come to pass and may differ from views expressed by other Columbia Management associates or other divisions of Bank of America. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security or sector.
There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. It should not be assumed that any securities transaction or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions made in the future will be profitable or will equal the investment performance of the securities discussed herein.
Columbia Management Group, LLC (“Columbia Management”) is the investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and products for institutional and individual investors. Columbia Funds are distributed by Columbia Management Distributors, Inc., member FINRA and SIPC. Columbia Management Distributors, Inc. is part of Columbia Management and an affiliate of Bank of America Corporation. |