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Market Overview
In the third quarter, Columbia Acorn Fund edged out its primary benchmark, the Russell 2500 Index, which gained 20.06%. The fund also outperformed its secondary benchmarks during this period
Contributors1
Several stocks substantially helped performance during the quarter. Human Genome Sciences jumped up on news of successful clinical trials for its lupus drug. Its stock was Columbia Acorn Fund’s top dollar winner. Communications tower company Crown Castle soared, earning second place in dollar appreciation. We added to Crown Castle late last year, correctly believing that the company could service its debt and that the stock would recover when the credit crunch eased. The fund’s third largest dollar gainer was specialty truck manufacturer Oshkosh, up on news it was selected to manufacture blast-resistant, all-terrain vehicles and trucks for the U.S. Department of Defense.
Other winners included Avis Budget Group, which had been significantly depressed due to concerns about demand and debt servicing. Columbia Acorn Select manager Ben Andrews, who, like all of our portfolio managers, serves as an analyst for all of the Columbia Acorn funds, thought the company would benefit from shrinking its fleet during a period of low new-car sales and that credit markets would eventually improve. Ben was right, as credit markets did ease and unfavorable new-car sales allowed Avis to sell used cars at higher prices. Avis stock raced ahead in the quarter. Gaylord Entertainment also had a lot of debt, but stabilizing trends in its convention business and maturation of its new property near Washington, D.C., caused it to outperform other hotel companies and its stock rose.
Columbia Acorn Fund’s consumer discretionary stocks, on average, outperformed the Russell 2500’s stocks in this category. Online travel company Expedia delivered a strong gain on better-than-expected results. Retailers Urban Outfitters and lululemon athletica benefited from strong merchandise offerings, lean inventories and low expenses. Both companies topped market earnings expectations. We moderately increased investments in selected consumer stocks because we think high-income consumers, influenced by recent stock market gains, are beginning to increase discretionary spending.
Energy stocks continued to perform positively. Oil service stocks followed oil prices and generally outperformed natural gas stocks. Offshore oil service companies Fugro, FMC Technologies and Atwood Oceanics each had strong returns. Canada’s Pacific Rubiales Energy also jumped, as production and reserves grew at its Colombian oil fields.
Detractors 1
Columbia Acorn Fund had only two major losers in the quarter. Demand for Myriad Genetics’ diagnostics tests decelerated, depressing its stock by 23% and cost the fund. ESCO Technologies reported disappointing sales due to shipment deferrals by customers, causing a drop in its stock.
Columbia Acorn Fund’s international stocks outperformed the fund’s domestic stocks in the quarter, rising 26%. Fugro and Pacific Rubiales Energy, mentioned above, provided the largest dollar gains among international stocks. Netherlands-based Aalberts Industries jumped from depressed levels, as the company successfully serviced its debt. Canadian oil and gas pipe coating provider ShawCor surged on better-than-expected earnings. Foreign stocks accounted for 10.1% of Columbia Acorn Fund’s assets at the end of the quarter, up from 6.7% at the beginning of the year. Investments in a number of energy, materials and other companies that we believe to be attractive, coupled with fine aggregate performance, have increased the weighting.
Investment Risks
Risks include stock market fluctuations due to economic and business developments. Investments in small- and mid-cap companies may be subject to greater volatility and price fluctuations because they may be thinly traded and less liquid. The fund may invest in foreign securities, which may be subject to greater volatility than domestic investments.
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 2500 Index is an unmanaged index that tracks the performance of the 2,500 smallest companies in the Russell 3000 Index
Unlike mutual funds, indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index. 1 Determinations 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 transactions 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.
Columbia Wanger Asset Management, L.P. (CWAM) is an SEC-registered investment adviser and an indirect, wholly owned subsidiary of Bank of America Corporation. |