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Market Overview
Equity markets moved sharply higher in third quarter
As the federal government injected an enormous amount of liquidity into the financial system, the economy showed signs of healing. Measures of business and consumer confidence showed improvement, as did housing and manufacturing activity. As the yield gap narrowed between Treasuries and other fixed-income sectors, corporate bond issuance and merger and acquisition activity rose, both signs that stimulus programs were beginning to take hold. In this environment, the U.S. stock market continued to move sharply higher in the third quarter. The Russell 3000 Index, a broad proxy for the U.S. equity market, advanced 59.31% from its March 9, 2009 low. Large-cap equities underperformed small-cap equities for the third quarter. For the quarter, the Russell 1000 Index returned 16.07% while the Russell 2000 Index returned 19.28% for the same period. Value outperformed growth across the market capitalization spectrum. Within the benchmark Russell Midcap Growth Index, all 10 economic sectors posted positive returns, led by the energy, materials and consumer discretionary sectors. The telecommunications and utility sectors lagged the benchmark return.
In this environment, Columbia Mid Cap Growth Fund outperformed its benchmark, the Russell Midcap Growth Index.
Stock selection drove relative performance1
Stock selection within consumer discretionary, health care, industrial and materials sectors aided the fund’s relative outperformance in the third quarter. Within the consumer discretionary sector, shares of casino operator Wynn Resorts rose in response to the company’s successful Asian IPO. Billboard operator Lamar Advertising gained ground as advertising activity appeared to recover faster than expected. Shorter contracts, a growing share of the advertising market and the adoption of digital outdoor ads aided the billboard industry overall. Changing technology benefited Lamar in that digital billboards are more profitable than traditional billboards. Within health care, Intuitive Surgical shares rose during the quarter on expectations of improved capital spending on surgical equipment. The company also made strides toward receiving regulatory approval for its devices in Japan, which would represent a large market for robotic surgical procedures. Within industrials, aviation manufacturers Textron and BE Aerospace benefited from signs that the business jet and airline industries were stabilizing. Textron successfully issued debt at rates more attractive than existing debt, which is expected to be retired. In the materials sector, Walter Energy, which produces and exports metallurgical coal used in the steel industry, also helped relative performance. The company benefited from an increase in steel demand and replenishment of depleted inventories.
Although stock selection within the technology sector aided the fund’s positive return, an underweight in the sector detracted from relative performance. Technology was one of the quarter’s top performers. In addition, a position in MEMC Electronic Materials hampered return. The company came under pressure because of reduced end demand in the solar industry and the resulting impact on pricing. Finally, although we made a good call to underweight the defensive consumer staples sector, stock selection within the food retailing industry modestly detracted from relative performance.
Outlook
The fund remains positioned in names that we believe can benefit from a cyclical economic recovery and also in companies that we expect to experience increased demand because of exposure to a new or existing product cycle. We have recently moved a portion of the portfolio into mid- to late-cycle areas of the market, which are trading at more attractive valuations because they have not yet experienced the recovery that some early cyclical industries have. We remain focused on allocating capital to stocks that we believe offer the best balance between risk and reward in our investible universe.
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 rep resents approximately 98% of the investable U.S. equity market.
The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index.
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 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. |