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Market Overview
Columbia Acorn USA ended the third quarter well ahead of the 19.28% return of its benchmark, the Russell 2000 Index.
Performance Attribution 1
The fund saw strong growth in two of its telecommunications stocks during the quarter. Crown Castle International, an owner of communications towers, and tw telecom, a provider of fiber optic telephone and data services, both had strong gains. While much of the economy remains depressed, both Crown Castle and tw telecom reported double-digit growth in cash flow through the end of June as compared to the prior year. Similarly, oil services companies FMC Technologies and Atwood Oceanics both announced second-quarter earnings up 12% over the prior year. While oil prices have rebounded off their January lows, they are still significantly below their mid-2008 levels. FMC Technologies and Atwood Oceanics were able to increase earnings in a less favorable pricing environment and were rewarded with gains.
During the quarter, we saw a very strong bounce-back in the fund’s portfolio companies carrying relatively higher levels of debt. This included Gaylord Entertainment, an owner of convention hotels; SL Green Realty, an owner of Manhattan office buildings; and car rental company Avis Budget Group. These companies were all helped by a significant easing in the corporate bond credit market.
Strong individual stocks included Nordson, a manufacturer of dispensing systems for adhesives and coatings. Nordson saw its sales bounce meaningfully off March lows. MB Financial acquired two failed Illinois banks, which is expected to augment future earnings. Its stock rose on this news. The fund’s highest percentage return in the quarter came from Human Genome Sciences, which rose after announcing successful results in its lupus drug trial.
Performance Detractors 1
At this point, we usually mention stocks that did not perform well. This quarter, we have very little to talk about. There were only two stocks in the Columbia Acorn USA portfolio that lost more than a million dollars. This compares to 78 stocks that gained more than a million in the quarter. ESCO Technologies, a maker of electric meter readers, was down on weaker-than-expected sales. Myriad Genetics also fell after announcing weaker-than-expected numbers, as the sluggish economy negatively affected sales of its genetic diagnostic tests.
Market Outlook
The economy is showing signs of improvement and stock valuations look reasonable. But most of the investing public remains underinvested in equities. Many were traumatized by last year’s market crash and fear a sequel to last year’s horror show. Historically, the market has done its best to prove the majority of investors wrong. In this case, it is possible the market may be setting up for a fine year-end rally.
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 2000 Index tracks the performance of the 2,000 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. |