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syahrir maulana Investment Approach Performance Review The fund finished the third quarter in line with the 9.27% result of the Russell 2000® Index. Securities lending income aided results this period, whereas security misweights had a slightly negative impact.
Efficient trading and implementation strategies also helped limit fund transaction costs while replicating the exposures and characteristics of the index. U.S.
stocks in the Russell index delivered solid gains in the third quarter, rising due to resilient corporate profits, the promise of artificial intelligence and the Federal Reserve's long-anticipated pivot to cutting interest rates. Amid this favorable backdrop for higher-risk assets, the index continued its late-2023 momentum and ended September at its all-time closing high. Almost all asset categories gained sharply in Q3.
The Russell index advanced 10.16% in July, rising strongly before a sharp three-week reversal as investors rotated into small-cap, value and cyclical shares due to concern about a recession in the U.S.
Volatility spiked, and the index pulled back in August (-1.49%). In September, stocks rose in anticipation of the Fed's mid-month meeting and continued to climb after the rate cut.
The 0.70% advance for the month bumped the index's year-to-date gain to 11.17%.
For the quarter, small-cap value (+10.15%) shares topped small-cap growth (+8.41%).
Within the Russell 2000 index, seven of 11 sectors outpaced the market. By sector, leadership notably shifted amid a cooling in shares of companies that have been fanned by fervor for generative AI heralding transformative change. But AI's influence was reflected in the roughly 13% advance for the utilities sector, which is sensitive to interest rates and benefited from its key role in providing the electricity needed to power massive data centers used for AI.
Real estate, also sensitive to interest rates, was another standout, advancing 18% on the potential for lower borrowing costs. The two sectors represented about 9% of the index in Q3. Communication services rose 18%, propelled by the more-defensive telecommunication segment (+67%).
Financials (+15%) received a boost from the likelihood of the Fed acting soon, while consumer discretionary stocks rose 10%. The defensive consumer staples and health care sectors (each +10%) also topped the broader market. Conversely, the rotation out of mega-cap growth stocks stunted information technology (+4%), compounded by questions about the durability of AI-related spending, especially after weak showings in September for manufacturing activity and job openings.
Industrials (+8.5%) and materials (+8%), which were carried by efforts to strengthen the nation's energy and communications infrastructure, lagged the broader market. Energy (-8%) struggled the most as oil prices dipped on worries about the global demand outlook.
Regardless of the market environment, we continue to apply a disciplined investment process across all our strategies, relying on highly skilled professionals and robust investment infrastructure. Investment performance is the foundation of our value proposition for shareholders. This is true of our comprehensive suite of low-cost index funds.
We expect our index funds to deliver low tracking difference, which is the difference in a fund's performance to that of its stated benchmark. We also seek to minimize tracking error, which measures the volatility of these return differences over a period of time. Whether it's through solid trading techniques for funds that replicate an index or our optimization techniques, when necessary, we are focused on delivering returns in line with benchmark performance.
Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors..
