Valuations could hamper long-term performance

Valuations could hamper long-term performance

Ty Nutt
Senior Portfolio Manager, Team Leader — Large-Cap Value Equity

The U.S. market has enjoyed much better returns over recent years, and so we have a better mood in the overall market and price multiples have expanded — price/sales, price/book value, price/cash flow, price/earnings, price/dividend. It’s harder for us now to find businesses at substantial discounts to their intrinsic value. In other words, it’s harder to find issues that have upside potential remaining at this point, and so we have to change our return expectations.

We’ve looked at a number of studies of returns from various starting points in terms of valuation. From this level in our overall stock market, we probably need to expect mid-single-digit returns. So, we believe it’s a good time to emphasize value — undervalued stocks may have a good shot at outperforming the overall market and other asset classes.

The views expressed represent the Manager's assessment of the market environment as of January 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Certain statements made here are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe," "anticipate," "expect," "estimate," "project," "will," "shall" and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. The protection afforded by the safe harbor for forward-looking statements provided by the PSLRA are claimed hereunder.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this document.

Value investing focuses on buying stocks that are trading at bargain prices based on fundamental analysis, then holding them until they become fully valued. Typically, value investors select securities with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.

Price-to-sales, price-to-book value, price-to-cash flow, and price-to-earnings are all commonly used valuation ratios of a company’s current share prices compared to its reported sales, book value, cash flow, or earnings.

Information is as of the date indicated and subject to change.

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