the
Industrials sector was the largest relative contributor, followed
by Health Care and Consumer Discretionary. The Communication
Services and Real Estate sectors detracted from performance.
Our Industrials investments returned 3.9%, well above the sector’s
return of -2.4% in the index. Aerospace and defense holdings drove
outperformance, as the group rallied amid war in Eastern Europe,
tensions in the South China Sea, and rising defense budgets in the
West. Overweight positions in General Dynamics and Raytheon
Technologies were key individual contributors. Our overweight
position in Quanta Services, which builds electric utility
facilities and power grid infrastructure, also supported relative
returns. The company continues to benefit from the rising need for
electricity production and transmission.
Our Health Care investments outperformed the benchmark’s sector
return by two percentage points. The sector rallied in March after
a down start to the year, as investors returned to a group often
seen as a haven from geopolitical tensions, inflation, and
bond-market downturns. AbbVie, the global, research-based
biopharmaceutical company spun out of Abbott Laboratories, was
among the largest overall individual contributors, advancing 20.9%.
AbbVie rallied on the back of solid revenue growth in 2021, despite
lacking a major COVID-19 product. While it stands to lose patent
protection for a key drug (Humira) in 2023, sales of the company’s
other immunology drugs, Rinvoq and Skyrizi, posted strong growth.
We like AbbVie’s rich dividend and its pipeline going forward,
including an Alzheimer’s disease treatment from the recent
acquisition of Syndesi Therapeutics. The Fund also benefited from
our overweight in managed care stocks. Both UnitedHealth Group and
Centene Corporation are players in the Medicare Advantage business,
and advanced sharply when the program’s 2023 reimbursement rates
were better than expected and the largest increase in more than 10
years.
On the downside, our investments in Communication Services weighed
on relative performance, returning -14.2% and trailing the sector’s
-11.9% benchmark decline.
Our overweight in Facebook parent Meta Platforms was a notable
driver of underperformance. Shares declined sharply after Meta’s
fourth-quarter earnings, reported in February, disappointed
investors. An outlook for lower revenue growth, more competition,
and a large, multi-year investment in the Metaverse sparked a
market cap loss of approximately $232 billion in a single day, the
largest drop ever recorded. Despite the pullback, we continue to
like the company’s core business and view the stock’s valuation as
quite attractive. Meta now trades at 18 times expected 2022
earnings and 15 times 2023 earnings.
For the three months ended March 31, 2022, the total return on the
Fund’s net asset value (“NAV”) per share (with dividends and
capital gains reinvested) was -4.2%. This compares to a -4.6% total
return for the S&P 500 and a -5.0% total return for the
Morningstar U.S. Large Blend category over the same time period.
The total return on the market price of the Fund’s shares for the
period was -4.7%.
