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RiverSource 130/30 U.S. Equity Fund
Second Quarter 2008 Fund Update
Portfolio Managers: Robert Ewing and Nick Thakore
Below, portfolio managers Robert Ewing and Nick Thakore discuss the Fund’s results and positioning for the second quarter of 2008.
- How did the Fund perform for the period?
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RiverSource 130/30 U.S. Equity Fund (the Fund) Class A shares declined 6.74% (excluding sales charge) for the quarter period ended June 30, 2008, underperforming its benchmark, the Russell 1000® Index (Russell Index), which fell 1.89%.
Average annual total returns, which reflect Class A share performance at the maximum sales charge of 5.75% as of June 30, 2008, were since inception (10/18/2007): (25.46%). The Class A share total expense ratio for the Fund is 3.18%.
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. To obtain performance information current to the most recent month-end click here.
- What factors most significantly affected Fund performance?
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We emphasize valuation as a key input to our investment process. Unfortunately, over the last year or so, valuation has had one of its worst performance stretches in history. Additionally, there has been a very aggressive move by global cyclical stocks with very little participation elsewhere. That move accelerated in the second quarter, and we avoided many of these stocks believing that the prices were not warranted given their fundamentals.
Individual stocks that hurt Fund performance included Nokia, a telephone handset company; International Game Technology a company that makes video gaming equipment; and XM Satellite Radio, a provider of satellite radio entertainment and information programming. We like Nokia because we think it is a long-term winner. Even in the short-term, year-to-date, their estimates have gone up. The stock is growing faster than the market, but it has greatly underperformed. As for International Game Technology, the company had a good long-term story behind it. In the near term, however, it hit a few road bumps and the market has penalized the company. The market didn’t believe that a merger between XM Satellite Radio and Sirius Radio would happen. We thought the merger would happen, and believed that if the deal closed, the merger synergies would be substantial. Even though things have proceeded so far with the merger, the market has become more negative on the stand-alone outlook, and the stock has performed poorly.
One of the benefits of this fund is that we can try to capture performance where we believe stocks are overvalued. And in that regard, our short positions have added relative value because they have gone down more than the market has. Chipotle Mexican Grill is an example of a short position that added substantial relative value. Chipotle has been executing very well, but we bet against it on the anticipation that growth rates would decelerate, which they did. Another short position that performed as expected was the Las Vegas Sands. Its two markets, Las Vegas and Macao, China, had substantial problems and the stock was expensive. As these problems manifested themselves, the stock was hit substantially. We sold off much of the stock, so it is a much smaller short position than before.
Energy and materials were the two sectors that detracted most from performance this quarter, while the industrial sector added most to performance. Flowserve, a company that makes equipment for the energy and construction industries, added to performance. We thought the market was underestimating the earnings leverage that existed for Flowserve. The company reported a very large earnings surprise and the stock rallied.
Portfolio Holdings Mentioned (% of portfolio as of 6/30/08)
Chipotle Mexican Grill -1.17%
Flowserve
1.49%
Intl Game Technology
0.67%
Las Vegas Sands
-0.52%
Nokia
2.05%
XM Satellite Radio
1.35%
The views expressed above reflect the views of RiverSource Investments, LLC as of the date referenced. These views may change as market or other conditions change. This commentary is provided for information purposes only and is not intended to provide investment advice or account for individual investor circumstances. Past performance does not guarantee future results.
It is not possible to invest directly in an index.
Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institutions, and involve risks including possible loss of principal and fluctuation in value.
Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.
The RiverSource 130/30 U.S. Equity Fund may make short sales, which involves selling a security the Fund does not own in anticipation that the security’s price will decline. The Fund’s potential losses could exceed those of other mutual funds which hold only long security positions is the value of the securities held long decreases and the value of the securities sold short increases. The Fund’s use of short sales in effect “leverages” the Fund, as the Fund intends to use the case proceeds from the short sales to invest in additional long securities. Leveraging potentially exposes the Fund to greater risks due to unanticipated market movements, which may magnify losses and increase volatility of returns. There is no assurance that a leveraging strategy will be successful. See the Fund’s prospectus for information on these and other risks associated with the Fund.
The Russell 1000® Index, an unmanaged index, measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 90% of the total market capitalization of the Russell 3000 Index. The index reflects reinvestment of all distributions and changes in market prices.
You should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To learn more about this and other important information about the funds, download a free prospectus. Read the prospectus carefully before investing.
RiverSource® mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc.