Recent strong equity performance has been led by low quality companies: Within the Russell 2000 Value Index, stocks with the lowest return-on-equity (ROE) returned 9% year-to-date, while the highest ROE companies lost 1%. Non-dividend-paying stocks in the Index gained 8% versus dividend payers, which lost 13%.1 We believe this trend of low quality issues outperforming reflects improving conditions in the credit markets and early signs the economy may be stabilizing, albeit at relatively depressed levels. However, this significant outperformance of the low quality issues created a short term headwind for the Heartland Value Plus Fund, which remains focused on high quality, small-cap companies that pay dividends. The strategy has previously proven to be rewarding for our shareholders, as evidenced by our results versus the Fund's benchmark, the Russell 2000 Value Index, while exposing shareholders to less risk . 2 While the Value Plus Fund’s outperformance compared to our benchmark has narrowed in recent months, we encourage our investors to think long-term and ignore short-term trends. See the Fund’s long-term results here.
1 Bank of America Merrill Lynch Small Cap Investment Strategy, June 1, 2009
2 FactSet Research Systems, Inc.
Past performance does not guarantee future results. To obtain performance information current to the most recent month end, please visit the Funds' Returns pages of our website, or call 1-800-432-7856.
The Value Plus Fund invests in stocks of small companies that generally are more volatile and less liquid than those of larger companies. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic values. The Fund also invests in a smaller number of stocks (generally 30 to 60) than the average mutual fund. The performance of these holdings generally will increase the volatility of the Fund’s returns.
Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. All indices are unmanaged. It is not possible to invest directly in an index.
Return-on-Equity is a measure of the net income after taxes that a firm is able to earn as a perent of stockholders' equity.