Tax-free municipal bonds produced strong gains in the first quarter and outperformed taxable bonds. Longer-term Treasury yields declined from the two-and-a-half-year highs reached at the end of 2013, as weakness in emerging markets and geopolitical tensions over Ukraine prompted some risk aversion. The yield decline occurred despite the onset of the Federal Reserve's measured tapering of its asset purchases. In the municipal market, long-term interest rates also declined, but short-term yields were little changed. Longer-term and lower-quality issues outperformed.
The New Jersey Tax-Free Bond Fund returned 3.63% in the quarter compared with 4.18% for the Lipper New Jersey Municipal Debt Funds Average. For the 12 months ended March 31, 2014, the fund returned −0.01% versus −1.26% for the Lipper New Jersey Municipal Debt Funds Average. The fund's average annual total returns were −0.01%, 5.86%, and 4.06% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.51% as of its fiscal year ended February 28, 2013.
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Health care and education names represent our largest overweights. We maintain a meaningful allocation in hospitals. New Jersey lacks the higher rated hospitals that we prefer, but we own names that we believe are fundamentally sound. We have lately reduced our exposure to the state guarantor due to concerns about New Jersey's fiscal outlook; however, diversifying away from the state guarantor is difficult given the nature of much of the issuance in the state. We are overweight versus the benchmark and our peer group in bonds with maturities of 15 to 20 years, but even with the benchmark in longer maturities. Issuers in New Jersey tend to issue less long-term debt than other states, which has limited the investment opportunities in longer-dated bonds. We continued to reduce exposure to Puerto Rican debt, and our remaining exposure is a modest position in a power utility. Our Puerto Rico exposure is significantly below that of our peers.
We believe that the municipal bond market is a high-quality market, with good opportunities for those with a long-term focus and attractive tax-free income, particularly for those in the highest tax brackets, in what is still a very low interest rate environment. While strong first-quarter performance on the heels of last year's muni market downturn is encouraging, price declines are likely if cash outflows resume, if interest rates start rising again, or if there are additional negative credit headlines. We will remain careful with any investment shift that might materially increase our portfolio's interest rate sensitivity. However, we believe further rate increases will be at a more measured pace than what we witnessed in the spring and summer of 2013. Irrespective of interest rate movements, the credit and economic environment for municipalities continues to improve, aided by modest economic growth and improving tax revenues.