U.S. stocks posted strong returns for the quarter, as investors celebrated a string of data indicating that the U.S. economic recovery had gained traction and corporations posted better-than-expected earnings growth. Market volatility increased during the period, a trend we expect to continue in 2015. Small-caps, which trailed their larger counterparts for the year, handily outperformed mid- and large-caps in the fourth quarter. As measured by various Russell indexes, growth stocks outperformed value among small-caps, while the opposite was true among larger companies.
The Small-Cap Stock Fund returned 9.18% in the quarter compared with 9.73% for the Russell 2000 Index and 7.82% for the Lipper Small-Cap Growth Funds Index. For the 12 months ended December 31, 2014, the fund returned 6.90% versus 4.89% for the Russell 2000 Index and 1.98% for the Lipper Small-Cap Growth Funds Index. The fund's average annual total returns were 6.90%, 18.12%, and 9.81% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.91% as of its fiscal year ended December 31, 2013.
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Total return information before August 31, 1992 reflects performance by managers other than T. Rowe Price.
We were able to initiate a number of investments during the period, with significant purchases in industrials and business services, health care, and financials. We also eliminated several holdings after they were bought out by other companies. Indeed, we have witnessed heightened merger and acquisition activity and expect this trend to continue. The portfolio's sector positions have not changed dramatically from the previous period. It has a large overweight versus the benchmark in industrials and business services through exposure to commercial services, road and rails, and machinery. Financials represents the portfolio's largest sector weight. We have maintained a large allocation to real estate investment trusts, which are benefiting from declining interest rates. The portfolio is underweight its small allocation to energy as we remain cautious in the space given continued weakness. We eliminated some holdings that we felt were challenged by the oversupply and declining prices of oil.
Despite their impressive performance in the fourth quarter, small-cap valuations remain expensive from a historical perspective. We would not be surprised by continued selling pressure due to their premium valuations versus large-caps. Other warning signs include a robust initial public offering market; recent weakness in the high yield market, which is often a leading indicator for small-cap shares; and the likelihood of rising interest rates, which typically creates market volatility and often brings about small-cap underperformance. We are mindful of valuation metrics as we continue to seek out durable growth and value companies that we expect to benefit from improving economic conditions.