U.S. stocks rallied in the first quarter as the recovery picked up despite tighter fiscal policy and fears about a banking sector collapse in Cyprus abated. The broad-based S&P 500 Index ended the period at a fresh record high, effectively recouping all of its losses since the 2008-2009 financial crisis. Rising corporate earnings and the Federal Reserve's ongoing efforts to stimulate growth through its asset purchase plan helped drive the rally, offsetting concerns about the latest flare-up of the eurozone debt crisis in Cyprus. Most indicators showed the U.S. economy getting stronger. Weekly jobless claims and the unemployment rate both fell to multiyear lows, while gauges of manufacturing and service sector activity were generally favorable. Further evidence showed that the housing market had turned a long-awaited corner as home prices, sales, and construction activity all rose.
The Total Equity Market Index Fund returned 11.02% in the quarter compared with 11.05% for the S&P Total Market Index and 10.74% for the Lipper Multi-Cap Core Funds Index. For the 12 months ended March 31, 2013, the fund returned 14.54% versus 14.46% for the S&P Total Market Index and 14.19% for the Lipper Multi-Cap Core Funds Index. The fund's average annual total returns were 14.54%, 6.27%, and 9.19% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.41% as of its fiscal year ended December 31, 2011.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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The Total Equity Market Index Fund charges a 0.5%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The fund provides investors exposure to the entire U.S. stock market by seeking to track the S&P Total Market Index. Every sector rose for the quarter, with all but three sectors posting double-digit returns. Health care and consumer staples were the top-performing sectors, reflecting investors' preference for defensive companies paying stable dividends. Information technology, materials, and telecommunication services added the least, with each sector posting a single-digit return.
Given the strong rally of recent months, we would not be surprised to see a pullback in the near term. However, many of the risks facing stock investors have eased, aided by the European Central Bank's forceful actions to contain the region's debt crisis and highly accommodative monetary policies around the globe. In the U.S., the economic recovery appears to be gaining traction, while corporate fundamentals remain strong. Near-term risks to domestic growth include mandatory budget cuts under the federal sequester, which will likely dampen economic activity in the coming months. However, we believe that continued resilience in the private sector will help blunt the impact of fiscal tightening.