U.S. large-cap stocks advanced in the first quarter as the Federal Reserve signaled that a rate hike was not imminent. The S&P 500 Index rose to a record in late February following assurances from Fed Chair Janet Yellen that policymakers were in no rush to raise interest rates, but pared much of those gains and ended the quarter modestly higher. Six of 10 sectors in the index posted positive returns in the quarter, led by health care, while four sectors declined. U.S. economic growth slowed to a 2.2% annual rate in the final quarter of 2014 from the prior quarter's 5% pace, the government reported in March. The report also showed corporate after-tax profits fell in last year's fourth quarter in the biggest quarterly drop since 2011 as a strong dollar and weak global demand hurt profitability for many U.S. companies.
The Capital Opportunity Fund returned 1.34% in the quarter compared with 0.95% for the S&P 500 Index and 0.84% for the Lipper Large-Cap Core Funds Index. For the 12 months ended March 31, 2015, the fund returned 12.36% versus 12.73% for the S&P 500 Index and 10.08% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 12.36%, 13.81%, and 8.02% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.71% as of its fiscal year ended December 31, 2013.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The fund aims to outperform the S&P 500 Index by investing in our research analysts' high-conviction stocks while keeping sector and industry weightings in line with those of the index. Eight out of 10 sectors in the S&P 500 index contributed to relative performance in the quarter. Stock selection in industrials and business services followed by financials contributed the most to relative returns. Conversely, stock selection in consumer staples detracted the most from relative performance.
The magnitude of the market's climb in recent years has been surprising given widespread expectations of higher U.S. interest rates sometime in 2015.We would not be surprised to see more subdued stock market returns coupled with higher volatility. Indeed, the CBOE Volatility Index, which measures expected volatility for the S&P 500, was approaching its historical average at quarter-end after dipping to atypically low levels in recent years. The increase in volatility coincides with other gauges showing falling correlations in the stock market. Higher volatility and lower correlations tend to favor active managers, and we hope that these conditions signal a market in which stocks trade on their fundamentals instead of macro events. Such an environment would allow us to leverage the work of our analysts and affirm the value of our strategy, which relies on in-depth fundamental research to identify favorable long-term opportunities within each sector of the S&P 500.