U.S. stocks recorded stellar gains in the final quarter of 2013. Major stock indexes rose to record levels and the Nasdaq Composite Index reached multiyear highs. The quarter's performance pushed the S&P 500 Index to its best year since 1997, while the Dow Jones Industrial Average enjoyed its biggest annual gain since 1995. All 10 S&P 500 sectors advanced, with only the defensive telecommunications services and utilities segments lagging significantly. Small- and mid-cap stocks surrendered market leadership to large-caps for the quarter, but ended with generally stronger gains for the year. Growth stocks moderately outpaced value shares among large-caps, but the opposite held true for the smaller-cap benchmarks.
The Capital Opportunity Fund returned 10.57% in the quarter compared with 10.51% for the S&P 500 Index and 9.52% for the Lipper Large-Cap Core Funds Index. For the 12 months ended December 31, 2013, the fund returned 32.73% versus 32.39% for the S&P 500 Index and 31.82% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 32.73%, 17.96%, and 7.54% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.75% as of its fiscal year ended December 31, 2012.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
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 portfolio 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 the index. Stock selection was best in the information technology and industrials and business services sectors, respectively, the top contributors to relative performance. Conversely, stock selection was weakest in the consumer staples sector, the biggest detractor from relative returns. Stock selection was also modestly negative in materials, the second-biggest detractor from relative performance.
T. Rowe Price investment managers observe that high corporate cash levels might help strengthen the recovery in 2014, especially if companies increase capital spending. Companies could also devote some of their cash to mergers and acquisitions, which would provide less of a direct economic benefit but help support stock prices. However, a better economic environment does not guarantee superior stock market performance, and we would not be surprised to see gains moderate in 2014. While the stock market's advance was broadly based in 2013, we believe that identifying cases in which a company's potential is not reflected in its stock price may become more important in the near term. This renewed focus on fundamentals highlights the importance of research into individual stocks when seeking superior long-term returns. It also underscores the value of our investment approach, which is based on thorough fundamental research and a highly structured portfolio with characteristics mirroring those of the S&P 500.