U.S. large-cap stocks surged in the fourth quarter as the improving economy and an accommodative Federal Reserve drew investors into U.S. equities. Both the S&P 500 Index and Dow Jones Industrial Average rose to unprecedented highs in December. Sector performance in the S&P 500 was mixed: Utilities rallied more than 13%, widely outperforming other sectors, as investors favored their attractive dividend yields. Energy stocks fared the worst as oil prices fell below $60 a barrel, its lowest level since May 2009. U.S. gross domestic product grew at an annualized 5.0% pace from July to September, marking the economy's fastest growth since the summer of 2003, the government reported in its latest GDP reading in December.
The Capital Opportunity Fund returned 4.78% in the quarter compared with 4.93% for the S&P 500 Index and 4.16% for the Lipper Large-Cap Core Funds Index. For the 12 months ended December 31, 2014, the fund returned 12.21% versus 13.69% for the S&P 500 Index and 11.33% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 12.21%, 14.67%, and 7.61% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.71% as of its fiscal year ended December 31, 2013.
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 those of the index. Four of 10 sectors in the S&P 500 Index contributed to relative returns in the fourth quarter. Stock selection in the information technology and industrials and business services sectors had the largest positive impact on relative results. Conversely, stock selection in consumer discretionary and energy detracted the most.
The S&P 500 Index rose for the sixth straight year and posted double-digit returns for the third consecutive year in 2014. Given its remarkable run, we would not be surprised to see a pullback in the near term. We believe that volatility will pick up in 2015 as the Federal Reserve prepares to raise interest rates for the first time in many years. Oil's continued collapse is another potentially destabilizing force for financial markets, given that energy accounts for a sizable part of the U.S. economy. We are encouraged by signs of diminishing correlations in the stock market and hope that the recent drop in correlations signals a return to a market in which stocks trade on their fundamentals instead of larger macro events. Such an environment would allow us to leverage the insightful work of our analysts and affirm the value of our investment strategy, which relies on in-depth fundamental research to identify favorable long-term opportunities within each sector of the S&P 500.