U.S. large-cap stocks fell in the third quarter as uncertainty about China more than offset generally favorable domestic economic data. China's efforts to stem a stock market sell-off and its unexpected currency devaluation in August highlighted the country's economic slowdown and raised questions about the Chinese government's ability to manage the economy. The Federal Reserve kept the federal funds rate near 0% at its September policy meeting, but the central bank's cautious comments about global economic developments weighed on investor sentiment. The Standard & Poor's (S&P) 500 Index slid 6.44% in the third quarter, with only the utilities sector posting positive returns. Energy was the biggest laggard, down 17.5%, followed by materials, which sank nearly 17%.
The Capital Opportunity Fund returned −6.31% in the quarter compared with −6.44% for the S&P 500 Index and −7.15% for the Lipper Large-Cap Core Funds Index. For the 12 months ended September 30, 2015, the fund returned 0.08% versus −0.61% for the S&P 500 Index and −2.55% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 0.08%, 13.12%, and 6.87% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.70% as of its fiscal year ended December 31, 2014.
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. Six out of 10 sectors in the S&P 500 Index contributed to the portfolio's relative performance in the quarter. Stock selection in consumer discretionary, energy, and materials contributed the most to relative returns. Conversely, stock selection in industrials and business services detracted the most from relative performance.
The U.S. stock market's third-quarter loss is not surprising given the magnitude of its advance over the past six years. Though the Fed left the fed funds rate near zero in September, it left the door open for a rate increase later this year. Given the current backdrop of potentially rising interest rates, uneven global growth, and elevated valuations, we believe that stock returns will likely be more muted in the near term. Volatility has recently picked up after hovering at historically low levels in recent years. While volatility can be hard to stomach for many investors, it creates opportunities for long-term investors to buy quality stocks at cheaper prices. Finally, the normalization of monetary policy after more than six years of ultra-low rates could mark a return to an environment in which fundamentals are the dominant drivers of the stock market. Such an environment would affirm the value of our strategy, which relies on rigorous company research to identify favorable long-term opportunities within each sector of the S&P 500.