Most U.S. stock indexes recorded modest gains in the first quarter and reached new or multiyear highs as investors balanced favorable corporate earnings against economic and geopolitical concerns. The Dow Jones Industrial Average was the only major benchmark to record a loss. Within the large-cap S&P 500 universe, sector performance was mostly positive. The utilities sector handily outpaced all other segments, followed by health care. Consumer discretionary was the only sector to decline for the period. Value stocks outpaced growth shares across all market capitalizations, according to Russell indexes.
The Capital Opportunity Fund returned 1.20% in the quarter compared with 1.81% for the S&P 500 Index and 1.98% for the Lipper Large-Cap Core Funds Index. For the 12 months ended March 31, 2014, the fund returned 21.72% versus 21.86% for the S&P 500 Index and 21.61% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 21.72%, 20.53%, and 7.44% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. 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. Seven out of 10 sectors detracted from relative performance for the quarter. The industrials and business services sector had the largest positive impact on relative results due to stock selection. However, stock selection in consumer staples detracted the most from relative performance, as did stock selection in consumer discretionary. Utilities also detracted from relative returns due to unfavorable stock selection.
While we were somewhat surprised by the market's strength in 2013, we are cautiously optimistic about the current environment. We believe that stocks have rallied on the back of accommodative Federal Reserve policy, historically high profit margins, and general P/E multiple expansion. Looking ahead, we expect greater focus on company fundamentals. Improving payroll trends, declining unemployment, and improving manufacturing and production data provide evidence that the U.S. economy is on track for modestly improved growth in 2014. We remain concerned, however, that the market's upswing may have outpaced economic reality. Because of this, we expect more modest returns in the near term and believe that the market is due for a pullback at some point, as it has been some time since we have seen a significant correction. We continue to emphasize rigorous research and comprehensive analysis to seek companies that we believe have the potential for capital appreciation. We remain confident that an actively managed portfolio of carefully selected stocks, with overall risk characteristics similar to those of the S&P 500, can outperform the index over time.