U.S. stocks rallied in the first quarter as the recovery picked up and fears about a banking sector collapse in Cyprus abated. The broad-based S&P 500 Index ended the period at a new record high, effectively recouping all of its losses from the 2008-2009 financial crisis. Rising corporate earnings and the Federal Reserve's ongoing efforts to stimulate growth through its asset purchase plan helped drive the rally, offsetting concerns about the latest flare-up of the eurozone debt crisis in Cyprus. Most indicators showed the U.S. economy getting stronger. Weekly jobless claims and the unemployment rate both fell to multiyear lows, while gauges of manufacturing and service sector activity were generally favorable. Further evidence showed that the housing market had turned a long-awaited corner as home prices, sales, and construction activity all rose.
The Capital Opportunity Fund returned 10.35% in the quarter compared with 10.61% for the S&P 500 Index and 10.54% for the Lipper Large-Cap Core Funds Index. For the 12 months ended March 31, 2013, the fund returned 12.84% versus 13.96% for the S&P 500 Index and 14.00% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 12.84%, 5.86%, and 8.75% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.77% as of its fiscal year ended December 31, 2011.
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 industrials and business services sector, the biggest contributor to relative performance. Conversely, stock selection was weakest in the consumer discretionary sector, which detracted the most from relative returns.
We believe that U.S. stock prices are reasonably valued despite the first quarter's rally. Many of the risks facing stock investors have eased, aided by the European Central Bank's forceful actions to contain the region's debt crisis and highly accommodative monetary policies around the globe. In the U.S., the economic recovery appears to be gaining traction, while corporate fundamentals remain strong. Near-term risks to domestic growth include mandatory budget cuts under the federal sequester, which will likely dampen economic activity in the coming months. Overseas, we are focused on Europe's ability to regain competitiveness in an age of austerity and China's efforts to transition to a consumer-driven economy. In any event, we believe that near-term uncertainty underscores the value of our investment approach, which is based on comprehensive stock research and a highly structured portfolio with characteristics that mirror those of the S&P 500 Index.