U.S. large-cap stocks advanced modestly in the third quarter. Both the S&P 500 Index and Dow Jones Industrial Average rose to new all-time highs despite a sharp sell-off in July and renewed selling pressure near quarter-end. Growth outpaced value stocks in the large-cap universe, according to Russell indexes. Sector performance in the S&P 500 was mixed: Health care was the top performer, while energy stocks dropped the most as oil prices fell. Investors received a variety of signals during the quarter that the U.S. economy was gaining momentum in the year's second half. Labor market data were especially strong, with payroll statistics reaching their most favorable levels since the late 1990s, by some measures.
The Capital Opportunity Fund returned 0.52% in the quarter compared with 1.13% for the S&P 500 Index and 0.29% for the Lipper Large-Cap Core Funds Index. For the 12 months ended September 30, 2014, the fund returned 18.41% versus 19.73% for the S&P 500 Index and 17.07% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 18.41%, 14.92%, and 8.05% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 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. Stock selection in the financials and energy sectors had the largest positive impact on relative results. Conversely, stock selection in consumer discretionary and industrials and business services detracted them most from relative performance. Seven of 10 sectors in the S&P 500 Index detracted from relative returns during the third quarter.
Our near-term outlook for the stock market remains cautious. It has been some time since we have seen a meaningful correction, and we believe the rally has generally outpaced corporate fundamentals. We expect that the U.S. economy will continue to strengthen for the rest of 2014 but that the recovery will remain more subdued than previous ones. The magnitude of the stock market's climb in recent years has been surprising, given expectations of higher interest rates and tighter Federal Reserve policy. Looking ahead, we believe companies will need to deliver solid earnings and revenue growth to achieve further gains. We continue to rely on the in-depth work of our research analysts to find and buy companies with the most promising prospects for capital appreciation. We believe 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.