Large-cap U.S. stocks reached all-time highs in February before retreating in March and ending the first quarter with slim gains. Investor optimism about stabilizing oil prices and aggressive monetary stimulus in Europe and Japan largely offset concerns about impending U.S. interest rate hikes, a stronger U.S. dollar, and some mixed economic data. Companies with a domestic focus outpaced those that generate a larger portion of revenues overseas as dollar strength challenged large exporters and multinationals. According to S&P Dow Jones Indices, net dividend increases rose by $12.6 billion during the first quarter, while the average yield for dividend-paying stocks rose to 2.51% from 2.45% at the end of the prior quarter.
The Dividend Growth Fund returned 1.77% in the quarter compared with 0.95% for the S&P 500 Index and 0.84% for the Lipper Large-Cap Core Funds Index. For the 12 months ended March 31, 2015, the fund returned 12.65% versus 12.73% for the S&P 500 Index and 10.08% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 12.65%, 13.90%, and 8.31% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 0.66% as of its fiscal year ended December 31, 2013.
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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.
Health care was one of our top-performing sectors and among our larger overweight positions relative to the benchmark. This traditionally defensive sector features a combination of good fundamentals, attractive growth, and reasonable valuations, although several years of outperformance mean that many stocks are no longer cheap. Our energy stocks lost ground, and we continue to be underweight the energy sector versus our benchmark due to an unfavorable long-term supply/demand dynamic. Our approach is to own companies with a combination of attractive assets and strong balance sheets that could emerge in stronger competitive positions once the current price cycle runs its course.
The U.S. economic recovery appears to be on relatively firm footing, supported by diminished fiscal headwinds, increased state and local government spending, better private sector demand, and moderate job growth. Healthy corporate balance sheets and cash flows offer flexibility to increase hiring and capital expenditures, enhance M&A activity, and return capital to shareholders through dividends and share buybacks. Given the disparity between performance gains in recent years and the relatively modest pace of earnings growth in U.S stocks, companies will need to deliver solid earnings and revenue growth to justify further gains, and we would not be surprised to see a market pullback.