U.S. large-cap stocks advanced in the first three months of 2016 as gains in the quarter's second half outweighed earlier losses. U.S. stocks followed global markets lower in the first six weeks of the year as investors reacted to poor manufacturing data out of China and a renewed decline in crude oil prices, which touched a 13-year low in February. Starting in mid-February, stocks recovered as oil prices climbed on speculation that oil-producing countries might agree to freeze or even cut output. Sentiment improved after the Federal Reserve left short-term interest rates unchanged at its March policy meeting and signaled a slower-than-expected pace of rate increases this year. Eight out of 10 sectors in the S&P 500 advanced. The health care and financials sectors each fell more than 5%. Value stocks outperformed growth across all market capitalizations.
The Equity Income Fund returned 2.74% in the quarter compared with 1.35% for the S&P 500 Index and 2.46% for the Lipper Equity Income Funds Index. For the 12 months ended March 31, 2016, the fund returned −3.10% versus 1.78% for the S&P 500 Index and −0.56% for the Lipper Equity Income Funds Index. The fund's average annual total returns were −3.10%, 8.06%, and 5.39% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.66% as of its fiscal year ended December 31, 2014.
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Financials was the largest overweight sector as of quarter-end. Our financial holdings are mostly banks, insurers, and capital markets companies. Financial stocks have rebounded from the 2008 global financial crisis, but we believe that valuations of select companies are still reasonable and that the sector should benefit from the improving economy and higher interest rates. The utilities and energy sectors are other large overweights. We seek energy companies with strong balance sheets, access to low-cost sources of oil and natural gas, and lower cost structures. Though we believe that commodity prices will stay subdued due to increased global supply, we believe that some companies operating in industry downturns represent good opportunities for long-term investors. Information technology remains the largest underweight sector.
We expect heightened stock market volatility and modest returns in the near term. While we anticipate reasonable economic and earnings growth in the U.S., the pace of each so far has been insufficient to quell worries about a possible recession. China's ability to manage its slowdown, fragile economies and negative interest rates in Europe, and a weakening credit cycle in the U.S. are among the uncertainties in the global outlook. U.S. corporate earnings growth should rebound slightly over 2016 as dollar strength abates and energy prices stay low. However, stock valuations appear stretched, particularly in defensive sectors. The myriad crosscurrents in the market provide us with opportunities to buy quality companies trading at attractive valuations. We have maintained our focus on companies with strong brands, competent management, and solid competitive and financial positions, qualities that we believe are conducive to good long-term performance.