Despite ongoing geopolitical tensions in the Middle East and Ukraine and the Fed's tapering of its asset purchases, large-cap growth stocks moved higher in the third quarter. The advance was supported by generally favorable U.S. economic data and corporate fundamentals, as well as by new stimulus measures from central banks in the eurozone and China and falling long-term U.S. interest rates for much of the quarter. Large-cap shares fared better than their smaller peers, and growth stocks outperformed value across all market capitalizations.
The Growth Stock Fund returned 1.56% in the quarter compared with 1.49% for the Russell 1000 Growth Index and 1.27% for the Lipper Large-Cap Growth Funds Index. For the 12 months ended September 30, 2014, the fund returned 16.82% versus 19.15% for the Russell 1000 Growth Index and 16.87% for the Lipper Large-Cap Growth Funds Index. The fund's average annual total returns were 16.82%, 16.90%, and 9.43% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2013.
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The portfolio's energy holdings hindered performance, as oil and gas prices followed other commodities lower. Housing-related stocks were also underperformers against the backdrop of weakness in the housing industry. Biotech shares did relatively well as company fundamentals accelerate and pricing concerns subside. The porfolio's gaming stocks recovered from their March lows, due to solid growth in Macau, which stands in contrast to flagging gaming activity in Las Vegas and elsewhere in the U.S.. The portfolio's cloud computing positions also gained market share, but they have recently run into headwinds from concerns about their current valuation levels. The portfolio remains underweight in the health care sector, although we are focusing on biotech stocks, whose prospects look promising.
We anticipate further volatility in large-cap growth stocks at least through the intermediate term. A correction of 10% to 15% would not be unexpected against the backdrop of ongoing geopolitical turmoil. We believe the U.S. economy will continue to grow moderately, with low inflation, in the months ahead. Interest rates are likely to rise next year, but we expect them to rise at a modest pace, which would not derail our long-term growth projections. The slowdown in the eurozone is troublesome, and we do not expect to see an upturn until the latest round of stimulus measures takes effect. China's growth is also sluggish, which could have an impact on the global economy, particularly for countries in the region.