U.S. equities began the year with sharp losses. The combination of decelerating global economic growth, a plunge in oil prices, and a strong U.S. dollar weighed on equity performance from January through much of February. However, stocks began to reverse course in the second half of the quarter as oil prices climbed and U.S. economic data showed signs of improvement. By quarter-end, stocks were in positive territory due in part to additional economic stimulus in Europe and Japan, a rebound in oil prices, and a pullback in the relative value of the U.S. dollar.
The Growth Stock Fund returned −5.37% in the quarter compared with 0.74% for the Russell 1000 Growth Index and −4.24% for the Lipper Large-Cap Growth Funds Index. For the 12 months ended March 31, 2016, the fund returned −1.07% versus 2.52% for the Russell 1000 Growth Index and −2.24% for the Lipper Large-Cap Growth Funds Index. The fund's average annual total returns were −1.07%, 12.21%, and 8.16% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.67% as of its fiscal year ended December 31, 2015.
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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.
The portfolio underperformed the Russell 1000 Growth and the Lipper Indices during the first quarter. Stock selection in the health care sector detracted from relative performance, but our overweight to the sector also weighed on returns. Our underweight to consumer staples was another key detractor, despite positive stock selection in the sector. As market volatility picked up in 2016, investors preferred dividend-paying stocks that weren't particularly reliant on the economy. The portfolio was not positioned to take advantage of this relative flight to safety. The portfolio's performance was positively impacted by our underweight to the energy sector, and it also benefited from our stock selection in the materials sector.
We expect the U.S. economy to continue on its slow-but-steady growth trajectory, and we do not anticipate the U.S. economy will fall into recession as we progress through the year. We do believe markets are likely to remain choppy with no clear catalyst on the horizon to remedy the decelerating growth in China, difficulties in the eurozone, or ongoing volatility in the energy markets. While growth will be relatively harder to find, we are optimistic about the positioning of the portfolio, particularly to the extent that company fundamentals and earnings are coming back into focus as the primary influence on stocks.