Major stock indexes were mixed in the first quarter, with most posting gains and the Dow Jones Industrial Average and emerging markets stocks losing ground. Shares tumbled in January as the Federal Reserve began to taper its asset purchases and emerging markets equities and currencies declined in anticipation of reduced global liquidity. Stocks rebounded in February, with emerging markets stabilizing and U.S. corporate earnings and economic data remaining mostly favorable despite harsh winter weather. Equities struggled somewhat in March amid Russia's controversial annexation of Ukraine's Crimean peninsula, which triggered retaliatory sanctions from the U.S. and the European Union.
The Growth Stock Fund returned −1.24% in the quarter compared with 1.12% for the Russell 1000 Growth Index and −0.11% for the Lipper Large-Cap Growth Funds Index. For the 12 months ended March 31, 2014, the fund returned 27.62% versus 23.22% for the Russell 1000 Growth Index and 25.04% for the Lipper Large-Cap Growth Funds Index. The fund's average annual total returns were 27.62%, 22.03%, and 8.59% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.70% as of its fiscal year ended December 31, 2012.
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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.
Sector performance was mostly positive. Portfolio performance benefited primarily from our health care, materials, information technology, and telecommunication services holdings. Positions in consumer staples, consumer discretionary, and industrials and business services were the major drags on results during the quarter. Our bottom-up stock selection leads us to favor more secular growth stocks, and, at the margin, we are trimming some of the more cyclical and capital-intensive holdings. At the end of the period, the portfolio was most heavily exposed to consumer discretionary, information technology, health care, and industrials and business services shares.
The U.S. economy should gain momentum in 2014 due to several positive factors. Monetary policy remains broadly accommodative despite a slowdown in the Federal Reserve's monthly asset purchases. We expect fewer fiscal restraints on growth than in 2013, and consumer spending should benefit from the waning headwinds of household deleveraging and last year's tax increases. Housing construction should continue to recover, and we believe business investment will increase. The labor market continues to improve, supporting ongoing income growth. The strengthening economy is likely to fuel accelerating growth in corporate revenues and earnings, while stock valuations remain attractive despite last year's strong performance. In addition, inflation remains under control. Therefore, we remain optimistic about the environment for growth equities.