Most major equities markets rose strongly, with some U.S. indexes reaching all-time highs in the fourth quarter. Non-U.S. equities in developed markets generally lagged U.S. shares. Eurozone markets performed mostly in line with large-cap U.S. shares, helped by improving economic growth and a European Central Bank rate cut in November. Stronger European currencies versus the greenback lifted returns to U.S. investors in dollar terms. Emerging markets equities lagged developed non-U.S. markets. Large-cap shares outperformed their smaller counterparts. Value stocks narrowly outperformed growth stocks among small- and mid-caps, while large-cap growth stocks fared marginally better than large-cap value shares. In the large-cap universe, all sectors produced positive returns.
The Growth Stock Fund returned 11.97% in the quarter compared with 10.44% for the Russell 1000 Growth Index and 10.74% for the Lipper Large-Cap Growth Funds Index. For the 12 months ended December 31, 2013, the fund returned 39.20% versus 33.48% for the Russell 1000 Growth Index and 35.41% for the Lipper Large-Cap Growth Funds Index. The fund's average annual total returns were 39.20%, 22.39%, and 8.89% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.70% as of its fiscal year ended December 31, 2012.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
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's major contributors in the fourth quarter included holdings in a broad variety of industries. Among them were Internet software and equipment; Internet catalog and retail; information technology services; biotechnology; and aerospace and defense. Portfolio positions that restrained performance included several in the energy, automobile, textiles, appliances, and luxury goods areas. As we look forward to 2014, the portfolio is well-positioned in information technology and consumer discretionary stocks, which together make up more than half of the portfolio. Other sectors we particularly favor are health care and industrials and business services.
Equities were driven higher in 2013, primarily by an expansion in price/earnings multiples as more and more investors sold safer assets, including Treasuries and other fixed income securities, and reallocated their money to riskier areas of the market. As we look forward to 2014, we see a continuation of this trend taking place, although on a more moderate scale. We are generally optimistic about the environment for equities for several reasons. First, global economic growth should pick up, with Europe now on track to follow the U.S. trajectory. Second, stock valuations remain attractive overall despite last year's strong performance. Third, inflation remains under control and the yield curve is positive. As long as rates do not rise too precipitously in the coming months, we believe large-cap growth stocks can perform well.