Intermediate- and long-term U.S. Treasuries rallied during the quarter, driving their yields significantly lower and confounding market expectations for higher rates. U.S. economic data released during the quarter were decidedly mixed as the unemployment rate fell while first-quarter gross domestic product data were the weakest in five years. The Federal Reserve maintained the gradual tapering of its quantitative easing program, which will eventually remove the central bank as a major source of demand for agency mortgage-backed securities (MBS), including GNMAs. However, agency MBS posted positive returns as a result of trading in lockstep with Treasuries and the limited amount of new supply.
The GNMA Fund returned 2.23% in the quarter compared with 2.33% for the Barclays U.S. GNMA Index and 1.93% for the Lipper GNMA Funds Average. For the 12 months ended June 30, 2014, the fund returned 4.13% versus 4.74% for the Barclays U.S. GNMA Index and 3.83% for the Lipper GNMA Funds Average. The fund's average annual total returns were 4.13%, 4.08%, and 4.55% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.59% as of its fiscal year ended May 31, 2013.
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We continued to position the fund's holdings away from the parts of the GNMA market that the Fed's buying has supported. We also maintained an out-of-benchmark allocation to Fannie Mae and Freddie Mac MBS. In general, we think that GNMAs currently offer more relative value than bonds outside the sector, such as asset-backed securities or non-agency MBS. However, we continue to find opportunities in collateralized mortgage obligations, mortgage-backed bonds with claims on cash flows determined by risk level, backed by collateral that we think offers fundamental value. We build the overall portfolio with the goal of providing shareholders with the most attractive risk-appropriate opportunities in the market, and balancing the cost of liquidity against risk level is an integral part of our investment and risk-monitoring process.
While long-term interest rates have risen from their record lows, they remain well below historical averages. Although rates will likely rise later in 2014, we believe that the modest pace of economic growth will moderate the upswing in yields. As a result, we maintain a bias within the portfolio toward segments of the market that offer attractive income opportunities and that should perform well in a low-rate environment. We continue to rely heavily on our extensive team of credit analysts, who provide careful, fundamental research on individual securities.