Health care stocks posted strong third-quarter gains, outperforming the broad market as measured by the Standard & Poor's 500 Index and our Lipper peer group. The health care sector has been volatile over the past three months and for the year to date. Within the Lipper Health/Biotech Index, the biotechnology segment generated the strongest returns, followed by solid gains for services and pharmaceuticals. The smallest industry group, life sciences, posted the largest loss, while products and devices makers declined moderately.
The Health Sciences Fund returned 7.24% in the quarter compared with 1.13% for the S&P 500 Index and 5.65% for the Lipper Health/Biotechnology Funds Index. For the 12 months ended September 30, 2014, the fund returned 29.06% versus 19.73% for the S&P 500 Index and 27.54% for the Lipper Health/Biotechnology Funds Index. The fund's average annual total returns were 29.06%, 26.58%, and 16.57% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.79% as of its fiscal year ended December 31, 2013.
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Biotechnology holdings, which account for about one-third of the portfolio, generated solid absolute and relative performance due to stock selection. However, our below-benchmark allocation hurt our comparison with the Lipper peer group. During the third quarter, we opportunistically trimmed our biotech allocation into market rallies. However, we remain confident that the best investments in the health care space will come from companies that develop medicines that prevent disease, relieve symptoms, and provide cures. Our pharmaceuticals holdings (about one-fourth of assets) also contributed to absolute and relative returns. We initiated and added to several pharmaceuticals holdings during the period and increased our overweight allocation to companies developing novel therapeutics. Although our services industry holdings (about one-fourth of assets) posted positive absolute returns, stock selection hurt our comparison with the benchmark. We remained overweight to the services segment and favor managed care companies that can benefit from depressed health care utilization. Our overweight allocation to life sciences companies (5% of the portfolio) hurt the portfolio's absolute and relative returns.
The health care sector has been a standout performer for the past five years. Going forward, we believe the sector is likely to cool off and trade more in-line with the broad equity market. Part of our reasoning is that health care utilization rates are likely to remain depressed due to a proliferation of insurance plans that include higher out-of-pocket costs for patients. We're increasingly looking for companies that can benefit from lower utilization rates, such as managed-care companies. Conversely, we think we'll see a more challenging environment for volume-driven businesses, such as medical device companies. In our view, the health care universe is diverse and dynamic, and we believe it represents one of the most attractive growth areas in the global economy.