Health care stocks posted strong fourth-quarter gains and outperformed the broad market as measured by the Standard & Poor's 500 Index. Although the health care sector was volatile over the year, the sector has generated exceptionally good returns for the past five years. Within the Lipper Health and Biotechnology Index, every industry group posted strong positive fourth-quarter performance. The biotechnology and products and devices segments were strongest, with gains of about 15%, while the weakest industry group, pharmaceuticals, posted a mid-single-digit return.
The Health Sciences Fund returned 11.20% in the quarter compared with 4.93% for the S&P 500 Index and 11.24% for the Lipper Health/Biotechnology Funds Index. For the 12 months ended December 31, 2014, the fund returned 31.94% versus 13.69% for the S&P 500 Index and 30.61% for the Lipper Health/Biotechnology Funds Index. The fund's average annual total returns were 31.94%, 27.75%, and 16.82% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.79% as of its fiscal year ended December 31, 2013.
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The portfolio's biotechnology holdings, which account for a bit less than one-third of assets, generated solid absolute performance but lagged the biotech segment in the Lipper benchmark due to stock selection and our underweight allocation. During the fourth quarter, we continued to focus on companies that develop innovative therapies. 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 and services holdings (each represents about one-quarter of the portfolio) generated solid absolute and relative returns. Within the services segment, we favor the prospects for managed-care companies that can benefit from an extended period of low health care utilization. Stock selection and an overweight allocation to life sciences companies (about 4% of the portfolio) detracted from relative results.
Returns for health care stocks in 2014 were stronger than we expected. This was the fourth consecutive year that health care outperformed the broad market (as represented by the S&P 500 Index). We, therefore, believe it is reasonable to expect that health care will perform more in line with the broad market going forward. However, if the market experiences a downswing, we think health care can outperform given the defensive nature of many companies in the sector. The health care universe is diverse and dynamic, and we believe it represents one of the most attractive growth areas in the global economy. The development of new drugs and therapies to address major medical needs, breakthrough products being developed by biotechnology companies, and the development of lifesaving and lifestyle-enhancing devices, should help support growth in the sector.