Health care stocks endured a tumultuous first quarter. After generating a double-digit advance in the first two months of the year, the sector plunged in March. Following nearly three years of spectacular performance powered by price/earnings multiple expansion and several successful new product launches, biotechnology stocks gave back some of their gains at the end of the quarter. Within the Lipper Health/Biotech Index, the life sciences segment posted the best first-quarter returns, followed by product and devices companies. Biotech and services stocks ended the period solidly higher but trailed the benchmark.
The Health Sciences Fund returned 5.99% in the quarter compared with 1.81% for the S&P 500 Index and 6.69% for the Lipper Health/Biotechnology Funds Index. For the 12 months ended March 31, 2014, the fund returned 39.39% versus 21.86% for the S&P 500 Index and 39.60% for the Lipper Health/Biotechnology Funds Index. The fund's average annual total returns were 39.39%, 30.11%, and 15.03% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.79% as of its fiscal year ended December 31, 2012.
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Biotechnology continued to be the portfolio's largest allocation, ending the period at 33% of assets. Although we took profits and trimmed several of our richly priced holdings in 2013, we opportunistically added to biotech in the first quarter. A biotech company's valuation is only one component in our determination on whether to buy, sell, or hold. We also consider the company's market value relative to its phase in the trial process and the potential market size for its products. We believe that the discovery, development, manufacture, and commercialization of medicines remain the long-term drivers of value in health care, and we continue to favor therapeutics companies. Stock selection in the life sciences segment detracted from the portfolio's comparison with the Lipper index, but our overweight allocation generated a relative performance contribution.
We believe that the biotechnology industry will be a major driver of long-term value creation within the health care sector. It appears that the pace of drug approval is accelerating, which should improve the profitability of biotech companies-an industry that is still in its infancy compared with the pharmaceutical segment. We remain optimistic about the long-term prospects for health care stocks. However, in light of the portfolio's exceptional multiyear performance, we believe that returns are unlikely to remain as strong going forward, and we have tempered our expectations for 2014.