U.S. stocks declined in the third quarter, and the S&P 500 Index experienced its first "correction," which is a drop of at least 10% from recent highs, in four years. A steep drop in Chinese stock prices stemming in part from China's decelerating economy and uncertainty about a possible increase in short-term U.S. interest rates weighed on equities. The financials sector slightly lagged the broad market, as long-term interest rates fell and the Federal Reserve delayed its first rate increase since 2006. Most underlying industries in the sector declined.
The Financial Services Fund returned −8.31% in the quarter compared with −5.54% for the Russell 3000 Financial Index and −7.28% for the Lipper Financial Services Funds Index. For the 12 months ended September 30, 2015, the fund returned 4.84% versus 3.39% for the Russell 3000 Financial Index and 2.84% for the Lipper Financial Services Funds Index. The fund's average annual total returns were 4.84%, 12.26%, and 4.55% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.91% as of its fiscal year ended December 31, 2014.
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Capital markets companies, especially asset managers, weighed on fund performance, but we opportunistically added to our asset managers at attractive valuations. Security brokers and dealers were also large detractors. Shares of regional banks and large money center banks fell broadly, hampered by wider concerns about global growth and prolonged low interest rates. However, select regional banks now have an attractive risk/reward trade-off, and the money center banks are well run and in a better position than they were during the 2008-2009 downturn. They are continuing to drive greater efficiencies in their businesses, and regulatory changes have led to higher capital levels and better internal controls. Some of our securities exchanges performed well during the quarter, as trading volumes rose amid market volatility.
We remain constructive on financials, as the sector is leveraged to an improving economic environment and stands to benefit from gradually rising interest rates. As always, we remain focused on bottom-up, fundamental analysis of securities, rather than making investments based solely on macroeconomic analysis. The market is very short-term focused today, and we have been looking to identify companies with "idiosyncratic" stories where we can use a longer-term investment horizon as a competitive advantage.