Stocks of financial services companies appreciated in the second quarter and outperformed the broad market, as measured by the S&P 500 Index. Expectations that the Federal Reserve will soon start raising short-term interest rates lifted shares of companies that are likely to benefit from rising rates. Banks were notably strong, as rising long-term rates during the quarter should translate into larger interest payments that they will receive from new loans.
The Financial Services Fund returned 5.38% in the quarter compared with 1.28% for the Russell 3000 Financial Index and 4.13% for the Lipper Financial Services Funds Index. For the 12 months ended June 30, 2015, the fund returned 14.89% versus 10.27% for the Russell 3000 Financial Index and 9.68% for the Lipper Financial Services Funds Index. The fund's average annual total returns were 14.89%, 15.33%, and 5.81% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.91% as of its fiscal year ended December 31, 2014.
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Money center banks were some of the fund's largest absolute contributors to performance. They are continuing to drive greater efficiencies in their businesses, resulting in lower expenses. Regional banks also produced good returns. In the capital markets segment, broker-dealers produced solid gains, but operators of securities and options exchanges edged lower. Our life and title insurance holdings generally rose, but some of our property and casualty positions weighed on our results. Real estate-related investments, such as real estate investment trusts (REITs), were generally disappointing. Because REITs tend to have attractive yields, they often act like bonds in response to interest rate movements; they were hurt by rising long-term rates and expectations for Fed rate hikes.
We are reasonably optimistic about financials versus the rest of the stock market, as we believe the sector is leveraged to the improving U.S. economic environment and will benefit from a gradual increase in interest rates. We remain focused on bottom-up, fundamental analysis of securities, rather than making investments based solely on macroeconomic analysis. After the strong runup in banks, valuations started looking stretched, and we opportunistically trimmed some of our holdings. Money center and regional banks are still our largest industry allocations, however, as we believe management teams are now making better strategic decisions and managing the businesses better than in previous years.