Worries about China's slowing economy and its impact on worldwide economic growth led to a spike in volatility and a double-digit third-quarter decline for the MSCI All Country World Index ex USA. The Federal Reserve's decision to delay its first short-term interest rate hike since 2006, weakness in energy and commodities, the Chinese yuan devaluation, and concerns about a Greek exit from the eurozone contributed to the selling pressure. In general, developed markets held up better than emerging markets, which suffered large currency losses on top of share price declines.
The International Stock Fund returned −11.38% in the quarter compared with −12.10% for the MSCI All Country World Index ex USA and −9.62% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended September 30, 2015, the fund returned −6.04% versus −11.78% for the MSCI All Country World Index ex USA and −5.79% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were −6.04%, 3.81%, and 3.82% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.83% as of its fiscal year ended October 31, 2014.
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if it did, the performance would be lower.
While the portfolio did not escape the global equity markets sell-off, allocation decisions mitigated its losses somewhat. Underweights to the energy and materials sectors benefited relative results as did our overweight in health care. Overall, stock selection detracted from the portfolio's relative performance, especially in the health care, telecommunication services, and consumer staples sectors. We look to own companies that are adept at generating free cash flow, revenues, and earnings growth, and we added opportunistically to European financials that we believed were oversold. During the quarter, we made minimal regional allocation shifts. At the end of September, about 50% of the portfolio was invested in developed European markets including the UK (17%), emerging markets exposure totaled approximately 22%, and Japan accounted for about 14% of the portfolio.
We remain optimistic about the prospects for non-U.S. equities in the intermediate and longer terms. We think the European and Japanese central banks' quantitative easing programs, low interest rates, and weakened currencies will benefit stocks going forward. In Europe and Japan, we see improving corporate fundamentals as a longer-term positive. Emerging markets' diverse returns are largely reflective of the underlying country-specific fundamentals, which, in our view, is a positive and overdue development. While rising U.S. interest rates remain a near-term risk, emerging markets valuations appear to be discounting their longer-term growth potential. A protracted period of low energy and commodity prices would weigh on commodity-exporting emerging markets, but consumer-driven and service-oriented economies should benefit.