U.S. stocks posted good gains for the second quarter of 2014 as investors focused on the gradually improving economy and were undeterred by geopolitical tensions in the Middle East and Eastern Europe, slowing growth in China, and a sharp first-quarter U.S. economic contraction. Non-U.S. developed market stocks also generated solid gains, while emerging market equities outperformed developed markets. Natural resources stocks significantly outpaced the U.S. and global equity markets. Energy shares surged amid concerns about potential supply disruptions due to violence in the Middle East.
The New Era Fund returned 11.49% in the quarter compared with 5.23% for the S&P 500 Index and 9.22% for the Lipper Global Natural Resources Funds Index. For the 12 months ended June 30, 2014, the fund returned 31.86% versus 24.61% for the S&P 500 Index and 28.42% for the Lipper Global Natural Resources Funds Index. The fund's average annual total returns were 31.86%, 12.50%, and 10.50% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.66% as of its fiscal year ended December 31, 2013.
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U.S. oil and gas exploration and production companies were among our strongest performers against the backdrop of continuing optimism about the prospects for domestic shale oil production. Heightened geopolitical risk emanating from the Middle East and Eastern Europe contributed to strength in our precious metals stocks. Modest exposure to agriculture, industrial machinery, and engineering and construction companies weighed on performance. The significant increase in North American oil and gas supply needs to find a home in domestic and international markets, resulting in opportunities in the oil and gas storage and transportation industry.
The medium term is likely to remain challenging for natural resources shares, but with wide variation among industries and companies. Current areas of focus include energy exploration and production companies with decreasing costs and accelerating production growth, particularly North American shale producers. We are also looking at commodity-related companies whose input costs are declining while product sales are increasing, including utilities and specialty chemicals. Short-term volatility, such as that arising from recent sectarian violence in Iraq, could give commodity and energy prices a boost and offer new investment opportunities.