Stocks posted strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. Most of the major stock indexes moved further into record territory before pulling back late in the period. Gains were strongest in the Nasdaq Composite Index, which reached its best level in 13 years. Technology shares turned in a strong performance and exceeded returns of the broad market due to increased consumer and business spending on technology products.
The Science & Technology Fund returned 11.35% in the quarter compared with 5.24% for the S&P 500 Index and 12.62% for the Lipper Science & Technology Funds Index. For the 12 months ended September 30, 2013, the fund returned 27.08% versus 19.34% for the S&P 500 Index and 21.81% for the Lipper Science & Technology Funds Index. The fund's average annual total returns were 27.08%, 13.87%, and 7.69% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.88% as of its fiscal year ended December 31, 2012.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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Software represents the portfolio's largest allocation, as many companies within the sector have durable business models and attractive valuations. We particularly favor companies in the infrastructure and systems software industries. We continue to have a large allocation in media, where we have a high concentration in Internet companies that should benefit from the continued shift to online services. We reduced our allocation to hardware amid slowing sales in certain markets. We increased our allocation to semiconductors, as we believe the growth in smartphones and tablet computers should benefit the digital semiconductor industry.
We are mindful that the slowdown in emerging markets and continued political gridlock in Washington could dampen technology spending. While we believe stock prices now reflect significant economic improvement, we are making investments in companies that stand to benefit from durable long-term trends. Competition remains intense in the smartphone industry, and there is increased focus on potential winners and losers with the spread of cloud software. The public cloud computing space is still nascent, and we believe it will become increasingly important and account for a much larger percentage of total technology spending over time. We will continue to leverage our global research platform that applies in-depth analysis to identify companies with attractive prospects.