U.S. stock markets generated solid gains in the first quarter, lifting several major indexes to multiyear highs. Investors appeared to react favorably to improving economic conditions and the Federal Reserve's decision to continue stimulus measures until the jobless rate meaningfully declines. Corporate earnings were generally strong and merger activity gained momentum, though it remained below peak levels. Technology shares turned in a solid performance, though they lagged the broad market due to weaker consumer and business spending on technology products.
The Science & Technology Fund returned 7.42% in the quarter compared with 10.61% for the S&P 500 Index and 7.26% for the Lipper Science & Technology Funds Index. For the 12 months ended March 31, 2013, the fund returned −6.19% versus 13.96% for the S&P 500 Index and 1.90% for the Lipper Science & Technology Funds Index. The fund's average annual total returns were −6.19%, 7.17%, and 8.81% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.90% as of its fiscal year ended December 31, 2011.
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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 the infrastructure and applications software industries. We retained a large allocation to hardware, which offers exposure to innovative computing and entertainment products. Personal computer growth remains sluggish but trends appear favorable. Our exposure to media includes many companies benefiting from the increased global penetration of Internet connectivity and adoption of online services. We also have an overweight versus our benchmark in semiconductors, as we believe the growth in smartphones and tablet computers should benefit the digital semiconductor industry, where we have a large concentration.
While businesses have constrained their technology spending, we believe the long-term prospects for many of the durable and innovative companies in which we invest remain solid, particularly for smartphones and tablet computers and for software-as-a-service applications for businesses. Consumer demand for PCs has remained lackluster, but we believe the outlook is favorable given improving hard disk drive supply, promising ultra book laptop devices, and lower product pricing.