Global equities climbed in the quarter amid signs that the U.S. economy was recovering from a first-quarter weather-driven contraction and hopes that new stimulus measures in Europe would boost eurozone economies. Investors were also encouraged by signs the crisis in Ukraine was de-escalating. Developed non-U.S. equity stocks narrowly lagged large-cap U.S. shares. Intermediate- and long-term U.S. Treasuries rallied, driving yields lower and confounding market expectations for higher interest rates. High yield corporate bonds slightly outperformed investment-grade corporates.
The Balanced Fund returned 3.89% in the quarter compared with 3.50% for the Lipper Balanced Funds Index. For the 12 months ended June 30, 2014, the fund returned 18.76% versus 16.25% for the Lipper Balanced Funds Index. The fund's average annual total returns were 18.76%, 13.71%, and 7.58% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.68% as of its fiscal year ended December 31, 2013.
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Total return information before August 31, 1992 reflects performance by managers other than T. Rowe Price.
Security selection within the large-cap growth and non-U.S. equity portfolios was the largest detractor from relative performance as each underperformed its style-specific benchmark. However, this was partly offset by positive security selection in the large-cap value portfolio. Our out-of-benchmark allocations to diversifying sectors, including real assets and high yield bonds, were strongly beneficial. We favor stocks over bonds, as we believe valuations are generally reasonable on an historical basis, though we reduced our overweight. Among U.S. large-caps, we favor growth over value, though we have reduced our overweight as the economy improves. We trimmed our overweight to high yield bonds relative to investment grade to take advantage of favorable liquidity conditions and attractive prices.
We expect modest global growth over the coming months. Central banks are likely to maintain accommodative monetary policies for some time to come, helping to support growth and reduce downside risk. We expect yields and U.S. interest rates to trend higher in the coming months as Federal Reserve tapering unfolds and economic growth improves. The U.S. economy should gradually progress as fiscal constraints abate, job growth picks up, and consumer finances improve. Europe's economy should also gradually improve as challenges in the eurozone periphery recede. In Japan, structural reforms among other factors will be required for further economic progress. Over the long term, we believe our highly diversified portfolios and diligent fundamental research can enhance our ability to produce good returns.