U.S. stocks surged as the recovery picked up and fears about a banking sector collapse in Cyprus abated. Rising corporate earnings and the Federal Reserve's ongoing efforts to stimulate growth through its asset purchase plan helped drive the rally. Non-U.S. stocks lagged U.S. shares as a stronger dollar versus other currencies reduced returns in dollar terms. Developed Asian markets fared best, led by Japan, where a new government has promised a more aggressive approach to monetary policy. Eurozone markets were mixed in dollar terms as developments in Italy and Cyprus weighed on the euro. Relatively upbeat news about the global economy and a growing appetite for riskier assets led to a modest overall loss for investment-grade bonds in the first quarter. Longer-term Treasury bond prices fell and yields rose as positive economic data dimmed their appeal as a perceived safe haven. Investment-grade bonds significantly lagged high yield bonds, which benefited from robust capital markets activity, including record new issue volume and strong demand for high yield debt despite historically low yields.
The Balanced Fund returned 5.33% in the quarter compared with 5.40% for the Lipper Balanced Funds Index. For the 12 months ended March 31, 2013, the fund returned 9.72% versus 9.37% for the Lipper Balanced Funds Index. The fund's average annual total returns were 9.72%, 5.85%, and 8.22% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2011.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
Total return information before August 31, 1992 reflects performance by managers other than T. Rowe Price.
Fund performance was positive but lagged the benchmark due to its holdings of real assets. These assets, which encompass energy, commodities, real estate, and other investments that have physical properties, lagged the broad U.S. stock market and detracted from relative returns. Unfavorable security selection in non-U.S. and domestic large-cap growth stocks also hurt relative performance. On the bright side, the fund's holdings of high yield bonds, which are not held in the benchmark, lifted relative returns. Our current strategy favors stocks over bonds. Stock prices have risen yet remain reasonably valued, while the current low-yield environment is less favorable for bond returns. We are neutral between U.S. and non-U.S. equity markets. As for fixed income, we continue to favor high yield over U.S. investment-grade bonds. High yield interest rates have fallen to low levels in absolute terms, and the deal terms in some recent issues have become less favorable to investors. Nevertheless, high yield bonds remain attractive relative to other fixed income sectors in a low-yield environment, particularly given our outlook for a slowly improving economy.
Our global growth expectations remain modest for the next several quarters. The housing recovery, moderate job growth, and an uptick in personal income growth are supporting gradual improvement in the U.S. economy, but the ongoing fiscal policy debate and its effect on growth remains uncertain. Much of Europe continues to struggle with austerity and recession. The Cyprus bank rescue highlights the continuing challenges in the eurozone debt crisis and the market's susceptibility to them. On the positive side, U.S. corporate balance sheets and profit margins remain healthy, and earnings and revenue growth are consistent with modest economic growth. China's economic growth has slowed from higher levels, but signs of improving data have materialized. We believe that near-term uncertainty and the unevenness of the global recovery underscore the value of the fund's broad diversification.