Large-capitalization growth stocks posted modest gains for the quarter. Investors were encouraged that corporations had been able to leverage moderate economic growth into faster profit growth. Large-caps benefited from a generally positive tone to earnings reports and growth stocks outperformed value across the market capitalization spectrum. Health care stocks generated good gains and fared best within the Standard & Poor's 500 Index, followed closely by information technology shares. Conversely, energy stocks suffered steep declines as oil prices fell, and utilities and industrials and business services shares also performed poorly.
The Blue Chip Growth Fund returned 1.73% in the quarter compared with 1.13% for the S&P 500 Index and 1.27% for the Lipper Large-Cap Growth Funds Index. For the 12 months ended September 30, 2014, the fund returned 18.19% versus 19.73% for the S&P 500 Index and 16.87% for the Lipper Large-Cap Growth Funds Index. The fund's average annual total returns were 18.19%, 17.46%, and 9.35% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.74% as of its fiscal year ended December 31, 2013.
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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.
We are focused on selecting high-quality, stable-growth companies that could perform well even if the economy only experiences modest expansion in coming quarters. Our bottom-up stock selection process focuses on large- and mid-cap growth companies that can deliver steady revenues, earnings, and cash flow growth. At the end of the quarter, the portfolio's largest sector allocations were in consumer discretionary, information technology, and health care. The portfolio's Health care and tech holdings were top-performing sectors over the past three months. However, the largest sector allocation, consumer discretionary, hurt comparison with the benchmark S&P 500 Index primarily due to stock selection. We've maintained minimal exposure to defensive sectors where we believe it will be difficult to generate above-average, sustainable earnings gains, therefore, we've maintained underweight allocations to the financials, consumer staples, and energy sectors.
We remain optimistic about the equity market's near- and longer-term prospects. An expansion in price/earnings multiples drove much of the gains in U.S. stocks for the past several quarters. However, we believe that, going forward, stock prices will be more closely tied to earnings growth, which we think can continue at a moderate pace. Valuations currently appear neither rich nor inexpensive from a historical perspective. We will attempt to take advantage of market volatility and investor uncertainty to buy fundamentally sound companies that can generate double-digit earnings and durable cash flow growth when they are out of favor.