Most U.S. stock indexes recorded modest gains in the quarter and reached new or multiyear highs as investors balanced favorable corporate earnings against economic and geopolitical concerns. Mid-cap shares outperformed their larger and smaller counterparts. The Dow Jones Industrial Average was the only major benchmark to record a loss, while the Standard & Poor's MidCap 400 Index regained market leadership. Value stocks outpaced growth shares across all market capitalizations, according to Russell indexes.
The Mid-Cap Value Fund returned 3.73% in the quarter compared with 5.22% for the Russell Midcap Value Index, and 3.14% for the Lipper Mid-Cap Value Funds Index2.46% for the Lipper Multi-Cap Value Funds Index. For the 12 months ended March 31, 2014, the fund returned 21.75% versus 22.95% for the Russell Midcap Value Index, and 23.69% for the Lipper Mid-Cap Value Funds Index22.95% for the Lipper Multi-Cap Value Funds Index. The fund's average annual total returns were 21.75%, 23.46%, and 10.06% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.81% 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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The portfolio's sector allocations remained broadly unchanged since the end of 2013. Compared with the Russell Midcap Value Index, consumer staples and materials remain the largest overweights. In consumer staples, we continue to find attractive opportunities in the food products industry and in food and staples retailing. In materials, we have a large allocation to the metals and mining industry. The biggest underweight sector is information technology, which tends to focus more on growth stocks, followed by financials. We assemble the portfolio one stock at a time based on rigorous fundamental research into each company. When evaluating a company, we are mindful of catalysts, such as the potential for a restructuring or acquisition, which should be reflected in a higher stock price. We are particularly interested in good companies that have underperformed their best operating potential, as these often end up being the best performers over the long term.
U.S. stocks were broadly positive in the first quarter but notably muted compared with the strong surge of last year. Despite a fairly eventful quarter marked by Russia's annexation of Ukraine's Crimea region and retaliatory sanctions from the West, there have not been significant repercussions on the U.S. economy. Poor weather may have produced temporary weakness during the period, but the economy continues to improve at a moderate pace, with contained inflation, a gradual housing recovery, and an improving labor market. The economy has thus far shown resilience in the face of reduced asset purchases by the Federal Reserve. Valuations remain at elevated levels after several years of strong performance in the stock market, and the opportunity set among mid-cap stocks remains limited. The rise in shareholder activism has positively impacted some of our holdings. While recent shareholder activism has invited unfavorable attention on a company's management, we believe it can also serve as a catalyst for management to improve fundamental performance and create shareholder value.