U.S. stocks were mixed in the third quarter. Major large-cap benchmarks rose to record highs, but mid- and small-cap stocks retreated amid worries about high valuations following several years of strong returns. Growth outpaced value stocks across all market capitalizations, according to various Russell indexes. Investors received a variety of signals during the quarter that the U.S. economy was gaining momentum in the year's second half. Labor market data were especially strong, with payroll statistics reaching their most favorable levels since the late 1990s, by some measures. The U.S. economy grew briskly at a 4.6% annualized rate in the second quarter, strongly rebounding from a weather-induced contraction in the first quarter.
The Mid-Cap Value Fund returned −2.67% in the quarter compared with −2.65% for the Russell Midcap Value Index, and −3.92% for the Lipper Mid-Cap Value Funds Index−1.83% for the Lipper Multi-Cap Value Funds Index. For the 12 months ended September 30, 2014, the fund returned 16.53% versus 17.46% for the Russell Midcap Value Index, and 13.57% for the Lipper Mid-Cap Value Funds Index15.68% for the Lipper Multi-Cap Value Funds Index. The fund's average annual total returns were 16.53%, 14.37%, and 10.01% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.80% as of its fiscal year ended December 31, 2013.
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Our sector allocations remained broadly unchanged over the quarter. Consumer staples represents our largest overweight sector versus the benchmark. Historically, we have found attractive valuations in the food products and food and staples retailing industries, which represent the bulk of our holdings in the staples sector. The fund is also overweight in energy. We purchased some good energy assets at attractive valuations, including some companies where activist investors are making headway on improving shareholder returns. We have recently pared our energy holdings on a net basis but continue to seek opportunities in this sector. Our biggest underweight is information technology, which tends to be more growth focused. Our investment approach focuses on identifying good companies whose shares are trading below their intrinsic value, regardless of the sector.
The year-to-date surge in merger and acquisition activity has benefited several of our holdings, as has the recent rise in shareholder activism. Because we buy undervalued or underperforming assets, some of our holdings are bound to draw the attention of activist shareholders who seek to unlock value through a change in management practices. If interest rates remain low, global economic growth stays positive, and confidence among corporate management teams remains high, the recent merger and acquisition trend may well continue. Regardless of the near-term direction of the stock market and economy, however, we remain focused on finding underappreciated companies whose shares do not reflect their intrinsic value and holding them for a long time as we wait for them to realize their full value.