U.S. stocks surged in the fourth quarter, aided by the improving economy and an accommodative Federal Reserve. Mid-cap stocks outpaced large-cap stocks but trailed small-caps. Value stocks outperformed growth stocks in the mid-cap universe. Sector returns in the Russell Midcap Value Index were positive except for energy, which fell as oil prices plunged. Industrials and business services and materials stocks posted modest gains. The consumer discretionary sector performed well amid buoyant consumer sentiment and falling gas prices. Utilities stocks rose the most as investors sought high-dividend-yielding stocks amid a low interest rate environment. The economic recovery gained momentum. In December, the government reported that U.S. gross domestic product grew at an annualized 5% pace from July to September, marking the economy's fastest growth since the summer of 2003.
The Mid-Cap Value Fund returned 3.60% in the quarter compared with 6.05% for the Russell Midcap Value Index, and 4.93% for the Lipper Mid-Cap Value Funds Index4.28% for the Lipper Multi-Cap Value Funds Index. For the 12 months ended December 31, 2014, the fund returned 10.60% versus 14.75% for the Russell Midcap Value Index, and 8.95% for the Lipper Mid-Cap Value Funds Index9.89% for the Lipper Multi-Cap Value Funds Index. The fund's average annual total returns were 10.60%, 14.04%, and 9.21% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.80% as of its fiscal year ended December 31, 2013.
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The portfolio's sector allocations remained broadly unchanged over the quarter. Consumer staples represents the largest overweight sector versus the benchmark. Historically, we have found attractive valuations in the food products and food and consumer staples retailing industries. The portfolio is also overweight in energy, though we have recently pared holdings on a net basis due to greater risk in the near-term operating environment. Crude oil's plunge in 2014 has caused many investors to fixate on near-term oil price volatility rather than company fundamentals. We have purchased several high-quality businesses at attractive prices and remain focused on their long-term upside potential. The biggest underweight is utilities, but the portfolio holds many independent power producers due to attractive valuations and our improved outlook for the industry.
Increased buyout activity and a rising trend of shareholder activism have had a positive impact on several of the portfolio's holdings in recent months. Because we focus on undervalued or underperforming assets, some holdings are bound to draw the attention of activist shareholders who seek to unlock value through a change in management practices. We expect greater stock market volatility in 2015 as the Federal Reserve draws closer to raising short-term interest rates for the first time in many years and the impact from lower oil prices reverberates through the economy. Regardless of the near-term direction of the stock market and economy, we remain focused on finding underappreciated companies whose shares do not reflect their intrinsic value and holding them until they realize their full value over time.