U.S. stocks recorded stellar gains as major indexes set record highs on improving economic growth and strong corporate profits despite sluggish consumer spending. The U.S. Federal Reserve boosted sentiment when it decided to taper its asset purchases beginning January 2014, while Europe's central bank cut its key lending rate in November. Non-U.S. developed markets stocks turned in good results, though they lagged U.S. shares. Emerging markets stock returns were lackluster. The 10-year Treasury yield reached over 3.00% after the taper announcement, ending the year at 3.03%. Investment-grade corporate bonds gained, though their returns paled next to those of high yield debt. Non-U.S. developed market bonds posted mixed results, and emerging markets bonds logged a positive return.
The Personal Strategy Balanced Fund returned 6.04% in the quarter compared with 5.00% for the Combined Index Portfolio* and 5.02% for the Lipper Mixed-Asset Target Allocation Moderate Funds Index. For the 12 months ended December 31, 2013, the fund returned 18.09% versus 15.45% for the Combined Index Portfolio* and 14.77% for the Lipper Mixed-Asset Target Allocation Moderate Funds Index. The fund's average annual total returns were 18.09%, 15.45%, and 7.67% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.85% as of its fiscal year ended May 31, 2013.
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.
We remain overweight to stocks versus bonds as the low-rate environment is more supportive of equities. Though stocks are not cheap, they appear reasonably valued overall, except for U.S. small-caps, which seem somewhat pricey to us. We trimmed our overweight to U.S. growth stocks based on narrowing relative valuation levels. Our out-of-benchmark exposure to high yield bonds and emerging markets bonds helped results as these sectors outperformed the fixed income asset class benchmark. However, this was offset fully by our exposure to real assets, which underperformed the blended equity benchmark.
Our expectations for global growth remain modest. The U.S. economic recovery continues, supported by a strengthening housing market, improving employment, subdued energy prices, and the Fed's low interest rate policy. While the eurozone has emerged from recession, economic headwinds continue, and Japan's government will continue to face challenges as it attempts to undertake reforms to bolster the country's economy. Emerging markets economies face slower growth than in recent years and remain vulnerable to potential rising U.S. rates. Although uncertainty about the impact of Fed tapering may periodically elevate market volatility, we believe our highly diversified portfolios and diligent fundamental research can enhance our ability to produce good long-term returns for our shareholders.