Global equities climbed in the quarter amid signs that the U.S. economy was recovering from a first-quarter weather-driven contraction and hopes that new stimulus measures in Europe would boost eurozone economies. Investors were also encouraged by signs the crisis in Ukraine was de-escalating. Developed non-U.S. equity stocks narrowly lagged large-cap U.S. shares but emerging markets performed well. Intermediate- and long-term U.S. Treasuries rallied, driving yields lower and confounding market expectations for higher interest rates. High yield corporate bonds slightly outperformed investment-grade corporates. Developed non-U.S. market government bonds produced good returns, although they significantly lagged emerging markets debt.
The Personal Strategy Balanced Fund returned 3.88% in the quarter compared with 3.60% for the Combined Index Portfolio* and 3.49% for the Lipper Mixed-Asset Target Allocation Moderate Funds Index. For the 12 months ended June 30, 2014, the fund returned 18.50% versus 15.62% for the Combined Index Portfolio* and 15.53% for the Lipper Mixed-Asset Target Allocation Moderate Funds Index. The fund's average annual total returns were 18.50%, 14.02%, and 7.87% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.85% as of its fiscal year ended May 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.
Our overweight to stocks versus bonds, particularly large-caps, contributed the most to relative performance as equities outpaced bonds and large-caps beat small-caps. Our inclusion of diversifying sectors also helped relative performance, particularly emerging markets, high yield, non-U.S. bonds, and real assets. We believe stock valuations are generally reasonable on a historical basis, though small-caps seem rich. We favor non-U.S. equities and are overweight to emerging markets stocks as valuations seem more attractive than in developed markets. We trimmed our overweight to high yield bonds and initiated an overweight to emerging markets bond as yields have become more attractive.
We expect modest global growth over the coming months. Central banks are likely to maintain accommodative monetary policies for some time to come, helping to support growth and reduce downside risk. We expect yields and U.S. interest rates to trend higher in the coming months as Federal Reserve tapering unfolds and economic growth improves. The U.S. economy should gradually progress as fiscal constraints abate, job growth picks up, and consumer finances improve. Europe's economy should also gradually improve as challenges in the eurozone periphery recede. In Japan, structural reforms, among other factors, will be required for further economic progress. Emerging markets remain vulnerable to potentially higher interest rates stemming from U.S. Federal Reserve tapering. Over the long term, we believe our highly diversified portfolios and diligent fundamental research can enhance our ability to produce good returns.