U.S. equities enjoyed strong gains in the third quarter of 2013 as continued monetary stimulus and signs of a global economic rebound outweighed concerns about slowing corporate profit growth. Stocks peaked in mid-September after the Fed unexpectedly delayed tapering its asset purchase program but fell in the period's closing weeks due to concerns about the underlying strength of the U.S. recovery and a looming budget stalemate in Washington. Non-U.S. developed markets stocks generally outpaced domestic shares, with the eurozone staging a good rally on data indicating that the region's recession had ended. Emerging markets stocks struggled with weaker currencies and slowing economic growth for much of the period but rebounded sharply after the Fed's tapering delay. Fixed income markets saw rising yields and an aversion to interest rate sensitive securities through the middle of September due to expectations that the Federal Reserve would begin tapering its asset purchases. Yields fell and prices rose after the Fed delayed tapering, which boosted investor sentiment and lifted higher-risk asset classes, including emerging markets debt.
The Retirement 2030 Fund returned 7.21% in the quarter compared with 6.24% for the Combined Index Portfolio - Retirement 2030 Broad Index. For the 12 months ended September 30, 2013, the fund returned 17.13% versus 16.14% for the Combined Index Portfolio - Retirement 2030 Broad Index. The fund's average annual total returns were 17.13%, 10.19%, and 8.39% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.75% as of its fiscal year ended May 31, 2013.
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We continue to favor stocks versus bonds but reduced our overweight during the period. Stock price gains year-to-date have outpaced earnings growth and have been driven mainly by multiple expansion. Nevertheless, stocks remain reasonably valued and offer dividend yields that generally are competitive with bond yields, while the current low-yield environment remains less favorable for bond returns. We trimmed our overweight to emerging markets (EM) stocks due to concerns about slowing growth in some developing economies. However, many EMs continue to enjoy healthier fiscal positions and debt loads than developed markets, and their recent underperformance underscores their attractive valuations. We also reduced exposure to EM debt. Liquidity within the EM sector is susceptible to shifts in investor flows and represents a heightened risk in light of the eventual slowdown in the U.S. Federal Reserve's asset purchase program, which has the potential to raise U.S. rates, make current EM rates less attractive, and pressure EM currencies.
We expect modest global economic growth over the next several quarters. A housing recovery and modest job gains in the U.S. support gradual economic improvement, but fiscal policy concerns could weigh on growth. Recessionary conditions in Europe appear to be ending, and competitive adjustments are underway, but growth could be challenged without a stronger fiscal and monetary union. Japan's stimulative monetary and fiscal policies are boosting consumer spending and economic output, but structural reforms are necessary for sustained growth. Slower global economic growth and rising U.S. interest rates present headwinds to many emerging markets, but their overall growth rates still exceed most developed markets. China seems to be stabilizing at lower, more sustainable growth rates as the economy transitions to a consumer focus, but an incremental approach to reforms may hinder growth in the coming years.