U.S. stocks enjoyed strong gains in the third quarter, despite slowing profit growth, buoyed by hopes for continued monetary stimulus and a rebound in the global economy. Developed non-U.S. stock markets generated strong returns. Developed European markets outperformed most markets in Asia and the Americas largely due to signs of improving economic growth and investor sentiment. Despite several bouts of heightened volatility, Asia's largest markets, China and Japan, returned solid third-quarter results. However, most emerging markets continued to struggle amid concerns about slowing growth, rising interest rates across developed markets, political unrest, and currency weakness. The emerging Europe, Middle East, and Africa region outperformed other emerging regions. The U.S. fixed income market featured generally rising yields, briefly pushing the yield on the benchmark 10-year Treasury note through the 3% barrier before falling lower in September on the Fed's decision to delay tapering.
The Personal Strategy Growth Fund returned 7.67% in the quarter compared with 6.11% for the Combined Index Portfolio* and 5.36% for the Lipper Mixed-Asset Target Allocation Growth Funds Index. For the 12 months ended September 30, 2013, the fund returned 18.50% versus 15.62% for the Combined Index Portfolio* and 14.83% for the Lipper Mixed-Asset Target Allocation Growth Funds Index. The fund's average annual total returns were 18.50%, 10.52%, and 8.50% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.91% as of its fiscal year ended May 31, 2013.
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Our overweight to stocks versus bonds had a positive impact on relative performance, as did our exposure to non-U.S. and high yield bonds, which serve to diversify the portfolio outside the benchmark. Good stock selection among large-cap stocks also contributed to relative performance. Our underweight to small-cap equities subdued results as they outperformed large-caps. We continue our overweight to stocks, particularly large-caps, because they are reasonably valued and offer dividend yields that are generally competitive with bond yields. Within our equity allocation, we are modestly overweight to non-U.S. shares owing to more attractive valuations. We also prefer emerging markets shares over developed markets. In fixed income, we are overweight to high yield relative to investment-grade bonds, favoring their yield advantage and lower sensitivity to interest rate changes.
Our global growth expectations remain modest over the next several quarters. Gradual improvement in U.S. economic activity is supported by the housing recovery and moderate job growth, yet hindered by fiscal headwinds that should fade going into year-end, provided that the government shutdown and any tangle over the debt ceiling are short-lived. European economies are hindered by debt loads, but have begun to benefit from a shift in policy to ease back on austerity. Slowing growth in China, Brazil, and other emerging economies is weighing on global trade. U.S. corporate balance sheets and profit margins remain healthy, however, and earnings and revenue growth should continue alongside modest economic growth. Equity valuations are also reasonable relative to historical levels based on several measures, including price-to-earnings and price-to-free cash flow. We believe the uneven global outlook and other near-term risks reinforce the value of the fund's broadly diversified investment approach.