U.S. stocks rose in the third quarter, extending this year's impressive rally, despite moderating corporate fundamentals. The market also overcame an increase in long-term interest rates, which was driven by expectations that the Federal Reserve would begin reducing its asset purchases after its September monetary policy meeting. The central bank surprised investors by deciding to delay the taper until it receives "more evidence" that the economic recovery "will be sustained." Although several major stock market indexes reached multiyear or all-time highs in mid-September, shares sagged as the quarter ended amid concerns about the underlying strength of the economy and the growing probability of a federal government shutdown and debt ceiling showdown in October.
The U.S. Large-Cap Core Fund returned 5.38% in the quarter compared with 5.24% for the S&P 500 Index and 5.70% for the Lipper Large-Cap Core Funds Index. For the 12 months ended September 30, 2013, the fund returned 20.43% versus 19.34% for the S&P 500 Index and 21.34% for the Lipper Large-Cap Core Funds Index. The fund's 1-year and Since Inception (06/26/2009) average annual total returns were 20.43% and 16.87%, respectively, as of September 30, 2013. The fund's expense ratio was 1.33% as of its fiscal year ended December 31, 2012.
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We were net buyers in energy during the quarter, but we still maintain a significant underweight in the sector, as we see challenging supply-demand dynamics in the coming months. Supply growth is likely to outpace demand growth by a significant margin in the medium term. Our holdings in the sector are focused on companies with exposure to North American shale oil, where we staked out new positions during the period. Our largest overweight remains in health care. Our primary exposure is to the pharmaceuticals industry, where companies tend to have good businesses, strong cash flows, attractive dividends, and intriguing pipelines. While we remain underweight in information technology, we have a relatively large allocation to the group, since we believe IT companies have superior growth prospects compared with others in less dynamic sectors.
We are cautiously optimistic on the near-term outlook for the U.S. equity market; although, we believe the market's strength has outpaced fundamentals. We believe the headwinds we previously faced are continuing to diminish and the U.S. economy is strengthening. While monetary policy has always played an important role in driving markets, recent months have seen investors paying exceptional attention to signals coming from Washington. Additionally, investors are focused on the ongoing dialogue regarding the budget and debt ceiling, as well as the government shutdown and its impact on the economy. On the international front, anticipation of higher rates has contributed to market volatility and weakness in emerging markets, but aggregate demand is improving, which could be a long-term driver for stocks. Additionally, investors appear to have adjusted to lower growth from China, lending support to multinational stocks and resource companies.