Domestic large-cap stocks endured a challenging third quarter that saw the first S&P 500 Index decline of more than 10% in four years. The market retreated as China's economy-the second largest in the world-began to show signs of slower growth. The Federal Reserve's decision to delay a rate hike after its September meeting also contributed to investor anxiety and heightened volatility. Within the S&P 500 Index, the utilities and consumer staples sectors held up the best, while the energy, materials, and health care sectors posted double-digit declines.
The U.S. Large-Cap Core Fund returned −3.66% in the quarter compared with −6.44% for the S&P 500 Index and −7.15% for the Lipper Large-Cap Core Funds Index. For the 12 months ended September 30, 2015, the fund returned 5.30% versus −0.61% for the S&P 500 Index and −2.55% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 5.30%, 14.35%, and 15.05% for the 1-, 5-, and Since Inception (06/26/2009) periods, respectively, as of September 30, 2015. The fund's expense ratio was 1.15% as of its fiscal year ended December 31, 2014.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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We favor companies that can generate stable earnings and cash flow growth. Our bottom-up stock selection process relies on a rigorous valuation assessment to find stocks with the most potential for capital appreciation. Because of the concentrated nature of the fund (typically about 50 domestic large-cap growth and value stocks), we want to own high-quality, well-managed, fundamentally sound firms that have great products and services. During the quarter, we maintained a somewhat defensive posture. We added several utility companies-increasing our overweight allocation-and real estate investment trusts and trimmed our industrials and business services allocation. Stock selection in the information technology and consumer discretionary sectors generated strong relative performance, as did our underweight in energy. However, stock selection in the financials and consumer staples detracted from our relative returns.
We believe that full-year U.S. corporate revenue and earnings growth will be modest in 2015 compared with 2014 and that stock selection will be the primary driver of the portfolio's longer-term outperformance. The recent weakness in China's economy and emerging markets in general, falling energy and commodity prices, and Federal Reserve inevitable interest normalization remain significant near-term uncertainties. While we believe that stepped-up quantitative easing efforts by the world's large central banks would be a mistake for long-term equity market performance, it would likely provide a near-term boost for stocks.