U.S. stocks rose modestly in the second quarter. Both the large-cap S&P 500 Index and the Dow Jones Industrial Average repeatedly hit record highs as investors anticipated that an improving economy would sustain corporate earnings growth. Growth and value stocks in the large-cap universe performed roughly the same. Energy was the top-performing sector in the S&P 500, gaining more than 12%, as oil prices surged amid geopolitical turmoil in Ukraine and Iraq. Financials stocks rose the least, adding slightly more than 2%. The U.S. economy unexpectedly shrank 2.9% in the first quarter, its worst quarterly performance in five years, but most economists blamed severe winter weather for the slowdown and anticipate stronger growth for the rest of the year.
The Value Fund returned 5.37% in the quarter compared with 5.23% for the S&P 500 Index and 4.57% for the Lipper Large-Cap Value Funds Index. For the 12 months ended June 30, 2014, the fund returned 27.44% versus 24.61% for the S&P 500 Index and 23.19% for the Lipper Large-Cap Value Funds Index. The fund's average annual total returns were 27.44%, 20.51%, and 9.02% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 0.84% as of its fiscal year ended December 31, 2013.
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Sector allocations stayed broadly unchanged from the previous quarter. Financials and utilities represented the largest overweight sectors at the end of June. Financials stocks have rebounded strongly from the 2008-2009 crisis, but the sector has good leverage to the improving economy, and we believe valuations of select companies still appear reasonable on a normalized earnings basis. In utilities, we favor unregulated power generation names, which include integrated utilities and independent power producers. These companies often pay a solid dividend while offering earnings growth from the deregulated portion of their business. Information technology and consumer discretionary, remain the largest underweight sectors.
Our near-term outlook for the stock market is cautious, as it has been some time since we have seen a meaningful correction, and we believe the rally has generally outpaced corporate fundamentals. We expect that growth will continue to pick up in the second half following the first-quarter's contraction, albeit at a muted pace compared with previous recoveries. Corporate fundamentals are in strong shape, and we have seen signs of revived confidence among management teams reflected in greater merger and acquisition activity and capital spending. However, revenue growth is subdued, which suggests that aggregate demand remains weak. We believe that companies will need to deliver solid earnings and revenue growth to achieve further gains, especially as the Federal Reserve winds down its longstanding stimulus program.