U.S. stocks recorded stellar gains in the final quarter of 2013. Major stock indexes rose to record levels and the Nasdaq Composite Index reached multiyear highs. The quarter's performance pushed the S&P 500 Index to its best year since 1997, while the Dow Jones Industrial Average enjoyed its biggest annual gain since 1995. All 10 S&P 500 sectors advanced, with only the defensive telecommunications services and utilities segments lagging significantly. Small- and mid-cap stocks surrendered market leadership to large-caps for the quarter, but ended with generally stronger gains for the year. Growth stocks moderately outpaced value shares among large-caps, but the opposite held true for the smaller-cap benchmarks.
The Value Fund returned 10.57% in the quarter compared with 10.51% for the S&P 500 Index and 9.67% for the Lipper Large-Cap Value Funds Index. For the 12 months ended December 31, 2013, the fund returned 37.31% versus 32.39% for the S&P 500 Index and 33.24% for the Lipper Large-Cap Value Funds Index. The fund's average annual total returns were 37.31%, 20.65%, and 8.58% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.85% as of its fiscal year ended December 31, 2012.
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Our sector positioning changed little from the previous quarter. Financials and health care remained the two largest sectors on an absolute and relative basis at the end of December. Information technology and consumer discretionary, respectively, remain the largest underweight sectors. Our significant weighting in financials stems from holdings in insurance, diversified financial services, and commercial banks. This economically sensitive sector has rebounded strongly from the lows of the 2008-2009 crisis, but we believe valuations of select financials appear reasonable on a normalized earnings basis, and the sector has good leverage to the improving economy. In health care, our largest exposure is in pharmaceuticals, where our holdings have strong cash flows and attractive dividends.
After the U.S. stock market's strong performance in 2013, we have tempered our expectations for continued gains in the near term. Corporate balance sheets are healthy, but sales growth has been tepid and profit margins appear to have reached a peak. Since the latest bottom in October 2011, equity returns have been driven more by multiple expansion than by earnings growth, creating an environment in which positive sentiment has outpaced fundamentals. We would not be surprised to undergo a cyclical pullback in the near term. Our long-term outlook for the stock market remains positive due to strong corporate fundamentals and supportive economic data. The Federal Reserve has assured markets it will keep monetary conditions accommodative. We expect economic growth to pick up in 2014 as fiscal headwinds abate and the private sector strengthens. High levels of cash on companies' balance sheets have lifted prospects for merger and acquisition activity and capital spending, both of which could be a tailwind for the stock market and the economy.