U.S. large-cap stocks advanced modestly in the third quarter. Both the S&P 500 Index and Dow Jones Industrial Average rose to all-time highs despite a sharp sell-off in July and renewed selling pressure near quarter-end. Growth outpaced value stocks in the large-cap universe, according to various Russell indexes. Sector performance in the S&P 500 was mixed: health care was the top performer, while energy stocks dropped the most as oil prices fell. Investors received a variety of signals during the quarter that the U.S. economy was gaining momentum in the year's second half. Labor market data were especially strong, with payroll statistics reaching their most favorable levels since the late 1990s, by some measures.
The Value Fund returned −0.81% in the quarter compared with 1.13% for the S&P 500 Index and −0.02% for the Lipper Large-Cap Value Funds Index. For the 12 months ended September 30, 2014, the fund returned 19.77% versus 19.73% for the S&P 500 Index and 17.30% for the Lipper Large-Cap Value Funds Index. The fund's average annual total returns were 19.77%, 16.15%, and 9.00% for the 1-, 5-, and 10-year periods, respectively, as of September 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 September. Financial 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, respectively, remain the largest underweight sectors. We reduced consumer discretionary exposure as a result of selling some auto-related names.
Our near-term outlook for the stock market remains cautious. 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 the U.S. economy will continue to strengthen for the rest of the year, but the recovery will remain more subdued than previous ones. The magnitude of the stock market's climb in recent years has been surprising, given expectations of higher interest rates and tighter Fed policy. However, low short-term rates, strong corporate balance sheets, and solid earnings growth provide some reassurance that the market can sustain, and even extend, its upswing. Despite the rise in large-cap valuations, we continue to find companies priced below their intrinsic value in a wide range of industries. We remain focused on our strategy of buying quality companies at attractive prices and maintaining a longer-term time horizon to allow our holdings realize their full value.