U.S. stocks enjoyed strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. The Federal Reserve played a strong role in bolstering sentiment. After alarming investors in May and June by signaling that it might soon dial back on its asset purchases, Fed officials surprised financial markets in September by deciding to maintain the pace of its monetary stimulus. Most of the major stock indexes moved further into record territory after the Fed's announcement before pulling back late in the period. Growth stocks handily outpaced value shares across all capitalization ranges.
The Value Fund returned 5.54% in the quarter compared with 5.24% for the S&P 500 Index and 4.99% for the Lipper Large-Cap Value Funds Index. For the 12 months ended September 30, 2013, the fund returned 27.58% versus 19.34% for the S&P 500 Index and 23.25% for the Lipper Large-Cap Value Funds Index. The fund's average annual total returns were 27.58%, 11.09%, and 8.97% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.85% as of its fiscal year ended December 31, 2012.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The portfolio's sector positioning remained broadly unchanged from the end of the second quarter. Financials and health care continued to account for the two largest sectors on an absolute basis at the end of September as well as the biggest overweights. Information technology and consumer discretionary, respectively, remain the largest underweight sectors. A significant weighting in financials stems from positions in diversified financial services, insurance, capital markets, and commercial banks. This economically sensitive sector has rebounded strongly from the lows of the 2008-2009 financial crisis, but valuations of select financials appear reasonable on a normalized earnings basis, and the sector has good leverage to the improving U.S. economy. We increased exposure to the energy stocks on weakness but the portfolio remains underweight relative to the index, on the theory that increased North American oil and natural gas production could put pressure on these commodities in the long term.
Our outlook for the stock market is cautiously optimistic, but we would not be surprised by a cyclical pullback in the near term. The market has performed strongly so far this year, but corporate fundamentals have not kept pace. However, we have a positive outlook for the stock market over the long term. Europe's debt crisis appears more manageable and the U.S. fiscal condition has improved, though more structural reforms are needed. The U.S. economy continues to strengthen, fueled by a recovery in the housing and labor markets. Overhangs remain in the form of another budget and debt ceiling impasse in the U.S. and instability in the Middle East. Still, the stock market has scaled a significant wall of worry for several years now. As long as the economy continues to grow at a steady pace, we believe stocks will likely continue to advance, albeit at a slower pace, over the long term. Given current valuations, we are finding opportunities more in specific companies, rather than in larger themes. We are taking this opportunity to raise cash where appropriate, trim our holdings to reflect our best ideas, and continue searching for opportunities as fundamentals become more attractive.