U.S. stocks posted decent gains in the first quarter of 2014. Shares fell in January as the Federal Reserve began to taper its monthly asset purchases but rebounded strongly in February amid favorable U.S. economic data and good corporate earnings. Equities gave back some ground in March despite positive U.S. economic data, with investors keeping a wary eye on geopolitical tensions in Ukraine and renewed signs of an economic slowdown in China. According to S&P Dow Jones indices, net dividends increased $17.8 billion during the first quarter versus a $14.5 billion increase in the first quarter of 2013. The average yield for dividend-paying stocks rose to 2.48% from 2.44% at the end of the prior quarter.
The Dividend Growth Fund returned 1.49% in the quarter compared with 1.81% for the S&P 500 Index and 1.98% for the Lipper Large-Cap Core Funds Index. For the 12 months ended March 31, 2014, the fund returned 19.75% versus 21.86% for the S&P 500 Index and 21.61% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 19.75%, 19.73%, and 7.88% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.67% as of its fiscal year ended December 31, 2012.
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Health care, information technology, financials, and small positions in telecommunication services and utilities posted good gains and were our top-performing sectors for the quarter. Consumer discretionary and industrials and business services were modestly negative. Financials remains our largest sector weight, with a focus on banks and capital markets firms. Although the sector has rebounded from the lows of the financial crisis, we still find reasonable valuations in certain areas. We favor industrials stocks, concentrating on long-term secular growth opportunities. Information technology is our largest underweight position relative to the benchmark but certain companies appeared poised for growth. Our holdings are largely concentrated in IT services companies that can benefit from the increasing demand for business technology solutions.
The U.S. economy should continue to grow modestly in 2014, supported by broadly accommodative monetary policy despite Fed tapering, improvements in the housing and labor markets, decent consumer spending, and muted inflation. Overall, we remain optimistic about the environment for equities. Economic improvements should support accelerating growth in corporate revenues and earnings, while stock valuations remain reasonable despite last year's strong performance. We could see pockets of volatility, however, perhaps sparked by geopolitical events or monetary policy uncertainty. Overall, our portfolio remains leveraged toward an ongoing economic recovery in the U.S., with a focus on stocks that should benefit from decent growth.