U.S. large-cap stocks rose in the second quarter, and they recovered steep losses late in the period following the UK referendum on June 23 to leave the European Union-the so-called "Brexit." As the quarter ended, world markets rallied amid hopes for new stimulus measures from central banks in the UK and elsewhere. Domestic fixed income securities produced good returns, as longer-term interest rates declined and the Fed refrained from raising short-term rates. High yield corporate bonds surpassed high-quality securities, as energy and metals and mining issues rallied with commodity prices. Leveraged loans appreciated but to a lesser extent.
The Capital Appreciation Fund returned 3.09% in the quarter compared with 2.46% for the S&P 500 Index and 1.99% for the Lipper Mixed-Asset Target Allocation Growth Funds Index. For the 12 months ended June 30, 2016, the fund returned 6.92% versus 3.99% for the S&P 500 Index and 0.02% for the Lipper Mixed-Asset Target Allocation Growth Funds Index. The fund's average annual total returns were 6.92%, 11.27%, and 8.76% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.70% as of its fiscal year ended December 31, 2015.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
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During the quarter, our equity weight increased as we added to select holdings in the consumer staples and consumer discretionary sectors. We also trimmed names that had performed well in the health care and energy sectors. Our overall bond allocation increased slightly. Our largest fixed income asset class is high yield, where we seek to invest in the highest-quality, high yield bonds with low interest rate sensitivity. We believe that high yield is the most attractive asset class on a risk/reward basis. We continue to like investment-grade corporate bonds. We are challenged to find attractive buying opportunities among leveraged loans, given that covenant-lite loans now make up the vast majority of new issuance.
Given the unprecedented environment, we have redoubled our efforts, analytics, and infrastructure to help protect the downside. We have spent a considerable amount of time getting our heads around why interest rates are so low and what central bankers are trying to accomplish. Nevertheless, we are not macro investors, and we have no edge in predicting short-term moves in interest rates, the economy, or the stock market. What we do is work with our global analysts, frequently meet with corporate management teams, and look through our market inefficiency lens to identify the best investment opportunities. We remain confident that this framework gives us the highest odds of continuing to generate alpha (excess returns versus a benchmark) for shareholders over the long term.