Most of the major U.S. indexes recorded modest gains in the quarter as investors balanced favorable corporate earnings against economic and geopolitical concerns. Developed non-U.S. markets were mixed, with European and Nordic stocks delivering the best gains while Asia-Pacific stocks were hurt by losses in Japan and Hong Kong. Emerging markets equities fell slightly against a backdrop of slowing growth. Treasury yields across most maturities fell and prices rose partly due to the Russia-Ukraine situation as well as concerns about the economic health of some emerging markets. Investment-grade corporate bonds posted strong performance as a result of the decline in Treasury yields and narrowing credit spreads. Non-U.S. developed market government bonds produced good returns, although they significantly lagged emerging markets debt.
The Balanced Fund returned 1.34% in the quarter compared with 1.82% for the Lipper Balanced Funds Index. For the 12 months ended March 31, 2014, the fund returned 14.73% versus 12.44% for the Lipper Balanced Funds Index. The fund's average annual total returns were 14.73%, 16.13%, and 7.16% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2012.
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Total return information before August 31, 1992 reflects performance by managers other than T. Rowe Price.
Our out-of-benchmark allocation to real assets was the largest detractor from relative performance, while our allocation to high yield bonds helped. Security selection among large-cap value stocks helped relative results while hurting in non-U.S. and large-cap growth stocks. We remain overweight stocks relative to bonds, although we moderated our overweight earlier in the quarter. We favor non-U.S. equities and are overweight to emerging markets stocks as valuations seem more attractive than in developed markets. In the U.S., we favor growth stocks, while outside the country, we prefer value. In fixed income, we favor high yield relative to investment-grade bonds for its yield advantage, but we trimmed our allocation on gains. We are neutral to emerging markets bonds relative to U.S. investment-grade bonds due to slower growth in emerging markets and potentially higher U.S. rates as the Federal Reserve tapers its monthly asset-purchase program.
Our global growth expectations remain modest over the coming months. In the U.S., gradual improvement in the economy is supported by a strengthening housing market, moderate job growth, subdued energy prices, and diminished fiscal constraints. In Europe, markets are improving, but the region still confronts high debt loads and unemployment, as well as deflation worries. Japan's fiscal and monetary policies have revived its economy and improved the inflation outlook, though its sustainability depends on structural forms, increased wages, and a manageable impact from the hike in the national sales tax. Emerging economies remain vulnerable to the prospect of rising U.S. rates as the Fed continues tapering its asset purchases. Over the long term, we believe the fund's broad diversification and diligent fundamental research can enhance our ability to produce good returns for our shareholders.