U.S. stocks posted strong returns amid considerable volatility, with small-cap shares outperforming large-caps in a break from the general 2014 trend. Non-U.S. developed market stocks lost ground in U.S. dollar terms as the greenback continued to strengthen against most other currencies. Asian stocks held up better than European shares. Measured in terms of U.S. dollars, emerging market equities fell more than non-U.S. developed market stocks. Plummeting oil prices took a toll on fixed income sectors with significant exposure to oil- and gas-related industries, including U.S. high yield bonds and emerging market debt. Shorter-term U.S. Treasury yields rose in anticipation of the start of the Fed's policy tightening, which is likely to start later this year, while longer-maturity Treasury yields decreased.
The Global Allocation Fund returned 0.71% in the quarter compared with −0.19% for the Morningstar Global Allocation Index. For the 12 months ended December 31, 2014, the fund returned 4.14% versus 3.66% for the Morningstar Global Allocation Index. The fund's 1-year and Since Inception (05/28/2013) average annual total returns were 4.14% and 6.77%, respectively, as of December 31, 2014. The fund's expense ratio was 2.03% as of its fiscal year ended October 31, 2013.
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With the ability to position the portfolio according to our views on economic and market conditions, we maintained a neutral position in stocks relative to bonds. Stocks appear to be priced at or above historical average valuation levels, and, with U.S. interest rates poised to rise, we expect moderate returns from bonds. We modestly increased the portfolio's overweight to international equities, which could benefit from more accommodative central bank policies. In fixed income, we increased the fund's overweight to high yield and initiated an overweight to emerging market debt as a result of the more attractive valuations in those segments. The fund includes a position in a hedge fund of funds designed to improve risk-adjusted returns; this allocation helped the fund's performance relative to the benchmark during the quarter.
Diminishing fiscal headwinds, improving private sector demand, and moderate job growth should continue to support U.S. economic activity. On the other hand, growth momentum has moderated in Europe and Japan, and we anticipate that high debt loads, elevated unemployment, and deflation worries will likely remain obstacles to a vigorous rebound in Europe. Declining energy and commodities prices could create further divergence in the growth rates of emerging market economies. We will continue to monitor the impact of falling oil prices on energy-related segments in fixed income, particularly in high yield and emerging market bonds.