Non-U.S. developed markets stocks fell sharply in the third quarter and trailed U.S. shares by a wide margin. Eurozone stocks fared better than most regions but were not immune to the broader pullback. Second-quarter eurozone growth was revised higher to a 1.5% annualized rate, supported by a weaker euro, improved consumer spending, easier credit, and low energy costs. However, the region's positive outlook is somewhat muddied by concerns about slowing global economic growth, particularly in China. Japanese stocks fell by double digits and trailed U.S. and European shares. After a second-quarter economic contraction, Japan's economy remains on an uneven path, despite a very accommodative central bank. Corporate profits have been healthy, particularly among exporters.
The Overseas Stock Fund returned −10.64% in the quarter compared with −10.19% for the MSCI EAFE Index and −10.85% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended September 30, 2015, the fund returned −7.48% versus −8.27% for the MSCI EAFE Index and −9.72% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were −7.48%, 4.89%, and 0.83% for the 1-, 5-, and Since Inception (12/29/2006) periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.84% as of its fiscal year ended October 31, 2014.
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if it did, the performance would be lower.
Consumer staples and health care were the portfolio's top-performing sectors but still lost ground in a challenging environment. Smaller positions in the energy and materials sectors fell sharply amid ongoing weakness in the global commodities market, exacerbated by expectations of weaker demand from China. Europe remains our largest regional allocation, and we are looking for opportunities in the consumer discretionary and financials sectors that should benefit from attractive valuations and good earnings growth potential if the European economy continues to recover. We are underweight Japan, looking for stock-specific opportunities amid high valuations.
The worst of Europe's economic troubles appear to have passed, and we are encouraged by signs of improved corporate governance and a more shareholder-friendly environment in Japan. However, we are mindful of the risks posed by the massive expansion of government and central bank balance sheets resulting from fiscal and monetary stimulus measures in the years since the global financial crisis. We are also aware that a sharper-than-expected slowdown in China could have a significant impact on Asian and European economies. Good investments have become harder to find in the global market environment, but we will continue to rely on our independent global research platform to uncover compelling opportunities.