U.S. large-cap stocks advanced in the second quarter of 2016. As the period began, global stock markets extended the rally that began in mid-February, lifted by accommodative central bank policies in Europe and Japan and assurances from the U.S. Federal Reserve that it would proceed cautiously in raising interest rates. The UK's vote to leave the European Union on June 23 sparked a global markets rout that briefly pushed major U.S. stock indices into the red for the year, but a subsequent rally erased Brexit-induced losses and generated a slight gain for the quarter. Eight of 10 sectors in the S&P 500 advanced. Energy, telecommunication services, and utilities led advancers, while information technology and consumer discretionary stocks declined. Value stocks outperformed growth across all market capitalizations.
The Value Fund returned 1.56% in the quarter compared with 2.46% for the S&P 500 Index and 3.40% for the Lipper Large-Cap Value Funds Index. For the 12 months ended June 30, 2016, the fund returned −0.83% versus 3.99% for the S&P 500 Index and 0.34% for the Lipper Large-Cap Value Funds Index. The fund's average annual total returns were −0.83%, 11.61%, and 7.21% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.81% as of its fiscal year ended December 31, 2015.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
During the second quarter, we reduced our overweight to health care and increased our exposure to the energy sector. These dual actions, which we began in the first quarter, stemmed from our realization that a shift in our positioning in these sectors-which had contributed to strong relative results in previous years-was needed to reflect a changing environment. As a result, we added to high-quality energy companies with lower cost structures and good cash flow generation, as well as companies poised to benefit from a rebound in natural gas prices. Though we reduced our exposure to health care, it remains a large overweight for its reasonable valuations and defensive characteristics. Our holdings are concentrated in the pharmaceuticals and health care equipment and supplies industries. Information technology remains the fund's largest underweight sector.
We anticipate a muted U.S. economy and elevated volatility in the stock market as the investing environment remains driven by geopolitical events. Risks to our outlook include China's ongoing deceleration, persistent low interest rates globally, and Brexit's longer-term impact on global trade and economic activity. The U.S. stock market's advance this quarter has kept valuations at elevated levels, making it challenging to find attractively valued quality investments. Given our forecast for heightened market volatility in the coming months, we have reduced our relative sector and individual company bets and focused on high-quality names that are most likely to deliver strong relative results in a challenging macroeconomic environment.