International equity markets, as measured by the FTSE All World ex North America Index, posted negative returns in the third quarter. Worries about the faltering Chinese economy and its impact on worldwide economic growth was the primary impetus for the heightened volatility and widespread losses in the quarter, but the Federal Reserve's decision in September to delay its first short-term interest rate hike since 2006 contributed to investor uncertainty. Every sector in the index plunged. The materials and energy sectors were the worst performers. Ongoing weakness in energy and commodities, the Chinese stock market rout and yuan devaluation, and concerns about a Greek exit from the eurozone all fueled investor anxiety and contributed to the selling pressure.
The International Equity Index Fund returned −9.92% in the quarter compared with −10.15% for the FTSE All World Developed ex North America Index and −10.85% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended September 30, 2015, the fund returned −8.36% versus −8.21% for the FTSE All World Developed ex North America Index and −9.72% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were −8.36%, 3.70%, and 3.04% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.45% as of August 1, 2015.
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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.
The International Equity Index Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The fund strives to match the performance of the FTSE All World Developed ex North America Index, which includes the major developed market countries in Europe and the Asia/Pacific region. We attempt to replicate the index by investing in stocks across sectors in proportion to their weighting in the index. Financials, consumer discretionary, and industrials and business services are the largest sectors of the fund and benchmark. The worst-performing sectors in the third quarter were materials, energy, and financials. Consumer staples was the best-performing sector.
T. Rowe Price portfolio managers remain optimistic about the investment environment for global equities in the intermediate and longer term. However, they anticipate that growth in developed markets will continue in a stop-and-start fashion. The difficult, long-term adjustments needed to increase competitiveness in Europe and Japan are in their early stages. Overall, Europe offers long-term growth potential, but the near-term outlook is concerning because of disappointing corporate earnings. Lower European stock valuations reflect these worries. We are encouraged by the rising emphasis on shareholder-friendly corporate governance taking place in Japan, including a newfound focus on return on equity. In emerging markets, returns are now more reflective of underlying equity and sovereign fundamentals, which we view as a positive development.