Stocks of companies dealing in real assets generated good gains in the third quarter on indications of modest global economic growth and expectations for continued accommodative U.S. monetary policy. Natural resources stocks were among the strongest in the real assets universe, led by exceptional results among industrial metals, U.S. petroleum and production companies, and precious metals shares. Global infrastructure and utilities stocks enjoyed more modest gains, led by shares in developed Europe, where data are suggesting the green shoots of an economic recovery. Global real estate stocks managed a slim gain, and U.S. real estate stocks declined as rising interest rates weighed on rate-sensitive segments of the market.
The Real Assets Fund returned 7.36% in the quarter compared with 8.02% for the MSCI All Country World Index. For the 12 months ended September 30, 2013, the fund returned −0.94% versus 18.37% for the MSCI All Country World Index. The fund's 1-year and Since Inception (07/28/2010) average annual total returns were −0.94% and 4.21%, respectively, as of September 30, 2013. The fund's expense ratio was 0.86% as of its fiscal year ended December 31, 2012.
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The Real Assets 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.
Our natural resources stocks rose amid a number of positive economic developments in major consumption markets, including the ongoing U.S. recovery, stabilization of growth in China, resumption of growth in Japan, and signs of improvement in Europe. We took advantage of recent strength to reduce exposure to industrial metals and allocated the proceeds to other natural resource stocks, which now account for slightly more than one-fourth of the portfolio. Among infrastructure and utilities stocks, we added selectively to regulated utilities in Europe and the U.S. due to improving economic prospects and attractive valuations. The portfolio's largest real estate exposure is to the U.S. Domestic self-storage and lodging stocks were relatively strong, but health care and apartment shares were weaker. Among global real estate stocks, the portfolio has a significant weighting in Japan, where we believe holdings are well positioned to benefit from economic recovery and a reversal of deflationary pressures.
We expect modest global economic growth over the next several quarters. Subdued inflation in most of the world's major developed markets is likely to weigh on our asset class. However, a housing recovery and modest job gains in the U.S. support gradual economic improvement, but fiscal policy concerns could weigh on growth. Recessionary conditions in Europe appear to be ending and competitive adjustments are under way, but growth could be challenged without a stronger fiscal and monetary union. Japan's stimulative monetary and fiscal policies are boosting consumer spending and economic output, but structural reforms are necessary for sustained growth. Slower global economic growth and rising U.S. interest rates present headwinds to many emerging markets, but their overall growth rates still exceed most developed markets. China seems to be stabilizing at lower, more sustainable growth rates as the economy transitions to a consumer focus, but an incremental approach to reforms may hinder growth in the coming years.