Emerging markets stocks declined as slowdowns in a few countries led investors to shift money out of the asset class in favor of developed markets, which have lately benefited from a better growth outlook. Slowing growth in Brazil, India, and China from the rapid pace of recent years spurred investors to rotate funds into the U.S. and Japan, where growth expectations have picked up due to unprecedented accommodative monetary policies. As a result, emerging markets stocks widely trailed stock markets in the U.S. and Japan, both of which rallied more than 10% for the quarter. Indonesia, the Philippines, and Thailand all posted double-digit gains, surpassing India and China, both of which declined. Southeast Asian markets are generally driven less by exports compared with other Asian countries, which helped them outperform for the quarter.
The New Asia Fund returned −0.30% in the quarter compared with −0.42% for the MSCI All Country Asia ex Japan Index and 0.74% for the Lipper Pacific Ex Japan Funds Average. For the 12 months ended March 31, 2013, the fund returned 8.23% versus 7.41% for the MSCI All Country Asia ex Japan Index and 8.71% for the Lipper Pacific Ex Japan Funds Average. The fund's average annual total returns were 8.23%, 5.96%, and 19.32% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.95% as of its fiscal year ended October 31, 2012.
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The New Asia 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.
China, South Korea, and India represented the biggest country allocations at quarter-end. We increased our exposure to Thailand, Singapore, the Philippines, and Indonesia. Generally, the investment climate in Southeast Asia has improved due to stable politics and sound macroeconomic and fiscal policies. We reduced our exposure to China and increased our allocation to India. We continue to favor sectors driven by domestic consumption, which should grow strongly as Asia's consumer economy expands and more people join the middle and upper classes. Consumer discretionary and staples stocks accounted for our biggest overweight sectors at quarter-end, while financials represented our largest underweight.
We expect that developments in Europe, slowing growth in China, and unresolved fiscal problems in the U.S. will drive volatility in emerging markets stocks in the coming months. Recent fund flow data show investors have retreated from emerging markets stocks as their returns have lagged those in developed markets in the year-to-date period. As a result, valuations for emerging markets stocks have become increasingly attractive relative to developed markets stocks. We believe that current valuations are pricing in many of the near-term risks for the asset class. Over the medium to long term, we remain optimistic about the growth outlook for emerging Asian markets. We believe that increasing consumption, a growing middle class, rising real wages, and greater upward mobility will drive strong and sustainable growth across the developing world over time.