European stocks were roughly flat for the quarter as declines in June largely offset a strong rally earlier in the period. The region's economic growth is firming after several years of weakness, with the European Central Bank's (ECB) quantitative easing program appearing to have a positive impact on consumer prices and alleviating concerns about deflation. The positive economic data boosted investor sentiment through much of the quarter, but markets gave back gains in June amid renewed concerns about the Greek debt crisis. Greece remains a very significant wild card, given its unsustainable debt load and concerns about its potential exit from the monetary union.
The European Stock Fund returned 1.79% in the quarter compared with 0.68% for the MSCI Europe Index and 0.93% for the Lipper European Region Funds Average. For the 12 months ended June 30, 2015, the fund returned −3.16% versus −7.17% for the MSCI Europe Index and −4.85% for the Lipper European Region Funds Average. The fund's average annual total returns were −3.16%, 14.79%, and 7.69% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.96% as of its fiscal year ended October 31, 2014.
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.
The European Stock 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 telecommunication services and consumer discretionary stocks posted solid gains and were our top-performing sectors for the period, while materials and energy lagged with moderate overall losses. The consumer discretionary sector remains our largest relative overweight, and we are particularly optimistic about media companies. We hold several broadcasting and cable stocks that are benefiting from increasing penetration and industry consolidation. From a geographic perspective, the UK is our largest country allocation by a wide margin, followed by Switzerland, Spain, and Italy. We also have substantial positions in Germany and France, with more modest exposure to Sweden, Belgium, Austria, Denmark, and Ireland.
Europe's labor market is improving, and the private sector, business, and consumers alike appear to be regaining a measure of confidence in most markets. European companies have meaningfully restructured, reduced costs, and improved their market positions since the global financial crisis of 2008-2009. As a result, operating leverage is relatively high for many European large-cap companies, meaning that even modest revenue growth could translate into sizable earnings gains. Meanwhile, aggressive quantitative easing by the ECB is providing direct support for asset prices.