European stocks declined in the first quarter, although a March rally helped to curb some of the losses. European stocks sagged as the year began amid concerns about slowing global growth, particularly in China, and plunging oil prices. Stocks moved deeper into negative territory in February, with bank shares showing market weakness due to fears about their ability to cope with slow growth and negative interest rates. The market rallied in March as the European Central Bank unveiled new stimulus efforts and oil prices bounced up from multiyear lows. The U.S. dollar weakened against most major currencies, boosting returns for U.S.-based investors. Most country indexes declined, but the Netherlands and Portugal bucked the trend with solid gains.
The European Stock Fund returned −4.50% in the quarter compared with −2.37% for the MSCI Europe Index and −2.75% for the Lipper European Region Funds Average. For the 12 months ended March 31, 2016, the fund returned −7.60% versus −7.96% for the MSCI Europe Index and −5.76% for the Lipper European Region Funds Average. The fund's average annual total returns were −7.60%, 5.02%, and 4.53% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.95% as of its fiscal year ended October 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.
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 energy and consumer staples shares generated the portfolio's largest absolute gains, while health care, financials, and information technology posted steep losses. Consumer discretionary remains our largest overweight position relative to the benchmark. We are particularly optimistic about media companies, where we hold several broadcasting and cable stocks that are benefiting from increasing penetration and industry consolidation. Consumer staples is our largest underweight allocation due to expensive valuations. Given the sector's good earnings growth and healthy dividends, we would strongly consider adding to our exposure if valuations were to come down.
Although many international markets have had a weak start to the year, Europe's modest economic recovery continues for now. Leading indicators are still in expansive territory, while a weak euro, cheap oil, and monetary stimulus measures provide further support. Europe's recovery remains fragile, however, given soft trends in global demand and pervasive deflationary pressures. Although corporate earnings have been somewhat subdued, valuations for European stocks are, in our view, reasonable. Our focus on high-quality trading at attractive valuations continues to result in a portfolio tilted toward companies that generate revenues domestically, but we are looking at select opportunities in favorably valued stocks with exposure to emerging markets.