European equities generated modest first-quarter gains in U.S. dollar terms, spurred by accommodative monetary policy and data suggesting that a more sustainable economic recovery is taking hold. Announced in February and started in March, the European Central Bank (ECB) began coordinating the purchase of 60 billion per month of euro-denominated securities issued by eurozone governments, agencies, and institutions. One of the ECB's main goals is to weaken the euro, which may erode returns for U.S. investors but could provide an economic boost by making European exports more competitive. Falling unemployment, increased loan demand, easier lending standards, and lower oil prices also contributed to optimism about renewed growth.
The European Stock Fund returned 3.98% in the quarter compared with 3.58% for the MSCI Europe Index and 5.21% for the Lipper European Region Funds Average. For the 12 months ended March 31, 2015, the fund returned −4.82% versus −4.42% for the MSCI Europe Index and −4.43% for the Lipper European Region Funds Average. The fund's average annual total returns were −4.82%, 10.01%, and 7.28% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 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.
From a sector perspective, health care, information technology, and materials were our top performers. Our energy shares fell in a weak global pricing environment, and our utilities stocks gave back some previous gains. Consumer discretionary and financials stocks represent our largest sector positions and largest overweights versus our benchmark. From a geographic perspective, the UK is our largest country allocation, followed in order by Spain, Switzerland, Italy, and Germany. Spain and Italy are our largest overweight allocations, while France, Germany, and the Netherlands are the portfolio's largest underweights.
European earnings growth has been disappointing in recent years, although negative revisions have slowed of late. European companies have continued to meaningfully restructure, reduce costs, and improve their market positions since the global financial crisis of 2008-2009. We believe that many companies will experience significant operating leverage once a gradual recovery in Europe unfolds, and we are optimistic that large-scale quantitative easing will ultimately boost economic growth. It is encouraging that the labor market is improving and that the private sector, businesses and consumers alike, appears to be regaining a measure of confidence in most markets.