European stocks posted strong gains in the third quarter of 2013, boosted by accommodative U.S. monetary policies and signs that the region's prolonged recession had ended. Investor sentiment was boosted early in the period by good corporate earnings reports and Federal Reserve assurances that it would not increase short-term interest rates until the economic recovery was on firmer ground. Positive economic data helped European markets power ahead further over the period. Specifically, better-than-expected eurozone manufacturing numbers and a positive second-quarter GDP figure boosted sentiment significantly. Global markets struggled in August amid talk of the Fed tapering its asset purchase program and political tensions in Syria. Equities regained their strength soon afterward due to further positive data releases in the core and peripheral economies.
The European Stock Fund returned 13.83% in the quarter compared with 13.66% for the MSCI Europe Index. For the 12 months ended September 30, 2013, the fund returned 30.47% versus 24.95% for the MSCI Europe Index. The fund's average annual total returns were 30.47%, 10.05%, and 10.07% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 1.00% as of its fiscal year ended October 31, 2012.
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.
Consumer discretionary and consumer staples were among our top-contributing sectors. Within consumer discretionary, our holdings in the media industry were particularly beneficial, while an overweight to the sector helped results relative to our benchmark. Consumer discretionary remains our largest overweight, with an emphasis on European broadcasters. Many companies in this cyclical grouping have been excessively penalized by investors because of concerns about the state of domestic economies, but we are now starting to see signs of stabilization in TV advertising trends. Our consumer staples allocation saw strong gains among beverage stocks. While the sector generally offers good earnings growth visibility, strong returns, and healthy dividends, we remain underweight due to expensive valuations.
Recent data indicates that Europe's recession has ended and the economic environment is improving. Positive developments are evident in core and peripheral markets, and we expect the shallow recovery to continue as the region benefits from the gradual easing of austerity measures and a helpful boost from the U.S. recovery. The European Central Bank should continue to provide monetary stimulus, and future rate hikes are likely to lag Fed moves expected in 2015. European earnings have lagged the U.S. during this cycle and have significant potential to rebound as the regional economy stabilizes, while valuations also look inexpensive relative to other asset classes. We believe there are opportunities to invest in high-quality companies, whether they are domestically oriented businesses that have been overlooked by investors or global franchises that have weakened temporarily amid emerging market growth concerns.