Global stocks enjoyed strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. Non-U.S. equities in developed markets outperformed their U.S. counterparts as a weaker U.S. dollar versus other major currencies lifted returns to U.S. investors in dollar terms. Emerging markets posted less robust gains. Japanese stocks extended their rally. The Bank of Japan continued to move aggressively to bolster its economy, and Japanese gross domestic product growth is expected to remain above 3% into 2014.
The Global Stock Fund returned 13.25% in the quarter compared with 8.02% for the MSCI All Country World Index. For the 12 months ended September 30, 2013, the fund returned 26.13% versus 18.37% for the MSCI All Country World Index. The fund's average annual total returns were 26.13%, 6.24%, and 8.26% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.88% as of its fiscal year ended October 31, 2012.
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The Global 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.
Stock selection benefited fund performance during the quarter, particularly our holdings in information technology, consumer discretionary, and the health care sectors. In aggregate, our sector weightings also helped results. On a negative note, the portfolio's regional allocations proved negative due to an underweight in developed Europe and a slight overweight in emerging markets. At the end of the period, the portfolio was positioned to take advantage of the ongoing global recovery. We see areas of strength in aerospace, U.S. shale energy, cloud software, and rising interest rate plays. Trading during the period was primarily focused on rotating out of winners with limited upside potential into businesses that are poised to improve in 2014. We are finding opportunities to invest in technology, health care, and select energy stocks.
We remain optimistic about the intermediate-term outlook for equity markets. Business conditions and industry dynamics are broadly favorable, while an extended period of underinvestment has generated the potential for a strong capital expenditure cycle in the coming years. We have also seen a rapid change in market sentiment and consumer confidence, as caution has been replaced by optimism. Our portfolio has proven well suited for this period of fundamental improvement thus far, and it remains geared for a strengthening global economy. However, we believe that it is important to understand the challenges that accompany this environment: notably rising interest rates and expensive valuations. We favor a cautious approach toward emerging markets with significant current account deficits, as well as a willingness to move on from stocks that are approaching extreme valuations. Most important, we are continuing to construct a high-conviction portfolio filled with stocks that have distinct growth characteristics.