International stocks endured a tumultuous first quarter but ended the period with modest gains. Developed markets generated mixed results in March, following seesaw returns in January (lower) and February (higher). Emerging market equities began the year with losses in January and February and then posted solid gains in March, but they ended the three-month period modestly lower. Over the quarter, value shares in the benchmark marginally outperformed growth stocks. The utilities and health care sectors generated above-average performance, while the telecommunication services, consumer discretionary, and financials sectors declined.
The International Stock Fund returned 0.74% in the quarter compared with 0.61% for the MSCI All Country World Index ex USA and −0.16% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended March 31, 2014, the fund returned 12.31% versus 12.80% for the MSCI All Country World Index ex USA and 14.82% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were 12.31%, 17.97%, and 6.48% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.85% as of its fiscal year ended October 31, 2013.
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 International 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.
The portfolio's largest sector allocations, financials and consumer discretionary (19% and 18% of assets, respectively), posted modest losses but performed in line with the benchmark. Our telecom services stocks, accounting for 5% of the portfolio at the end of the period, were the top absolute and relative performers, powered by strong stock selection. Bottom-up stock selection is the primary determinant for inclusion in the portfolio; we strive to own companies that can generate double-digit earnings and cash flow growth. Consumer staples (11% of the portfolio) detracted from absolute and relative results. Our 24% allocation to emerging markets and 9% allocation to developed Asia ex-Japan holdings generated solid absolute and relative performance contributions thanks to stock selection. However, stock selection in the UK (17% of assets) and developed European markets (31%) hurt our comparison with the benchmark.
In Europe, better economic data suggest that the modest recovery will continue helped by the gradual easing of austerity measures and stronger U.S. growth. It seems that confidence is returning to European markets, and this should feed into both consumer and corporate spending. While we remain optimistic about the longer-term prospects for Japan's market, its economy is in need of structural reforms. We believe emerging markets offer compelling valuation opportunities, given their strong long-term growth prospects. Over the longer term, we believe that the secular growth drivers for emerging markets remain in place.