International stocks posted solid second-quarter returns, with emerging markets outperforming developed markets overall. In aggregate, developed European markets trailed the returns for developed Asia-Pacific markets. Over the quarter, large-cap stocks significantly outperformed small-caps, and value stocks performed better than growth. The energy sector was the strongest performer in the benchmark, followed by utilities, consumer staples, and health care. The weakest sectors included information technology, industrials and business services, and financials.
The International Stock Fund returned 5.05% in the quarter compared with 5.25% for the MSCI All Country World Index ex USA and 3.35% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended June 30, 2014, the fund returned 21.27% versus 22.27% for the MSCI All Country World Index ex USA and 20.25% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were 21.27%, 12.60%, and 7.22% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 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.
Consumer discretionary, the portfolio's largest sector allocation at 19% of assets, posted strong absolute and relative returns due to stock selection. We favor companies that are adept at generating free cash flow, revenues, and earnings growth. Financials, at 18% of the portfolio, was the portfolio's next-largest allocation. Stock selection in financials hurt our performance comparison versus the benchmark, but our significant underweight allocation helped as the sector underperformed during the quarter. Stock selection in industrials and business services (13% of assets) and a below-benchmark allocation to the top-performing energy sector (4%) hurt our comparison with the benchmark index. Our regional allocations were generally in line with the benchmark, and overall stock selection generated positive results. We are finding investment opportunities in emerging markets that have devalued their currencies and bolstered current account balances.
Leading indicators continue to point to a slowly improving macroeconomic picture, especially in Europe. Overall, investor sentiment is generally optimistic and improving. This is somewhat reflected in European stock prices as valuations have continued to rise. Higher prices, coupled with sluggish but improving earnings, lead us to be somewhat cautious in the near term. However, over the long term, we believe that performance will be determined by how well individual companies execute on their plans. Many European companies should benefit from reducing costs and improving their market positions over time. While we remain optimistic about Japan's intermediate-term prospects, we'd become more positive if policymakers would actively implement structural reforms to labor markets, tax and regulatory regimens, and social spending.