Developed non-U.S. stock markets generated strong returns in the third quarter of 2013, while emerging markets posted less robust gains. Developed European markets outperformed most markets in Asia and the Americas largely due to signs of improving economic growth and investor sentiment. Despite several bouts of heightened volatility, Asia's largest markets (-China and Japan)- returned solid third-quarter results. However, most emerging markets continued to struggle amid concerns about slowing growth, rising interest rates across developed markets, political unrest, and currency weakness. Overall, value shares outperformed growth stocks, and small-caps outperformed large-caps.
The International Stock Fund returned 9.75% in the quarter compared with 10.17% for the MSCI All Country World Index ex USA. For the 12 months ended September 30, 2013, the fund returned 15.47% versus 16.98% for the MSCI All Country World Index ex USA. The fund's average annual total returns were 15.47%, 7.98%, and 7.81% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.85% 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 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 consumer discretionary stocks were the top absolute contributors, powered by holdings in the media segment. The portfolio's information technology sector stocks also produced strong positive absolute and relative returns. Positions in Internet software and services and semiconductors and semiconductor equipment produced strong positive contributions. Financials, the portfolio's largest sector allocation, generated good absolute returns, but stock selection and an underweight allocation hurt the portfolio's comparison with the benchmark. Although emerging economies underperformed for the period, stock selection contributed more than the overweight allocation detracted. Stock selection was also positive across the portfolio's Japanese and U.S. holdings.
We remain optimistic about the intermediate- and long-term prospects for non-U.S. equities. However, short-term gains may be somewhat muted as stocks have moved up in anticipation of improved fundamentals. While we believe that many economies are stable or improving, the results may take some time and could be uneven. Although companies in Japan and Europe will likely remain challenged to generate stable revenue growth, investor sentiment in both regions is improving. We're focused on buying and holding high-quality companies with sustainable competitive advantages and sound fundamentals as evidenced by above-average revenue, income, and cash flow generation. Many of these corporations have used the low interest rate environment to strengthen their balance sheets. Valuations of many companies remain reasonable from a historical perspective.