The European Central Bank unexpectedly cut its key lending rate from 0.50% to 0.25% in November, signaling that inflation was not a problem and growth was a priority, which benefited the largest eurozone markets, including Germany, France, and Spain. Developed stock markets in the Asia-Pacific region posted mixed results. Stocks in emerging Asia advanced, while markets in emerging Europe and Latin America declined. Over the quarter, value shares marginally outperformed growth stocks-sectors including telecommunication services, information technology, and health care sectors generated above-average performance. The U.S. dollar strengthened versus the yen and weakened against the British pound and the euro.
The International Stock Fund returned 4.41% in the quarter compared with 4.81% for the MSCI All Country World Index ex USA and 6.09% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended December 31, 2013, the fund returned 14.27% versus 15.78% for the MSCI All Country World Index ex USA and 19.47% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were 14.27%, 15.69%, and 6.79% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 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 largest sector allocations-financials and industrials and business services-generated modest positive gains but hurt our comparison with the benchmark index due to stock selection. The portfolio's information technology stocks were the top absolute and relative performers, powered by strong results across our semiconductor and Internet software stocks. 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. From a regional perspective, our emerging markets and developed Asia ex-Japan holdings generated solid relative performance contributions. Our holdings in the UK and developed European markets were good absolute performers but lagged the benchmark.
Non-U.S. stock market valuations, while not frothy, are less compelling than they were six or 12 months ago, which tempers our near-term expectations for equities. Despite Europe's modest economic prospects, the risk/reward ratio appears more attractive there than in most other developed markets. While we remain optimistic about the prospects for Japan's market, we are looking for signs that its policymakers are politically willing and able to address important structural reforms to labor markets, tax and regulatory regimes, and social spending. We believe that emerging markets offer compelling valuations, given their recent underperformance and strong long-term growth prospects.