Latin American stocks surged in the second quarter. Brazilian stocks rallied after several polls showed fading support for President Dilma Rousseff ahead of October elections, raising the likelihood that a new, more market-friendly government will take power. However, Brazil's economy continues to struggle with mild stagflation, or weak growth combined with rising prices. Mexican stocks advanced despite disappointing growth year-to-date. Its central bank unexpectedly cut its benchmark rate in June to a record low to help revive the economy, a month after it slashed its 2014 growth forecast. Stocks in Chile, Colombia, and Peru all rose on strong economic growth despite a weaker commodities outlook resulting from China's slowdown.
The Latin America Fund returned 7.22% in the quarter compared with 6.99% for the MSCI Emerging Markets Latin America Index and 7.32% for the Lipper Latin American Funds Average. For the 12 months ended June 30, 2014, the fund returned 6.41% versus 9.32% for the MSCI Emerging Markets Latin America Index and 7.39% for the Lipper Latin American Funds Average. The fund's average annual total returns were 6.41%, 4.88%, and 15.31% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 1.25% 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 Latin America 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.
Brazil and Mexico are the fund's largest country allocations. Over the quarter, we reduced our Brazil allocation and increased our exposure to Mexico, where we have a more positive outlook. The fund owns companies in the small but rapidly growing Andean markets of Colombia, Chile, and Peru, as well as in the so-called frontier markets of Panama and Argentina. Our sector allocations stayed broadly unchanged. We continue to favor companies in sectors that stand to benefit from rising domestic consumption and an expanding middle class. Consumer staples and financials represented our biggest overweights at quarter-end, while materials and utilities accounted for the largest underweights.
Latin American stocks have trailed other emerging regions over the past year. However, we believe that the reasons for investing in the region are intact. Most countries have implemented sound macroeconomic policies in the past 15 years, resulting in greater fiscal discipline, tame inflation, and stronger financial systems, which are all positive developments in a region with a history of boom and bust cycles. Over the past decade, the size of the middle class in Latin America has soared while the portion of people in poverty has fallen. These trends (an expanding middle class, declining poverty, rising consumption, and real wage growth) are the source of huge economic potential. We are optimistic that economic and earnings growth in Latin America and other emerging markets will outpace that of developed markets over time.