Emerging markets stocks declined as slowdowns in a few countries led investors to shift money out of the asset class in favor of developed markets, which have lately benefited from a better growth outlook. Slowing growth in Brazil, India, and China from the rapid pace of recent years spurred investors to rotate funds into the U.S. and Japan, where growth expectations have picked up due to unprecedented accommodative monetary policies. As a result, emerging markets stocks widely trailed stock markets in the U.S. and Japan, both of which rallied more than 10%. Mexico added more than 6% and was the region's top performer, lifted by reform hopes of its new president, who pushed through several key reforms after he took office in December. Brazilian stocks declined amid a weak macroeconomic environment as the government continued efforts to boost growth through tax cuts and other measures without fanning inflation.
The Latin America Fund returned −0.21% in the quarter compared with 0.92% for the MSCI Emerging Markets Latin America Index and 0.54% for the Lipper Latin American Funds Average. For the 12 months ended March 31, 2013, the fund returned −2.47% versus −4.14% for the MSCI Emerging Markets Latin America Index and −2.19% for the Lipper Latin American Funds Average. The fund's average annual total returns were −2.47%, −0.49%, and 22.25% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 1.24% as of its fiscal year ended October 31, 2012.
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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.
Benchmark Definitions
The fund invests mainly in Brazil and Mexico, where we see the most attractive growth opportunities. Our exposure to Mexico declined slightly. Although we have a positive long-term view of the country, we believe stock prices there are fully valued after appreciating sharply over the past year. The fund's allocations to the smaller, rapidly growing Andean markets of Colombia, Chile, and Peru rose over the quarter. We favor companies and sectors driven by domestic consumption, which we believe will see the strongest growth as Latin America's consumer economy expands and more people enter the middle class. Financials and consumer discretionary stocks represented our biggest sector overweights at quarter-end, while consumer staples and materials accounted for the largest underweights.
We expect that developments in Europe, slowing growth in China, and unresolved fiscal problems in the U.S. will drive volatility in emerging markets stocks in the coming months. Recent fund flow data show investors have retreated from emerging markets stocks as their returns have lagged those in developed markets in the year-to-date period. As a result, valuations for emerging markets stocks have become increasingly attractive relative to developed markets stocks. We believe that current valuations are pricing in many of the near-term risks for the asset class. Over the medium to long term, we remain optimistic about the growth outlook for Latin America. We believe that increasing consumption, a growing middle class, rising real wages, and greater upward mobility will drive strong and sustainable growth across the developing world over time.
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