Latin American stock markets advanced in the third quarter due to a late rally after the Federal Reserve decided to maintain the pace of its monetary stimulus. Stock markets across the emerging world soared after the Fed's surprise decision on September 18, which briefly pushed the MSCI Emerging Markets Index to a four-month high. The Fed-induced rally more than offset weakness in the first two months of the quarter, when most emerging markets struggled with slumping currencies and slowing economic growth. Brazilian stocks jumped more than 8%, recouping from a summer when the domestic Ibovespa stock index and local currency sank to multiyear lows. Mexican stocks declined. Mexico has been trying to shore up its economy, which suffered its first contraction in four years in the second quarter following robust growth in 2012. Its central bank cut its benchmark rate in September for the second time this year.
The Latin America Fund returned 4.19% in the quarter compared with 4.14% for the MSCI Emerging Markets Latin America Index. For the 12 months ended September 30, 2013, the fund returned −7.09% versus −7.26% for the MSCI Emerging Markets Latin America Index. The fund's average annual total returns were −7.09%, 3.15%, and 17.18% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 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.
Brazil and Mexico remain the fund's two largest country allocations. Relative to the benchmark, however, the fund is overweight Brazil and underweight Mexico. We have been reducing our position in Brazil in times of market strength, given our outlook for muted economic growth into 2014. Brazil's economy is constrained by inflation, a depreciating currency, a widening current account, interventionist government policy, and other headwinds. Conversely, in Mexico we have taken advantage of recent declines to add to existing positions. Earnings and economic data have lately trailed expectations, but Mexico has undertaken significant reforms that we believe will benefit growth in the next few years. The portfolio also has modest positions in the Andean markets of Colombia, Chile, and Peru, and the so-called frontier markets of Panama and Argentina. Financials and consumer discretionary stocks represented our biggest sector overweights at quarter-end, while materials and utilities accounted for the largest underweights.
Stocks in Latin America and other emerging markets have lately lagged those in developed markets due to lower commodities demand, the cyclical nature of their economies, and the anticipated end of U.S. stimulus. However, we are confident that Latin American stocks are an attractive asset class over the medium to longer term. Most countries have implemented sensible macroeconomic policies over the past 15 years, resulting in greater fiscal discipline, relatively tame inflation, stronger financial systems, and improved political stability. A growing middle class, rising consumerism, and attractive demographics continue to support good growth opportunities for a wide range of companies. Finally, stocks across the emerging world are trading at a discount relative to their history and developed market stocks, making current valuations compelling for long-term investors. We believe that the solid fundamentals of the companies in which we invest are intact despite their disappointing year-to-date performance.