Latin American equity markets fell heavily in the fourth quarter, making Latin America the weakest region within the wider emerging markets universe. Worries over the slowdown in China, a disappointing macroeconomic backdrop, and a retrenchment in oil prices dampened investors' enthusiasm for this export-dependent region. Currency weakness magnified the declines. Brazil was the weakest-performing market within the regional index in U.S. dollar terms, weighed down by a deteriorating macroeconomic environment and a weak political backdrop. Sentiment took a further hit when another major ratings agency downgraded the country's sovereign debt rating to junk status and the country's respected finance minister resigned. Mexico recorded the smallest declines and outperformed the wider regional benchmark as a result of factors, including less sensitivity to raw material prices and a closer trading relationship with the U.S.
The Latin America Fund returned −1.26% in the quarter compared with −2.61% for the MSCI Emerging Markets Latin America Index and −2.62% for the Lipper Latin American Funds Average. For the 12 months ended December 31, 2015, the fund returned −27.13% versus −30.82% for the MSCI Emerging Markets Latin America Index and −29.71% for the Lipper Latin American Funds Average. The fund's average annual total returns were −27.13%, −15.17%, and 1.08% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 1.31% as of its fiscal year ended October 31, 2014.
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.
Our investment process relies on our bottom-up assessment of an individual company's prospects rather than on an attempt to exploit broad shifts between markets and sectors based on political or economic developments. The portfolio's financials holdings weighed the most on returns in the quarter, followed by consumer discretionary holdings. On a relative basis, the fund benefited from solid Mexican stock selection and an overweight of holdings in Argentina.
More challenges undoubtedly lie ahead for Latin America, especially Brazil. In particular, it seems unlikely that commodity prices will soon return to the levels that drove growth in the region in the previous decade, particularly as Chinese growth continues to slow. Nevertheless, we believe that the medium-term outlook for Latin America remains attractive as investors have significantly discounted any improvement, and the region's long-term promise for investors remains intact. Growing middle classes and political reform are creating opportunities for competent management teams that are nimble enough to seize them. We continue to devote substantial effort to meeting with and assessing company managers, often through travel to the region. We are confident that such meetings and careful fundamental analysis will allow us to identify companies with high returns and sustainable above-market earnings growth rates.