Brazilian stocks advanced despite data showing that the economy is falling into a recession this year and news of a widening bribery scandal involving the state oil producer. In April, long-awaited audited financial statements eased some investor uncertainty about Brazil's credit rating. Mexican stocks rose slightly. Mexico's central bank kept its benchmark interest rate at a record low, and the government cut its full-year gross domestic product (GDP) growth forecast during the quarter. The reduced GDP target of 2.2% to 3.2% signals another disappointing year of growth for Mexico, which has been hit by lower crude oil prices and weak U.S. growth early this year. Andean markets were mixed. Stocks rose in Colombia and Peru but retreated in Chile. Central banks in all three countries kept their respective interest rates unchanged over the quarter as they grappled with commodity weakness, rising inflation, and sagging currencies against the U.S. dollar.
The Latin America Fund returned 2.10% in the quarter compared with 3.61% for the MSCI Emerging Markets Latin America Index and 1.58% for the Lipper Latin American Funds Average. For the 12 months ended June 30, 2015, the fund returned −22.17% versus −23.19% for the MSCI Emerging Markets Latin America Index and −24.52% for the Lipper Latin American Funds Average. The fund's average annual total returns were −22.17%, −5.31%, and 7.19% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 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.
The financials sector was the biggest drag on performance in the quarter, due to both stock selection and our overweight stance. In terms of sector allocation, relative performance benefited from underweight positions in materials and utilities as well as from the overweight stance with respect to consumer discretionary names. However, these positives were offset by the negative impact of our underweight exposure to energy (it was by far the best-performing sector within the region over the period) as well as by our overweight position to financials. From a country allocation perspective, the overweight allocation to Argentina detracted the most as the market underperformed the regional benchmark index over the period. By contrast, our underweight exposure to Chile was positive.
We believe that the outlook for Latin America has brightened recently, while the long-term promise of the region 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. When the economic cycle turns in Latin America, we believe that our investments will reward investors. We are confident this shift is coming given the reforms in many countries that have resulted in greater fiscal discipline, tame inflation, and stronger financial systems.