Emerging markets stocks rose in the first quarter as the Federal Reserve's reassurances that it was in no rush to raise interest rates boosted investors' risk appetite. A February peace deal to end the nearly year-old Ukraine crisis also raised hopes that the U.S. and Europe may roll back sanctions on Russia if the truce holds. Finally, several interest rate cuts across the emerging universe and news of the European Central Bank's large-scale quantitative easing program buoyed demand for riskier assets. Against these tailwinds, however, evidence of slowing growth mounted in many countries. A strong U.S. dollar contributed to losses in dollar terms in many markets whose currencies weakened against the dollar. For example, shares in Brazil, Mexico, and Malaysia rose for the quarter in local currency but fell when converted into dollars.
The Emerging Markets Stock Fund returned 3.61% in the quarter compared with 2.28% for the MSCI Emerging Markets Index and 1.10% for the Lipper Emerging Markets Funds Average. For the 12 months ended March 31, 2015, the fund returned 5.73% versus 0.79% for the MSCI Emerging Markets Index and −1.61% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were 5.73%, 2.36%, and 8.10% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 1.24% 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 Emerging Markets Stock 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 portfolio is overweight in Brazil, India, and China (including Hong Kong). The portfolio also holds a few companies in developed Europe that generate a significant portion of their profits in emerging markets. In Russia, the portfolio holds only a few high-quality consumer-driven businesses and have avoided energy-related names. South Korea and Taiwan are the biggest underweight countries due to the lack of attractive growth opportunities in each country. The portfolio's sector allocations reflect our preference for areas driven by domestic consumption. Consumer staples and information technology stocks accounted for the top overweights at quarter-end. The largest underweight sectors were telecommunication services, energy, and materials due to our concerns about commodity prices and the lack of attractive growth opportunities in these areas.
We are optimistic about the long-term outlook for emerging markets. Rising consumption, an expanding middle class, and real wage growth are the drivers of huge economic potential in the developing world. Emerging markets are trading at a significant discount on an absolute and relative basis, making current valuations compelling for long-term investors. In recent years, we have noted growing dispersion in the returns of emerging markets stocks even within the same country and industry. We anticipate more divergence in the performance of countries and companies than we have seen in the past 15 years, and we believe that careful stock selection will be crucial for producing good returns over time.