Emerging markets stocks rose in the first quarter of 2016 after a rally in March erased declines in the year's first two months. The MSCI Emerging Markets Index entered a bull market after the Federal Reserve left short-term rates unchanged at its March policy meeting and signaled a slower pace of interest rate increases this year. The benchmark's rise marked a turnaround from January, when it fell to its lowest level in more than six years as oil prices sank and signs of China's slowdown mounted. Over the rest of the quarter, however, emerging markets benefited as oil rebounded and currencies in the developing world stabilized. The MSCI Emerging Markets Index ended the quarter at a four-month high.
The Emerging Markets Stock Fund returned 5.37% in the quarter compared with 5.75% for the MSCI Emerging Markets Index and 4.02% for the Lipper Emerging Markets Funds Average. For the 12 months ended March 31, 2016, the fund returned −9.99% versus −11.70% for the MSCI Emerging Markets Index and −11.58% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −9.99%, −2.70%, and 2.56% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 1.24% as of its fiscal year ended October 31, 2015.
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.
There were a few minor shifts to the portfolio's country and sector positioning during the first quarter of 2016. Our largest absolute positions are in China and India, followed by Taiwan, Brazil, and South Korea. Although Asia is our largest regional position in absolute terms, we remain underweight versus the index primarily because of underweights to China and South Korea. We hold positions in the ASEAN countries of the Philippines, Indonesia, Thailand, and Malaysia, mainly in the financials and consumer sectors. Within Latin America, the portfolio is overweight to Brazil, with significant holdings in financials, and maintains holdings in Mexico. Within emerging Europe, we hold positions in Turkey and Russia and is neutral versus the benchmark in the Middle East and Africa.
Emerging markets stocks have trailed developed markets stocks for several years, but we are more optimistic about the outlook for the asset class than we have been in some time. Emerging markets stocks are trading at a significant discount to developed markets stocks on an absolute and relative basis, making current valuations attractive. Compared with developed markets, most emerging markets have more favorable demographics and a stronger tailwind from rising consumption. In addition, most emerging markets have stronger financial positions, larger foreign exchange reserves, and more flexible currencies than they had in previous decades, reducing the likelihood of a financial crisis. Given the prevailing bearish sentiment, relatively cheap valuations, and bottoming fundamentals in the asset class, we believe the current environment is ripe for stock-picking and offers a good buying opportunity for longer-term investors.