International developed markets stocks declined moderately in U.S. dollar terms for the second quarter. Japanese shares gained slightly as the yen strengthened nearly 10% versus the U.S. dollar. Most European markets declined, with Italy tumbling 20% amid concerns about nonperforming loans in the country's banking sector. UK stocks fell and the sterling lost 7% versus the dollar amid the UK's decision to leave the European Union, or Brexit. Emerging markets stocks rose slightly overall. Latin American equities surged in response to higher commodity prices and signs of political stabilization in regional heavyweight Brazil. The U.S. dollar gained against most major currencies and boosted returns for U.S. investors.
The Spectrum International Fund returned −0.51% in the quarter compared with −0.40% for the MSCI All Country World Index ex USA and −0.69% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended June 30, 2016, the fund returned −8.97% versus −9.80% for the MSCI All Country World Index ex USA and −7.75% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were −8.97%, 2.11%, and 3.43% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.94% as of its fiscal year ended December 31, 2015.
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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 Spectrum International 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.
We favor emerging markets equities over international developed markets. Emerging markets valuations remain below long-term historical averages relative to valuations in developed markets, but weak global trade and continued oversupply in the global commodities market pose near-term risks. Expectations for a slower pace of U.S. Fed interest rate increases could provide near-term support and lessen concerns about capital outflows. We are modestly overweight overseas small-cap stocks versus large-caps. Because they tend to rely more on home markets to generate revenues, small-caps could benefit from efforts to improve domestic economies through aggressive quantitative easing measures, including low and negative interest rates that should support credit growth.
We expect global economic growth to be modest and uneven. Developed markets are expanding modestly, while major emerging markets are hampered by weak global growth. The Federal Reserve has adopted a "low and slow" approach to interest rate hikes, and their timing may be further affected as they evaluate Brexit's impact on U.S. and global growth rates. Key risks to global markets include the cascading and uncertain impacts of Brexit and divergent global monetary policies, including the potentially adverse consequences of negative interest rates and currency volatility. Political and policy uncertainties facing many countries pose additional concerns. However, we believe that the broad diversification and our ability to make tactical changes in the fund's allocations should help us generate attractive risk-adjusted returns in an uncertain market environment.