International equity markets were again buffeted during the period, by macroeconomic and political worries rather than currency market volatility. A strong stock market rally early in the second quarter reversed in June amid renewed concerns over the fate of Greece and uneven economic data. Developed markets ended the second quarter with small gains as measured by the MSCI Europe, Australasia, and Far East (EAFE) Index. Within emerging markets, stocks in Latin America and the Europe, Middle East, and Africa region recorded solid gains, but Asian emerging markets posted a modest loss. Brazil, Russia, and China advanced more than 6%, but India declined nearly 4%. Stocks in emerging markets performed in line with developed non-U.S. markets, which narrowly outperformed U.S. shares.
The Spectrum International Fund returned 1.81% in the quarter compared with 0.72% for the MSCI All Country World Index ex USA and 1.55% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended June 30, 2015, the fund returned −1.52% versus −4.85% for the MSCI All Country World Index ex USA and −2.01% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were −1.52%, 10.35%, and 6.80% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.94% as of its fiscal year ended December 31, 2014.
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The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
We remained overweight to emerging market equities as valuations were attractive relative to those in developed markets. Internationally, we favored value stocks given the valuations in value-oriented sectors, such as European financials, which should benefit from improving economic and credit growth. Outside of the U.S., we preferred small-cap stocks, which benefited from the improving domestic economic environments and were supported by quantitative easing measures in Europe and Japan.
Global economies are likely to growth at a modest pace over the coming months amid continuing accommodative monetary policies from central banks, although we expect the Fed to begin raising rates sometime later in the year. Europe is experiencing gradual economic improvement overall; however, concerns remain over the slow progress some member states are making toward economic reform. While we are optimistic about Japan's intermediate-term prospects, we'd be more positive if policymakers would actively implement structural reforms in labor markets, tax and regulatory regimes, and social spending.
We believe that expectations for modest global growth in the coming months coupled with diminishing Fed stimulus and geopolitical uncertainty underscore the value of the Spectrum Fund's broadly diversified portfolios and investment approaches.