African and Middle Eastern markets produced modest positive returns in the second quarter. In the Gulf Cooperation Council, Saudi Arabian stocks were flat, while Qatar and the United Arab Emirates (UAE) declined for the quarter due to a steep drop in June following their entry into the emerging markets universe. Furthermore, the UAE market stumbled as the central bank warned about a possible overheating of the real estate market, while corruption allegations are jeopardizing Qatar's right to host the World Cup soccer tournament in 2022. Conversely, in the sub-Saharan region, Nigerian and Kenyan stocks surged 17% and 11%, respectively. South African shares rose more than 4%, as a five-month platinum industry strike ended, but the economy contracted in the first quarter and the country's debt was downgraded in June. Egyptian shares rose 1%, as the economy continued to struggle and the country's new president took office in early June.
The Africa & Middle East Fund returned 2.38% in the quarter compared with 6.52% for the Lipper Emerging Markets Funds Average and 2.89% for the S&P Emerging/Frontier ME & Africa BMI ex IL. For the 12 months ended June 30, 2014, the fund returned 26.75% versus 14.14% for the Lipper Emerging Markets Funds Average and 24.30% for the S&P Emerging/Frontier ME & Africa BMI ex IL. The fund's average annual total returns were 26.75%, 13.05%, and 2.42% for the 1-, 5-, and Since Inception (09/04/2007) periods, respectively, as of June 30, 2014. The fund's expense ratio was 1.47% as of its fiscal year ended October 31, 2013.
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 Africa & Middle East 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.
Fund performance was helped by stock selection in the UAE and strong performance of our UK-based companies operating in Africa. However, security selection in Qatar and South Africa hurt our relative results. Roughly half of the fund is invested in Gulf Cooperation Council countries and half in African companies. Our significant underweight in South Africa-where macro fundamentals compare poorly with other economies in the region-allows us to overweight sub-Saharan Africa and the Middle East. During the quarter, we reduced our investments in Qatar and the UAE, but we continue to overweight these countries because we believe their fundamentals look solid.
Our outlook for the region remains robust, driven by attractive demographics, rising urbanization and levels of infrastructure investment, and a strong asset base in natural resources. While many emerging markets are undergoing a growth slowdown, many African and Middle Eastern markets are continuing to grow at high rates, driven by structural domestic demand. This is translating into strong corporate earnings growth that we believe can be sustained by various businesses in the years ahead. As always, we would like to remind our investors that this fund can be extremely volatile and should represent only a small portion of a well-diversified portfolio.