Markets in Africa and the Middle East declined broadly in the third quarter of 2015 as investors turned risk averse globally. A steep drop in Chinese stock prices stemming from China's decelerating economy and uncertainty regarding policy responses dragged global equity markets and commodity prices lower. A small but unexpected Chinese currency devaluation generally pressured emerging and frontier markets currencies. Expectations that the U.S. Federal Reserve will soon begin to raise short term interest rates also weighed on global markets and contributed to dollar strength versus some currencies.
The Africa & Middle East Fund returned −15.69% in the quarter compared with −16.02% for the Lipper Emerging Markets Funds Average and −14.98% for the S&P Emerging/Frontier ME & Africa BMI ex IL. For the 12 months ended September 30, 2015, the fund returned −19.48% versus −19.25% for the Lipper Emerging Markets Funds Average and −20.66% for the S&P Emerging/Frontier ME & Africa BMI ex IL. The fund's average annual total returns were −19.48%, 4.31%, and 0.16% for the 1-, 5-, and Since Inception (09/04/2007) periods, respectively, as of September 30, 2015. The fund's expense ratio was 1.42% 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 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.
Stock selection in Saudi Arabia helped the fund's relative performance, while stock selection in South Africa detracted. In aggregate, however, stock selection had very little impact on our relative results. Our underweights in Nigeria and Kuwait versus the benchmark hurt our relative performance slightly. Country allocations changed very little during the quarter. We are overweighting Egypt because we anticipate a strengthening economy will benefit Egyptian companies in the years ahead, but we are underweighting South Africa because we continue to find better long term growth candidates elsewhere in our opportunity set. In absolute terms, however, South Africa is our largest country allocation, and the country has some well managed companies that provide exposure to other parts of Africa.
Although the recent performance of African and Middle Eastern markets has been disappointing, we remain convinced that the region's long term outlook remains favorable, given positive demographics, rising urbanization, infrastructure investment, and a strong asset base in natural resources. Emerging markets in general could remain weak in the near term as China and various other countries decelerate, but stock valuations in our opportunity set have become more attractive. Also, while the downturn in commodity prices is challenging for commodity exporters, there are countries in the region benefiting from lower prices. As always, we would like to remind our investors that this fund has a high risk/return profile. Because of its narrow geographic focus and relatively small number of holdings, the fund can be extremely volatile and should represent only a small portion of a long term investor's well diversified portfolio.