Many African and Middle Eastern equity markets generated solid gains in the third quarter, as the region outpaced the broad emerging markets universe. Fears of a U.S.-led intervention in Syria's civil war weighed on markets, but they rallied after the U.S. Federal Reserve's decision in mid-September to delay tapering its asset purchases. In the Middle East, the United Arab Emirates led the Gulf Cooperation Council markets with a 13% gain, whereas Oman and Qatar lagged with milder returns. In Africa, shares in Kenya, Egypt, and South Africa were some of the top performers, while Nigerian stocks rose slightly and equities in Ghana declined.
The Africa & Middle East Fund returned 8.84% in the quarter compared with 7.49% for the S&P Emerging/Frontier ME & Africa BMI ex IL. For the 12 months ended September 30, 2013, the fund returned 21.82% versus 8.64% for the S&P Emerging/Frontier ME & Africa BMI ex IL. The fund's average annual total returns were 21.82%, 0.84%, and 0.18% for the 1-, 5-, and Since Inception (09/04/2007) periods, respectively, as of September 30, 2013. The fund's expense ratio was 1.52% as of its fiscal year ended October 31, 2012.
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.
Slightly more than half of the fund's assets were invested in Gulf Cooperation Council countries at the end of September; the rest was invested in African companies or UK-based holdings with business in Africa. We are biased toward financials and consumer-related companies in Saudi Arabia, banks in Nigeria, and well-managed South African companies that are expanding beyond their borders. During the quarter, stock selection in Saudi Arabia, South Africa, and Nigeria helped relative performance, but stock selection in the UAE limited our gains. Overweighting the strong UAE market was positive, but underweighting South Africa and Egypt and overweighting Qatar worked against us. Low relative exposure to South Africa reflects our belief that other markets in our opportunity set have better growth prospects. Still, there are several exceptionally well-managed companies in South Africa that offer exposure to faster-growing and smaller African markets.
We believe that the long-term reasons to invest in the Africa and Middle East region are built on better governance, attractive demographics, rising urbanization, and infrastructure investment supported by a strong asset base in natural resources. It is one of the fastest-growing regions in the world. We continue to search for quality companies trading at attractive valuations with high returns on equity and strong growth prospects, while being mindful of the potential for frontier countries to experience exaggerated economic cycles or be affected by geopolitical risks. 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 long-term investor's well-diversified portfolio.