Stocks in Africa and the Middle East produced good returns in the first quarter. Several African markets performed very well in U.S. dollar terms, with stocks in Ghana surging more than 50%, while Kenyan and Nigerian shares rose 29% and 16%, respectively. Regional heavyweight South Africa declined almost 9%, as the country is struggling with sluggish growth, labor unrest, rising inflation, and a weak currency. Egyptian shares fell more than 12% amid continuing political turmoil and a poor growth outlook. Most Gulf Cooperation Council markets produced moderate gains in the 4% to 8% range. At the extremes, Kuwaiti shares were flat, but stocks in the United Arab Emirates (UAE) climbed almost 25% amid an improving property and banking sector and strong Dubai trade and tourism.
The Africa & Middle East Fund returned 4.47% in the quarter compared with −0.17% for the Lipper Emerging Markets Funds Average and −0.67% for the S&P Emerging/Frontier ME & Africa BMI ex IL. For the 12 months ended March 31, 2013, the fund returned 11.24% versus 3.49% for the Lipper Emerging Markets Funds Average and 1.19% for the S&P Emerging/Frontier ME & Africa BMI ex IL. The fund's 1-, 5-year, and Since Inception (09/04/2007) average annual total returns were 11.24%, −6.72%, and −1.77%, respectively, as of March 31, 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.
Roughly half of the fund's assets are invested in Africa and half in the Middle East. We favor financial 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, overweighting the strong Nigerian and UAE markets helped the fund's relative performance. Underweighting South Africa was also beneficial. We continue to believe that other markets in our opportunity set have better growth prospects. That said, there are some exceptionally well-managed companies in South Africa, many of which offer exposure to faster-growing and smaller sub-Saharan 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, with some of the cheapest valuations in the emerging markets universe. 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.