Markets in Africa and the Middle East were mixed in U.S. dollar terms in the first quarter amid continued dollar strength versus most emerging markets currencies. Oil prices remained volatile but generally stayed in the $45 to $60 per barrel range, well below their mid-2014 levels. In the Middle East, shares in Oman and Saudi Arabia produced mild gains, but stocks in Kuwait, Qatar, and the United Arab Emirates declined. In sub-Saharan Africa, Nigerian shares fell almost 10%, but stocks in Kenya rose about 7%. In northern Africa, Egyptian shares rose 1.5% in dollar terms, but Moroccan shares slipped 4%. South African stocks rose 3% in dollar terms.
The Africa & Middle East Fund returned 1.03% in the quarter compared with 1.10% for the Lipper Emerging Markets Funds Average and 1.76% for the S&P Emerging Market/Frontier Middle East & Africa Broad Market Index ex Israel. For the 12 months ended March 31, 2015, the fund returned 3.25% versus −1.61% for the Lipper Emerging Markets Funds Average and −2.34% for the S&P Emerging Market/Frontier Middle East & Africa Broad Market Index ex Israel. The fund's average annual total returns were 3.25%, 7.47%, and 2.29% for the 1-, 5-, and Since Inception (09/04/2007) periods, respectively, as of March 31, 2015. The fund's expense ratio was 1.42% as of its fiscal year ended October 31, 2014.
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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.
The fund's relative performance was hurt by stock selection in South Africa, Saudi Arabia, and Nigeria, but stock selection in Egypt, Kenya, and the United Arab Emirates had a positive impact. Our UK holdings that operate in Africa also held up fairly well. Country allocations generally detracted from our performance, especially over weighting Egypt and the United Arab Emirates. During the quarter, we significantly increased our exposure to South Africa, though we continue to underweight it versus the benchmark, because we have been seeing signs of an improving environment for consumers, helped by cheaper oil prices and lower inflation. To fund this increased exposure to South Africa, we reduced our allocations to Kuwait and Oman, whose governments are cutting spending in response to lower oil prices, as well as Saudi Arabia and Qatar.
The long-term outlook for the African and Middle Eastern region remains robust, driven by favorable demographics, rising urbanization and levels of infrastructure investment, and a strong asset base in natural resources. While growth in many emerging markets is decelerating, many African and Middle Eastern markets are continuing to grow at attractive rates, driven by structural domestic demand. In the Middle East, we believe the major oil producers can weather the downturn in oil prices, though reduced government spending in some countries will pressure some economies. Corporate profits of some companies could also be affected. In North Africa, the outlook is improving, as countries in the region are net importers of oil and should benefit from lower oil prices. In sub-Saharan Africa, economic growth is underpinned by a young population. As for South Africa, we are cautiously optimistic in the near term, though we continue to believe that other countries in our opportunity set have better long-term growth prospects. 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.