African and Middle Eastern equity markets plunged at the beginning of the year, as global economic growth concerns intensified and oil prices skidded below $30 per barrel. Some markets in the region rallied through the end of March, as oil prices rebounded amid speculation that global producers could freeze or cut production. Also, the Federal Reserve reduced expectations for short-term U.S. interest rate increases this year, which led to a weaker dollar versus many emerging markets currencies. Gulf Cooperation Council markets were mixed, with stocks in the United Arab Emirates (UAE) performing well, while Saudi Arabian shares sank. Egyptian equities fell almost 6% in dollar terms, as the Egyptian central bank devalued the currency. South African stocks climbed nearly 14% as the rand strengthened from a record low in January.
The Africa & Middle East Fund returned −1.05% in the quarter compared with 4.25% for the S&P Emerging/Frontier ME & Africa BMI ex IL and 4.02% for the Lipper Emerging Markets Funds Average. For the 12 months ended March 31, 2016, the fund returned −20.85% versus −17.37% for the S&P Emerging/Frontier ME & Africa BMI ex IL and −11.58% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −20.85%, 3.07%, and −0.72% for the 1-, 5-, and Since Inception (09/04/2007) periods, respectively, as of March 31, 2016. The fund's expense ratio was 1.47% as of its fiscal year ended October 31, 2015.
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, particularly in South Africa, hurt the fund's relative performance. Our investments in UK companies operating in the region also hurt our relative results, though these holdings held up better than holdings in Egypt and Saudi Arabia. During the quarter, we reduced our Saudi exposure and focused on higher-quality names. We added to our positions in the UAE, where many stock valuations are cheap, and South Africa. South Africa remains our largest country allocation in absolute terms but our largest underweight versus the benchmark.
Commodity-producing nations in the Africa and Middle East region have struggled with crumbling commodity prices over the last two years. While a sharp rebound in natural resource prices during the latter part of the first quarter provided some relief, slow global growth and excess supply are likely to cap the rebound. On the plus side, commodity importers have seen reduced inflation pressures. Of course, there is much more to Africa and the Middle East than just commodities, as various countries are looking to diversify their economies away from dependence on natural resources. Despite short-term headwinds, we believe the region has a robust long-term outlook, driven by attractive demographics, rising urbanization, and infrastructure investment, as well as a strong asset base in natural resources. 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.