Emerging European markets mostly declined, as weaker currencies exacerbated losses in U.S. dollar terms. Russian shares, however, rallied more than 18% as the ruble strengthened versus the dollar and the central bank reduced interest rates. Stocks were also buoyed by some stabilization in crude oil prices and hopes that a lasting cease-fire in Ukraine would eventually lead to the end of sanctions. Stocks in Turkey declined almost 16% as the government called for steeper interest rate cuts-which raised concerns about the central bank's independence-and as the lira fell 10% during the quarter, reaching a record low versus the dollar. Greek stocks tumbled over 29% amid uncertainty about the country's ability to make payments to creditors.
The Emerging Europe Fund returned −0.80% in the quarter compared with 1.90% for the MSCI Emerging Markets Europe Index and 1.10% for the Lipper Emerging Markets Funds Average. For the 12 months ended March 31, 2015, the fund returned −25.78% versus −23.21% for the MSCI Emerging Markets Europe Index and −1.61% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −25.78%, −7.90%, and −0.05% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2015. The fund's expense ratio was 1.51% 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 Emerging Europe 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 our stock selection in Russia-which represented about half of the fund and the index at the end of March-and by our overweight in Turkey. Our underweights to Poland and Greece were beneficial, however. During the quarter, our allocation to Russia increased while our exposure to Turkey decreased, but we continue to overweight both countries versus the MSCI index. We added to our Polish holdings but remain significantly underweight relative to the benchmark. Poland could have one of the strongest economies in central Eastern Europe this year, driven by healthy domestic demand, improvements in real wages due to low inflation, and solid ties to an improving eurozone growth outlook.
Emerging markets are trading at a significant discount on an absolute and relative basis, making current valuations compelling for long-term investors. We anticipate continued divergence in the performance of emerging markets countries and companies, and we believe that careful stock selection will be crucial for producing good returns over time. 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.