Stocks in emerging European markets fell sharply in the third quarter. Turkish shares tumbled more than 19% amid lira weakness, increased political violence, and a lack of a functioning government since the ruling party lost its majority in early-June elections. Russian shares skidded 14% in dollar terms as oil prices plunged and the ruble dropped 15% versus the dollar. Greek stocks fell 36%. Although the government agreed to implement additional reforms in exchange for more financial assistance, some capital controls remain in place. In central Eastern Europe, where economies are benefiting from stronger German economic growth, Polish shares declined more than 10%, while stocks in the Czech Republic and Hungary fell to a lesser extent. (Source of data: RIMES, using MSCI indexes.)
The Emerging Europe Fund returned −13.34% in the quarter compared with −15.09% for the MSCI Emerging Markets Europe Index and −16.02% for the Lipper Emerging Markets Funds Average. For the 12 months ended September 30, 2015, the fund returned −30.53% versus −27.84% for the MSCI Emerging Markets Europe Index and −19.25% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −30.53%, −10.66%, and −4.21% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 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.
Although the fund's absolute return was negative, our stock selection in Russia helped its relative performance. Country allocations in aggregate also made a slight contribution to performance versus the index. During the quarter, we trimmed our exposure to Russia to 49% of assets and now have a small underweighting relative to the benchmark. Also, we reduced our allocation to Turkey and are now neutral versus the index. In addition, we reduced our exposure to Poland ahead of parliamentary elections at the end of October. On the other hand, we increased exposure to Hungary and Austria.
Emerging markets could remain weak in the near term, but stock valuations in emerging Europe are very attractive, and we believe stabilizing commodity prices and currencies would be beneficial to various countries. Russia is in recession, but the central bank has been cutting interest rates this year to stimulate the economy. In Turkey, there is deep political uncertainty ahead of new elections scheduled for November 1. Whatever the result, the formation of a government should be preferable to the current political vacuum. In central Eastern Europe, where growth is accelerating, we are finding opportunities among financial services companies. 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.