Emerging European markets rebounded strongly in the second quarter, with Turkish stocks rising more than 15% in dollar terms, as the central bank reduced interest rates in May and June to stimulate the economy. Russian stocks rebounded almost 11% amid hopes that geopolitical tensions over Ukraine would subside-although separatism in eastern Ukraine has been violent, and Russia's economy is likely to stagnate for the rest of the year. The main central European markets were subdued. Polish shares edged lower, while stocks in Hungary and the Czech Republic produced modest to moderate gains. Greek stocks fell sharply.
The Emerging Europe Fund returned 9.98% in the quarter compared with 7.54% for the MSCI Emerging Markets Europe Index and 6.52% for the Lipper Emerging Markets Funds Average. For the 12 months ended June 30, 2014, the fund returned 3.53% versus 8.72% for the MSCI Emerging Markets Europe Index and 14.14% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were 3.53%, 9.65%, and 7.08% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2014. The fund's expense ratio was 1.47% as of its fiscal year ended October 31, 2013.
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.
Fund performance was helped by favorable stock selection in Russia and Kazakhstan and by underweights in Poland and Greece versus the benchmark. On the other hand, our holdings in Turkey underperformed their peers in the benchmark, which reduced our performance advantage. Russia remains our largest country allocation, but we emphasize consumer staples and financials over energy stocks. In Turkey, banks are our core holdings, but we also own several companies that should benefit from increasing consumer activity. In fact, we believe Turkey has one of the best long-term growth outlooks in the region. We continue to underweight central Eastern Europe due to relatively weak macro fundamentals but seek to increase our exposure to Poland as valuations improve.
Shortly after our reporting period ended, the Ukraine-Russia situation escalated due to the shooting down of a civilian airliner over eastern Ukraine as well as new sector-specific, but incremental, U.S. and EU sanctions against Russia. While the newest sanctions should only have a minimal direct impact on Russia's economy, the threat of additional sanctions and Russian retaliation could weigh on regional growth and trade. We will continue to monitor the situation closely and believe that our focus on well-run, high-quality companies in emerging Europe positions us well for a deescalation of the crisis.