Non-U.S. developed market stocks benefited from several positive tailwinds and performed well overall in the first quarter. Despite a recent flare-up in Cyprus and an Italian election stalemate, investor concerns about the European sovereign debt crisis eased somewhat. In Japan, new government and central bank leaders signaled a policy shift to battle deflation and spur economic growth, boosting investor confidence and share prices. Concerns about weaker economic growth, lower commodity prices, and higher inflation challenged many emerging economies and markets, however.
The International Growth & Income Fund returned 4.32% in the quarter compared with 5.23% for the MSCI EAFE Index and 3.04% for the Lipper International Multi-Cap Value Funds Average. For the 12 months ended March 31, 2013, the fund returned 7.57% versus 11.79% for the MSCI EAFE Index and 8.88% for the Lipper International Multi-Cap Value Funds Average. The fund's average annual total returns were 7.57%, −0.58%, and 10.23% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.87% as of its fiscal year ended October 31, 2012.
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The International Growth & Income 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.
Out largest positioning change in the quarter was in the financials sector, which became one of the largest overweights in the portfolio. We found several new ideas in commercial banks, insurance, REITs, and real estate management and development. We also added new ideas in the consumer discretionary sector that were uncovered through our global research platform. We feel that the sector still offers good opportunities for value investors as the market tends to overreact to worries about the impacts of austerity on consumer spending. Conversely, we were net sellers of industrial stocks over the past three months as we eliminated positions that have been good-performing stocks in industries such as trading companies and electrical equipment. The portfolio's country and sector allocations are driven primarily by bottom-up stock selection but also are influenced by an assessment of macroeconomic prospects.
As a result of seeing some signs of economic stabilization in places like Spain and Italy, we significantly reduced the portfolio's underweight to Europe over the first three months of the year. While Europe's struggles continue, the moderately improving environment left us comfortable making new investments that offer good upside potential at attractive valuations. The equity market in Japan has dramatically turned around as a result of new measures introduced to help spark inflation and economic growth. Within the portfolio, we have been taking advantage of the recent strength to either trim or eliminate several holdings where we felt the prices were moving beyond the fundamentals. As a result, we are now significantly underweight in Japan, although we are still finding individual stocks with reasonable upside potential. The key to a continuation of the rally in Japan is the new government's ability to deliver on the expectations that have been set.