Non-U.S. stock markets posted steep declines for the quarter. Many investors pointed to geopolitical strife, concern about China's economic slowdown, and the potentially deleterious effects of rising U.S. interest rates as catalysts for the sell-off. These issues certainly contributed to investor anxiety and demand for safe-haven investments, but the most significant reason for the steep losses was the strength of the U.S. dollar, which gained nearly 8% versus the euro and the Japanese yen and 5% versus the British pound. Growth stocks generally held up marginally better than value shares, and large-caps solidly outperformed small-caps. The health care and information technology sectors performed best overall, while materials and energy fared worst.
The International Growth & Income Fund returned −5.96% in the quarter compared with −5.83% for the MSCI EAFE Index and −6.27% for the Lipper International Multi-Cap Value Funds Average. For the 12 months ended September 30, 2014, the fund returned 6.20% versus 4.70% for the MSCI EAFE Index and 4.87% for the Lipper International Multi-Cap Value Funds Average. The fund's average annual total returns were 6.20%, 7.16%, and 6.80% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.86% as of its fiscal year ended October 31, 2013.
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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 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.
The portfolio seeks long-term appreciation by building a diversified portfolio of established non-U.S. companies with prospects for capital appreciation and growing dividend payments. Although we invest primarily in developed market countries, we also maintain exposure to emerging markets, while country and sector allocations result from bottom-up stock selection but also are influenced by an assessment of macroeconomic prospects. Financials continues to be the largest overweight in the portfolio, and overweight increased as we focused much of our trading on the banking and insurance industries. Conversely, the underweight in information technology increased during the third quarter.
We expect further monetary stimulus in Europe and Japan as growth momentum has moderated. Europe faces headwinds, including high debt loads and unemployment and deflation concerns. European corporate earnings should benefit from a resumption of economic growth, and valuations are currently near historical norms, which is attractive for long-term investors. In Japan, increased domestic consumption, fed by wage inflation, needs to be the next growth engine. Investors will also benefit if Japanese companies transform business practices and governance standards to focus more on growing profits and generating value for shareholders. While the global economic environment remains challenging, we are confident that we are continuing to find opportunities where investors are underestimating the intrinsic value of companies.