Non-U.S. developed markets stocks generated good gains in the second quarter of 2014. Shares in Europe rose as economic growth appeared to improve, thanks to receding challenges in the eurozone periphery and stimulative monetary policy from the European Central Bank. Japanese stocks climbed amid the Abe government's ongoing efforts to promote growth through important fiscal and structural reforms, including a corporate tax cut, more flexibility in the workplace, and less regulations on the agriculture and health care sectors. Emerging markets stocks bounced back from a lackluster first quarter and outperformed developed markets equities.
The Overseas Stock Fund returned 4.15% in the quarter compared with 4.34% for the MSCI EAFE Index and 4.21% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended June 30, 2014, the fund returned 22.79% versus 24.09% for the MSCI EAFE Index and 21.37% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were 22.79%, 12.90%, and 2.75% for the 1-, 5-, and Since Inception (12/29/2006) periods, respectively, as of June 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 Overseas Stock 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.
Performance was positive for all sectors within the portfolio. Energy shares rose by double digits, due largely to price spikes arising from heightened sectarian violence in the Middle East. Over the medium term, however, we remain cautious about the sector, expecting that energy prices will be pressured as new supplies come on line, particularly from the vast North American shale deposits. Utilities and information technology shares also generated solid gains. Financial and health care shares were positive but lagged the broader market. Recent weakness in financials tends to obscure the fact that the sector is one of the few remaining areas of the market where we continue to see compelling valuations, assuming that the global economic recovery continues.
The global economic environment remains modestly positive. Although it still has a long way to go, Europe appears to be on the road to recovery. Japan's economy has improved in the wake of monetary and fiscal stimulus, although it is too early to tell whether initial attempts at key structural reforms will bear fruit. Developed market equity valuations remain reasonable despite market gains over the past year, while emerging markets stocks are trading at a significant discount on an absolute and relative basis, making current valuations compelling for long-term investors. Finding stocks with a favorable combination of fundamentals and valuations has become more difficult over the past year, placing a premium on the in-depth proprietary research and careful stock selection at the heart of our investment approach.