Non-U.S. developed markets stocks ended the second quarter with small gains as declines in June largely offset a strong rally early in the period. The implementation of aggressive monetary stimulus and positive economic data in Europe and Japan boosted sentiment early in the quarter, but markets gave back gains in June amid concerns about the Greek debt crisis and disappointing data from China. Within emerging markets, stocks in Latin America recorded solid gains, but Asian markets posted a modest loss. U.S. dollar strength, which had detracted from returns for dollar-based investors for several quarters, moderated in the most recent three months.
The Overseas Stock Fund returned 1.11% in the quarter compared with 0.84% for the MSCI EAFE Index and 1.11% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended June 30, 2015, the fund returned −1.86% versus −3.82% for the MSCI EAFE Index and −3.57% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were −1.86%, 10.80%, and 2.20% for the 1-, 5-, and Since Inception (12/29/2006) periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.84% as of its fiscal year ended October 31, 2014.
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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.
Telecommunication services and financials generated solid gains for the portfolio, while our health care and materials stocks declined. We continue to find opportunities in financials, where investors have yet to fully price in a normalizing earnings environment going forward. Energy stock valuations also look relatively attractive, although the persistence of low crude prices will dictate whether these low valuations are appealing trade-offs with strong underlying fundamentals, or whether further caution is warranted. Health care and consumer discretionary valuations look reasonable, although both sectors are a mixed bag in terms of new opportunities.
Equity valuations in Europe are appealing if the region's economy starts growing and earnings normalize, although we are mindful that looser monetary policy could further weaken the euro and eat into returns for U.S. dollar-based investors. We expect the positive moves made by some Japanese companies to improve corporate governance and institute shareholder-friendly programs like increased buybacks and dividends to continue as policymakers try to shift corporate culture in Japan. Emerging markets are a small portion of the portfolio, and our positions tend to be in companies that are dominant players in their industries and have durable growth profiles.