Non-U.S. developed markets stocks declined sharply in the third quarter of 2014 in U.S. dollar terms. Geopolitical strife in Ukraine and the Middle East, concern about China's economic slowdown, and the potentially deleterious effects of rising U.S. interest rates certainly contributed to investor anxiety and the demand for safe-haven assets. However, 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. Equities in developing markets also declined but managed to outperform those in most developed non-U.S. markets.
The Overseas Stock Fund returned −5.21% in the quarter compared with −5.83% for the MSCI EAFE Index and −5.38% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended September 30, 2014, the fund returned 5.11% versus 4.70% for the MSCI EAFE Index and 4.23% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were 5.11%, 7.75%, and 1.95% for the 1-, 5-, and Since Inception (12/29/2006) periods, respectively, as of September 30, 2014. The fund's expense ratio was 0.86% 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 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.
The portfolio remains heavily focused in Europe. We are particularly optimistic about the UK, where we traditionally can find a number of high-quality companies, shareholder-friendly corporate managements, and stable political and regulatory regimes. The government has done a good job getting its fiscal house in order since the global financial crisis, and the economy has responded with surprisingly strong growth. Japan is the portfolio's second-largest country allocation, but Japanese growth appears to have stalled somewhat amid waning optimism about the government's willingness and ability to follow through on important structural reforms. The Pacific Rim accounts for a significant portion of the portfolio, with a reasonable presence in Australia.
Overall valuations for international equities continue to look reasonable, but pockets of overvaluation have appeared in individual stocks and sectors. Financials, especially in Europe, and select areas within consumer discretionary, such as automobiles and auto-related names, look attractive. This is particularly true as worries over economic growth in Europe have eroded investor sentiment in those segments. Utilities and health care, while not overly expensive, present fewer attractive ideas. There are still opportunities to own high-quality stocks at reasonable valuations in Japan given the muted sentiment in that market. We continue to focus on individual company fundamentals and seek favorable trade-offs between those fundamentals and company valuations.