Real assets stocks declined overall in the third quarter of 2015, but underlying returns were mixed. Despite increased volatility, U.S. real estate securities finished higher during the third quarter and outperformed broader U.S. equity benchmarks. Global real estate stocks declined modestly but still outpaced the wider U.S. stock market. While uncertainty surrounding the timing of a Federal Reserve interest rate hike influenced real estate securities during the quarter, property fundamentals continued to improve, and real estate supply and demand look relatively balanced long term. Energy and materials stocks were punished by ongoing concerns about global overcapacity and expectations for weaker global demand, especially from China. Rising U.S. interest rates and a stronger dollar have the potential to put additional downward pressure on prices, as most commodities are priced in U.S. dollars and become more expensive to non-U.S. consumers.
The Real Assets Fund returned −12.44% in the quarter compared with −9.34% for the MSCI All Country World Index and −2.30% for the Lipper Specialty/Miscellaneous Funds Average. For the 12 months ended September 30, 2015, the fund returned −19.04% versus −6.16% for the MSCI All Country World Index and −10.53% for the Lipper Specialty/Miscellaneous Funds Average. The fund's average annual total returns were −19.04%, −1.61%, and −0.21% for the 1-, 5-, and Since Inception (07/28/2010) periods, respectively, as of September 30, 2015. The fund's expense ratio was 0.83% as of its fiscal year ended December 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 Real Assets 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.
We moved the portfolio from a small overweight allocation in natural resources stocks to a modest underweight. We continue to believe that the market is in the initial years of a secular downcycle in commodities. We believe the market is approaching a new long-term average for the price of oil in the range of $40 to $65 per barrel despite the higher price levels that many market participants continue to expect. Other commodities continue to struggle with oversupply, slack demand growth, and a strong U.S. dollar. We increased our allocation to U.S. and global real estate stocks given the solid fundamentals, favorable supply/demand dynamic, and the expectations for less interest rate pressure than previously expected in the U.S. and abroad.
The global commodities environment is likely to remain challenging, but cyclical volatility could lead to short-term trading rallies in commodity prices. We are heartened by the fact that we are seeing opportunities for new investments, in part driven by the volatility in the space. We maintain the structural integrity of the portfolio in the context of our longer-term downcycle view, while being mindful of these potentially volatile trading rallies, and will make tactical portfolio shifts as appropriate. A rising interest rate environment could pose a headwind for U.S. real estate, but the Fed's recent decision to delay rate hikes supports a relatively benign "low and slow" approach. Overall, real estate fundamentals look solid as modest economic growth drives demand and supplies remain somewhat constrained.