Stocks in Asia ex-Japan edged higher in the second quarter of 2016, as the Brexit vote raised expectations that the U.S. Federal Reserve would pause its monetary tightening cycle, spurring risk appetite. Chinese stocks edged higher but the domestic A-share market weakened as data continued to show a slowdown in China's economy and currency devaluation concerns persisted. Indian stocks advanced, lifted by sweeping changes to foreign investment rules that the government unveiled in June. Most Southeast Asian markets rose, led by the Philippines, which reported its fastest economic growth in nearly three years in the first quarter. Indonesian stocks gained after the central bank cut interest rates in June for the fourth time this year.
The New Asia Fund returned 2.11% in the quarter compared with 0.51% for the MSCI All Country Asia ex Japan Index and 1.49% for the Lipper Pacific Ex Japan Funds Average. For the 12 months ended June 30, 2016, the fund returned −7.57% versus −11.72% for the MSCI All Country Asia ex Japan Index and −7.71% for the Lipper Pacific Ex Japan Funds Average. The fund's average annual total returns were −7.57%, 1.59%, and 8.81% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.94% as of its fiscal year ended October 31, 2015.
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The New Asia 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.
China, Hong Kong, and India represented the fund's largest absolute country positions at quarter-end. Our holdings in China are concentrated in businesses exposed to domestic consumption, particularly select Internet and consumer staples names. India and Hong Kong accounted for the largest overweight markets relative to the benchmark. On the other hand, Malaysia and South Korea were significant underweights due to a lack of attractive growth opportunities. We recently added to select Taiwanese technology companies that have demonstrated strong innovation; superior technological capabilities; quality management; and, in many cases, an attractive dividend yield. Sector allocations reflect our preference for areas driven by domestic consumption. Consumer staples was the largest overweight sector at quarter-end, while telecommunication services was the largest underweight. The fund had no exposure to energy companies.
Our outlook for Asia ex-Japan is more constructive than it has been for several years, thanks to signs of improving corporate performance. We do not anticipate an abrupt and severe slowdown in China, though we believe that its economy will continue to slow over the next few years and impact the growth rate of other Asian economies with a high level of exposure to the country. We have started to see evidence that many companies are adjusting their way of doing business in this new environment in order to improve their bottom line. Valuations in our asset class are more reasonable relative to their long-term history and the rest of the world, and we are seeing good opportunities within our investment universe.