Developed market international equities posted a good gain in the fourth quarter thanks to a strong October rally that outweighed losses in November and December. Volatility was the distinguishing characteristic in the quarter as conflicting economic data, diverging monetary policies, and varying degrees of stimulus programs across the globe prompted some investors to jump into the market while others waited on the sidelines for stronger signs of recovery. International small-caps fared better than their U.S. counterparts. Japanese small-caps performed best on a regional basis, while small-caps in Latin America and the UK were the weakest.
The International Discovery Fund returned 7.20% in the quarter compared with 5.30% for the S&P Global ex-U.S. Small Cap Index and 4.98% for the Lipper International Small/Mid-Cap Growth Funds Average. For the 12 months ended December 31, 2015, the fund returned 9.88% versus 3.09% for the S&P Global ex-U.S. Small Cap Index and 5.87% for the Lipper International Small/Mid-Cap Growth Funds Average. The fund's average annual total returns were 9.88%, 8.05%, and 7.49% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 1.21% as of its fiscal year ended October 31, 2014.
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 International Discovery 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 information technology sector is now our largest overweight within the portfolio, which we feel is consistent with our growth approach. Within the sector, we continue to favor software, Internet-related firms, and IT services, where we look for companies with innovative and resilient business models. We also maintain an overweight exposure to health care. Within the sector, we have a preference for equipment, services, and life science companies over pharmaceuticals, where small-caps tend to be disadvantaged due to the high cost of late-stage product testing, and biotechnology stocks, which often trade at lofty valuations.
The triple signals we look for-sentiment, valuations, and growth and inflation expectations-are all flashing yellow. They are not unfavorable enough to make us outright sellers-the lack of yield everywhere and still ultra-accommodative monetary policy make that a fool's game-but they are worrisome enough to make us feel comfortable with higher-than-normal cash positions. We are also sticking with the emphasis on high-quality and durable growers, which has served us well in the ebb and flow of market cycles.