Developed market stocks posted solid fourth-quarter gains thanks to a strong October rally. Developed Asian markets, led by a 9% gain in Japan, outperformed European equities. Overall, emerging markets also advanced but to a lesser extent. The strong performance of emerging Asian markets offset losses in emerging Europe and Latin America. Stocks remained volatile during the period as oil and commodity prices continued to tumble from their mid-2014 highs. The information technology, industrials and business services, and consumer discretionary sectors generated the strongest gains in the benchmark, while energy and materials stocks lagged.
The International Stock Fund returned 4.10% in the quarter compared with 3.30% for the MSCI All Country World Index ex USA and 4.60% for the Lipper International Multi-Cap Growth Funds Average. For the 12 months ended December 31, 2015, the fund returned −0.77% versus −5.25% for the MSCI All Country World Index ex USA and 0.51% for the Lipper International Multi-Cap Growth Funds Average. The fund's average annual total returns were −0.77%, 3.20%, and 3.67% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.83% 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 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 outperformed thanks to stock selection and, to a lesser extent, allocation decisions. Stock selection in the information technology, telecommunication services, and consumer staples sectors generated the strongest fourth-quarter relative performance contributions. However, stock picking in the consumer discretionary and health care sectors hurt our comparison with the benchmark. We look to own companies that generate steady, above-average free cash flow, revenues, and earnings growth. We are finding the most opportunities and have overweight allocations in the industrials, technology, and consumer discretionary sectors. At the end of December, about 50% of the portfolio was invested in developed European markets including the UK, emerging markets exposure totaled approximately 22%, and Japan accounted for about 14% of the portfolio.
Our global economic growth expectations remain modest over the next several quarters. Signs of improvement in Europe are supported by aggressive quantitative easing (QE), euro weakness, lower energy costs, and an improving credit environment. The Bank of Japan has also stepped up its QE measures to fuel economic growth and spur inflation. Falling oil and commodity prices have created broad disparities across the emerging markets universe. This has helped some countries to lower inflation but has hurt the commodity-related exporters. We remain optimistic on the intermediate- and longer-term prospects for international markets, but our near-term outlook remains somewhat guarded given the recent weakness in global trade, lowered forecasts for global economic growth, and heightened volatility.