While emerging markets (EM) stocks experienced one of their worst years in 2015 since 1988, they made slight gains in October. Those gains came after an October rally was sparked when China's central bank unexpectedly increased economic stimulus and spurred a global stock market rally. However, pressure remains on the asset class. A slowdown in the Chinese economy, which contributed to the decline in commodity prices and global trade, a stronger U.S. dollar, unexpected yuan devaluation, a rise in geopolitical tensions, and higher U.S. interest rates, kept EM equities volatile throughout the year.
The Emerging Markets Stock Fund returned 1.48% in the quarter compared with 0.73% for the MSCI Emerging Markets Index and 0.54% for the Lipper Emerging Markets Funds Average. For the 12 months ended December 31, 2015, the fund returned −11.49% versus −14.60% for the MSCI Emerging Markets Index and −14.08% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −11.49%, −3.58%, and 3.15% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 1.24% 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 Emerging Markets 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.
We made a few minor shifts to the portfolio's country and sector positioning. Our largest absolute positions are now in China and India, followed by Taiwan, South Korea, and South Africa. On a relative basis, our largest position is in Hong Kong, and India is our largest overweight country. Our largest relative sector positions are within financials and information technology. We hold positions in the ASEAN countries of the Philippines, Indonesia, Thailand, and Malaysia, primarily in the financial and consumer sectors. We remain neutral versus the benchmark to the Middle East, Africa, and Latin America, but we are overweight to Brazil. Within emerging Europe, our positioning is quite focused. We hold three companies in Russia, two of which are focused on domestic markets.
Economic growth across many developing markets should remain higher than in the developed world in the near future, although that gap may continue to narrow. Those countries that push forward with reforms should do well, while countries that do not push forward with reforms will struggle. EM valuations are compelling overall and remain at a discount relative to their history and to their developed market peers. Our view is that we are likely to see a much more uneven world going forward, with less correlation and greater divergence in performance among countries and in stocks within those countries. We will remain focused on quality companies, as we continue to believe that those leading firms will weather the tough environment and will, in fact, improve their competitive positioning. Near-term risks include a worse-than-expected slowdown in China or a breakdown in its financial system, a sharper-than-anticipated rise in U.S. interest rates, and an unexpected bout of risk aversion resulting from geopolitical events. However, we believe that investor concerns may be overdone.