Emerging markets stocks rose in the final quarter of 2013, driven by a rally in October amid optimism that the Federal Reserve would maintain the pace of its monetary stimulus. However, emerging markets stocks fell in November and December as growing signs of strength in the U.S. economy raised speculation that the Fed would start reducing its stimulus sooner than thought. Disappointing economic data across the developing world also curbed investors' risk appetite as the quarter progressed. Many emerging markets reported weaker-than-expected growth in the third quarter, leading several to cut their 2013 GDP forecasts. A devastating typhoon in the Philippines and political crises in Thailand and Turkey further dampened emerging markets' appeal.
The Emerging Markets Stock Fund returned 1.41% in the quarter compared with 1.86% for the MSCI Emerging Markets Index and 2.53% for the Lipper Emerging Markets Funds Average. For the 12 months ended December 31, 2013, the fund returned −4.69% versus −2.27% for the MSCI Emerging Markets Index and −0.14% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −4.69%, 15.33%, and 10.35% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 1.27% as of its fiscal year ended October 31, 2012.
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.
The portfolio is broadly diversified across countries and sectors. At the end of December, the portfolio was underweight in emerging Asia and in Latin America and slightly overweight in emerging Europe, the Middle East, and Africa. The portfolio also holds a few companies based in developed Europe that generate a significant portion of their profits in emerging markets. The portfolio is overweight in the largest emerging markets of Brazil, Russia, India, and China. Sector allocations continue to reflect our preference for areas driven by domestic consumption, which we expect to see solid long-term growth as the middle class grows in size and wealth in the developing world. Consumer staples followed by discretionary stocks accounted for the top overweight sectors at quarter-end.
Looking ahead, we believe that stock selection will take on more importance for emerging markets investors. In recent years, we have noted significant dispersion in the returns of emerging markets stocks even within the same country and industry. Over time, we expect this trend to continue, particularly with the end of the global commodities boom and runaway growth in China. Now that these longtime growth tailwinds have faded, we believe that investing in the right companies and in the right countries will be increasingly crucial for long-term outperformance. We continue to believe that an expanding middle class, rising consumption, and increased urbanization are trends that will drive strong and sustainable growth in emerging markets for many years. Stocks across the developing world are trading at a significant discount relative to their valuation history and their developed market peers. We are confident that emerging markets stocks are an attractive asset class over the medium to longer term.