U.S. stocks declined in the third quarter as large-cap indexes experienced their first "correction," which is a drop of at least 10% from recent highs, in four years. A steep fall in Chinese stock prices stemming from the country's decelerating economy and uncertainty regarding its policy responses, including a small but unexpected currency devaluation in August, dragged global equity markets lower. Growth stocks held up better than value stocks among U.S. large-caps. Stocks in developed non-U.S. markets fared worse than large-cap U.S. shares, with large-cap equities underperforming small-caps and growth companies falling less than value shares. Emerging markets equities plunged with the MSCI All Country World Index, dropping more than 17%.
The Global Growth Stock Fund returned −9.63% in the quarter compared with −9.34% for the MSCI All Country World Index and −9.29% for the Lipper Global Multi-Cap Growth Funds Average. For the 12 months ended September 30, 2015, the fund returned −3.25% versus −6.16% for the MSCI All Country World Index and −3.47% for the Lipper Global Multi-Cap Growth Funds Average. The fund's average annual total returns were −3.25%, 7.91%, and 16.06% for the 1-, 5-, and Since Inception (10/27/2008) periods, respectively, as of September 30, 2015. The fund's expense ratio was 1.16% as of its fiscal year ended October 31, 2014.
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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 Global Growth 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 has a large overweight allocation to emerging markets, which represent almost one-quarter of total net assets. We have been finding more companies that can substantially increase their earnings in developing countries than in developed markets. We are underweight the U.S., where valuations tend to be higher than in other regions, and Japan, where we think that poor corporate governance and slowness in implementing structural reforms will restrain returns. Although our overarching philosophy is to be sector-neutral versus the benchmark, our bottom-up fundamental analysis of stocks can result in some overweights or underweights. We increased the fund's underweight allocation to the energy sector due to our negative outlook for oil prices.
Consensus expectations for economic growth in the U.S. are now lower, but we are still confident in a slow, steady U.S. recovery. The eurozone economy has stabilized, while Japan is still struggling with stagnant growth despite the government's efforts at monetary and fiscal stimulus. Although it is not surprising that global equity markets sold off as a result of questions about China's ability to manage its slowing growth as well as plunging commodity prices, we think that the extent of the selling pressure is overdone. This has made global stock valuations significantly more attractive. We will continue to concentrate on buying high-quality companies selling at reasonable valuations regardless of where they are based.