African and Middle Eastern markets rose in the fourth quarter. In U.S. dollar terms, Egyptian shares climbed more than 19% as the government announced that a referendum on the new constitution would be held in January. Stocks in the United Arab Emirates (UAE) advanced nearly 19% as Dubai was selected to host the 2020 World Expo trade fair. Markets in Bahrain and Kuwait declined, but shares in other Gulf Cooperation Council countries appreciated. In sub-Saharan Africa, Nigerian equities rose more than 9%, while stocks in Ghana and Kenya rose to a lesser extent. South African stocks rose less than 3% as the rand and economy weakened and S&P warned of a possible credit rating downgrade due to the country's large budget and trade deficits.
The Africa & Middle East Fund returned 6.44% in the quarter compared with 2.53% for the Lipper Emerging Markets Funds Average and 5.26% for the S&P Emerging/Frontier ME & Africa BMI ex IL. For the 12 months ended December 31, 2013, the fund returned 24.16% versus −0.14% for the Lipper Emerging Markets Funds Average and 10.77% for the S&P Emerging/Frontier ME & Africa BMI ex IL. The fund's average annual total returns were 24.16%, 12.31%, and 1.17% for the 1-, 5-, and Since Inception (09/04/2007) periods, respectively, as of December 31, 2013. The fund's expense ratio was 1.52% 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 Africa & Middle East 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.
Our overweight to the UAE and good stock selection in South Africa, Nigeria, and Kenya helped the fund's relative performance. On the other hand, stock selection in Saudi Arabia and poor performance of our UK holdings worked against us. Roughly half of the fund's assets are invested in Gulf Cooperation Council countries; the rest is invested in African companies or UK- or Canada-based holdings with business in Africa. We are biased toward financials and consumer-related companies in Saudi Arabia, banks in Nigeria, and well-managed South African companies that are expanding beyond their borders. Low relative exposure to South Africa, which has poor macro fundamentals, reflects our belief that other markets in our opportunity set have better growth prospects. Still, there are several exceptionally well-managed companies in South Africa that offer exposure to faster-growing and smaller African markets.
We believe that the long-term reasons to invest in the Africa and Middle East region are built on better governance, attractive demographics, rising urbanization, and infrastructure investment supported by a strong asset base in natural resources. It is one of the fastest-growing regions in the world. We continue to search for quality companies trading at attractive valuations with high returns on equity and strong growth prospects while being mindful of the potential for frontier countries to experience exaggerated economic cycles or be subject to geopolitical risks. As always, we would like to remind our investors that this fund can be extremely volatile and should represent only a small portion of a well-diversified portfolio.