Emerging European equity markets were mixed in the fourth quarter. In U.S. dollar terms, Polish shares rose about 4% as the eurozone continued to emerge from recession. Stocks in Greece, which was recently downgraded from developed market to emerging market status, advanced 10%. Russia and the Czech Republic were mostly flat. In Turkey, which depends greatly on external financing of its current account deficit, shares tumbled 14% amid a widening political corruption probe and concerns that the U.S. Federal Reserve's tapering of asset purchases would reduce global liquidity.
The Emerging Europe Fund returned 2.76% in the quarter compared with −1.52% for the MSCI Emerging Markets Europe Index and 2.53% for the Lipper Emerging Markets Funds Average. For the 12 months ended December 31, 2013, the fund returned 3.98% versus −3.86% for the MSCI Emerging Markets Europe Index and −0.14% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were 3.98%, 21.20%, and 8.45% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 1.55% 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 Europe 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.
Fund performance was helped by stock selection in Russia and Turkey and our small investments in Georgia and Kazakhstan. Overweighting Turkey and underweighting Poland, however, hurt our relative results. During the quarter, we reduced our exposure to Turkey but added to Russia, Poland, and Greece. In central Eastern Europe, where macro fundamentals appear relatively weak, we have no exposure to Hungary or the Czech Republic, but we are looking to add to our Polish holdings following the recent pension system overhaul. Russia is our largest country weighting; we are underweighting the energy sector in favor of companies that should benefit from increasing domestic consumption. In Turkey, banks are our core holdings, but we also like several consumer-oriented and aviation-related stocks.
While the repercussions of fiscal austerity in the eurozone and rising U.S. interest rates remain concerns, we believe our focus on companies with strong balance sheets, sustainable growth, and attractive valuations should help us produce good long-term returns. In Russia, the economy remains constrained by structural bottlenecks, low levels of investment, and poor corporate governance, but efforts to improve the financial market infrastructure could make the country a more attractive destination for investment. In Turkey, the political situation may weigh on both equities and the currency in the near term, but it may lead to a meaningful buying opportunity at some point, and the ongoing corruption probe could lead to more checks and balances on government officials.