Equities fell moderately in emerging Europe, with Greece, Poland, and the Czech Republic among the worst decliners in dollar terms. Stocks in Hungary bucked the negative trend, surging 11%, helped by an economic recovery. Russian shares fell 4%, as Ukraine-related sanctions and plunging oil prices took a heavy toll on the economy and the ruble. Turkish stocks edged lower in dollar terms, as a nearly 4% gain in the lira versus the dollar offset losses in local currency terms. While Turkey's November 1 elections ended a protracted period of political uncertainty, tensions with Russia over the downing of a Russian plane in Turkish airspace, violence involving separatists and militants, and elevated inflation weighed on Turkish shares.
The Emerging Europe Fund returned 1.49% in the quarter compared with −5.13% for the MSCI Emerging Markets Europe Index and 0.54% for the Lipper Emerging Markets Funds Average. For the 12 months ended December 31, 2015, the fund returned −10.08% versus −14.18% for the MSCI Emerging Markets Europe Index and −14.08% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −10.08%, −12.85%, and −4.53% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 1.51% 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 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.
The most significant factors helping the fund's relative performance were stock selection in Russia and low relative exposure to Poland, whose market fell almost 13%. During the quarter, we reduced our exposure to Russia but added to our Turkish allocation. We have a significant underweight in Poland, where the new government elected in October is imposing a bank asset tax. We are very excited by developments in Romania, where a big anti-corruption drive is sweeping through the government and private sector.
While conditions in emerging Europe may remain challenging in the near term, we are maintaining a long-term investment horizon. Stock valuations in the region remain compelling in many cases, and we continue to use periods of market volatility to build positions in our highest-conviction names. In Russia, we believe that our focus on high-quality, domestic-oriented companies positions us well for when conditions improve and Russia returns to favor with investors. While Turkey's long-term prospects remain favorable, we would be even more encouraged if the government resumes reform efforts and maintains institutional independence and the rule of law. We are optimistic about central Eastern Europe, where economic growth is being supported by low interest rates and ties to the eurozone recovery. As always, we would like to remind our investors that this fund has a high risk/return profile and should represent only a small portion of a long-term investor's well-diversified portfolio.