Emerging European markets rose in U.S. dollar terms in the second quarter, led by Hungary and Romania. Stocks in regional heavyweight Russia gained nearly 8%, helped by a stronger ruble, rebounding oil prices, and interest rate cuts to stimulate the economy. Turkish stocks rose slightly in dollar terms despite lira weakness versus the dollar and greater political uncertainty after the ruling party lost its majority in parliamentary elections in June. As the quarter ended, global markets reacted negatively to events in Greece, including the implementation of capital controls, a missed payment to the International Monetary Fund, and the expiration of its bailout agreement.
The Emerging Europe Fund returned 3.05% in the quarter compared with 4.55% for the MSCI Emerging Markets Europe Index and 0.68% for the Lipper Emerging Markets Funds Average. For the 12 months ended June 30, 2015, the fund returned −30.45% versus −25.35% for the MSCI Emerging Markets Europe Index and −7.00% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −30.45%, −4.68%, and −0.75% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 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 fund's relative performance was hurt by our stock selection in Russia, which represented about half of the fund and the index at the end of June, and in Turkey. Our small investments in peripheral markets Georgia and Kazakhstan did well, however. During the quarter, we significantly reduced our direct exposure to Greece due to the country's standoff with its creditors. We purchased stocks of banks in Austria and Hungary to benefit from improving economies in the region. Otherwise, most country allocations were little changed.
Many emerging markets stocks are trading at a significant discount on an absolute and relative basis, making current valuations compelling for long-term investors. Still, we believe that careful stock selection will be crucial for producing good returns over time. In Russia, macroeconomic developments are not as bad as we feared at the start of the year, but high interest rates, low oil prices, and Ukraine-related sanctions are hindering a recovery. In Turkey, political uncertainty may weigh on the economy as the political parties try to create a ruling coalition; if unsuccessful, new elections may need to be held in a few months. As always, we would like to remind our investors that this fund has a high risk/return profile. Because of its narrow geographic focus and relatively small number of holdings, the fund can be extremely volatile and should represent only a small portion of a long-term investor's well-diversified portfolio.