Shares in emerging European markets tumbled amid weaker currencies in many countries. Russian shares plunged nearly 33% in dollar terms as the ruble dropped 34% and oil prices fell to levels not seen in more than five years. The Central Bank of Russia raised its primary interest rate twice in December to slow the ruble's decline. Stocks in Turkey, a major oil importer, advanced more than 11%. Greek stocks skidded 29% due to political uncertainty ahead of a late January general election. In central Eastern Europe, stocks in the Czech Republic, Poland, and Hungary declined roughly 13% to 15% in dollar terms.
The Emerging Europe Fund returned −21.59% in the quarter compared with −20.23% for the MSCI Emerging Markets Europe Index and −5.32% for the Lipper Emerging Markets Funds Average. For the 12 months ended December 31, 2014, the fund returned −35.77% versus −29.55% for the MSCI Emerging Markets Europe Index and −3.23% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −35.77%, −5.69%, and 1.07% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2014. The fund's expense ratio was 1.47% as of its fiscal year ended October 31, 2013.
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 Turkey, as well as our overweight in Russia and underweight in Poland. An overweight in Turkey versus the benchmark was helpful, however. We have no exposure to the Czech Republic or Hungary due to relatively weak regional macroeconomic fundamentals. We have been trying to add to our Polish holdings, though this is challenging in a market heavy in utilities and generally expensive banks. During the quarter, our exposure to Russia decreased and our Turkish allocation increased, but we continue to overweight both countries versus the benchmark.
We are maintaining a long-term investment horizon and exposure to well-managed companies that we believe can generate solid earnings growth over time. Current valuations in emerging Europe are compelling, and we are using market volatility to add to our high-conviction names at attractive prices. If the situation in Ukraine and the price of oil stabilize, the Russian market could recover somewhat given that valuations are still very attractive. In the short term, however, volatility is likely to remain elevated. We remain mindful of the longer-term negative impact that sanctions, oil price weakness, and currency declines are having on the economy. 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.