Emerging European equity markets tumbled in the first part of the first quarter, as global economic growth concerns intensified and oil prices skidded below $30 per barrel. Markets rallied sharply in the second half of the quarter as central banks in Europe and Japan announced new stimulus measures and as the Federal Reserve reduced expectations for short-term U.S. interest rate increases this year. Also, oil prices rebounded amid speculation that global producers, including Russia, could freeze or cut production. In addition, the dollar weakened versus most currencies, especially the Russian ruble, boosting emerging European market returns in dollar terms.
The Emerging Europe Fund returned 8.94% in the quarter compared with 14.32% for the MSCI Emerging Markets Europe Index and 4.02% for the Lipper Emerging Markets Funds Average. For the 12 months ended March 31, 2016, the fund returned −1.26% versus −3.72% for the MSCI Emerging Markets Europe Index and −11.58% for the Lipper Emerging Markets Funds Average. The fund's average annual total returns were −1.26%, −11.88%, and −4.76% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 1.76% as of its fiscal year ended October 31, 2015.
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.
Stock selection, particularly in Russia and Turkey, hindered our performance versus the benchmark. Our country allocations also detracted from relative results. During the quarter, we reduced our exposure to Russian energy names as they rallied, as well as financials, and we increased exposure to the consumer sector. On the other hand, we added to our investments in Turkey, whose economy has been rather resilient. We like certain Turkish banks, auto companies, and other businesses that should benefit from the growth of a consumer economy. We are underweighting Poland because we are struggling to find attractive investment opportunities there.
Conditions in emerging Europe remain challenging and uncertain, so we are maintaining a long-term view of the region and the companies in which we invest. We favor well-managed companies that can generate solid earnings growth over time. Valuations in emerging Europe remain compelling. In Russia, we believe the worst is behind us, but the economic recovery will be gradual. The Russian economy remains highly linked to oil and other commodity prices, so we are seeking companies that are experiencing positive developments or benefiting from current conditions, such as a weak currency. 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.