Non-U.S. developed markets stocks declined in the fourth quarter of 2014, due in large part to the further weakening of non-U.S. currencies against the U.S. dollar. Japan's economic recovery stalled, prompting policymakers to inject more liquidity into the financial system and weakening the yen in an attempt to spur economic growth. Similarly, weak inflation data and slowing economic growth caused the euro to fall to a multiyear low versus the U.S. dollar and will likely prompt the European Central Bank to take further aggressive monetary policy actions in the first quarter of 2015. Emerging markets stocks fell in the fourth quarter as plunging oil prices and a currency crisis in Russia sparked a bout of global risk aversion.
The Overseas Stock Fund returned −3.05% in the quarter compared with −3.53% for the MSCI EAFE Index and −3.61% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended December 31, 2014, the fund returned −4.49% versus −4.48% for the MSCI EAFE Index and −4.82% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were −4.49%, 6.51%, and 1.50% for the 1-, 5-, and Since Inception (12/29/2006) periods, respectively, as of December 31, 2014. The fund's expense ratio was 0.86% 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 Overseas Stock 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 portfolio remains heavily focused in Europe. We are reasonably optimistic about the UK, where the government has done a good job of getting its fiscal house in order since the global financial crisis, and the economy has responded with surprisingly strong growth. Japan is second-largest country allocation, but Japanese growth has stalled somewhat amid waning optimism about the government's willingness and ability to follow through on important structural reforms. Overall valuations appear reasonable and are neither excessive nor inexpensive, making individual investment opportunities harder to find. As a result, we continue to focus on company fundamentals and seek favorable balance between those fundamentals and valuation.
Equity valuations in Europe are appealing if the region's economy starts growing and earnings normalize, although we are mindful that looser monetary policy could further weaken the euro and eat into returns for U.S. dollar-based investors. In Japan, current equity valuations remain below pre-crisis levels and should continue to provide medium-term support, and profit margins have significant room to expand if the global economy recovers. Overall, emerging markets stocks are priced below historical averages, but there is a wide variation between inexpensive, but challenged, cyclical shares and expensive, higher-quality growth shares.