International developed markets stocks gained in the fourth quarter, but volatility was high. European stocks rose but trailed U.S. large-cap stock due to concerns about terrorist attacks, tepid economic growth, and smaller-than-expected monetary stimulus measures. Japan's market surged higher as the economy narrowly avoided another recession and showed signs of improvement in industrial output and retail sales. Consumer confidence rose to its highest level in two years, but core inflation remains below target levels. The U.S. dollar strengthened modestly versus the yen and registered larger gains against the euro and the British pound.
The Overseas Stock Fund returned 2.10% in the quarter compared with 4.75% for the MSCI EAFE Index and 2.88% for the Lipper International Large-Cap Core Funds Average. For the 12 months ended December 31, 2015, the fund returned −2.56% versus −0.39% for the MSCI EAFE Index and −3.39% for the Lipper International Large-Cap Core Funds Average. The fund's average annual total returns were −2.56%, 3.85%, and 1.04% for the 1-, 5-, and Since Inception (12/29/2006) periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.84% as of its fiscal year ended October 31, 2014.
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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.
Information technology was the fund's top-performing sector by a wide margin, led by holdings in the software and services and semiconductor industries. Shares in the utilities, industrials and business services, and consumer discretionary sectors performed roughly in line with the index. Our energy and materials stocks finished in negative territory as the global oil and commodities markets continue to struggle with an ongoing supply/demand imbalance. Europe remains our largest regional allocation. Many European companies have slashed costs in recent years by moving operations to lower-cost locations, rationalizing their business models, and refinancing debt at lower interest rates. As a result, we are optimistic that even modest revenue growth could generate earnings gains for companies with strong operating leverage.
We expect the economies in Europe and Japan to slog ahead with muted overall growth. At the same time, we are keeping a watchful eye on near-term risks, including a sharper-than-expected economic slowdown in China. Longer-term challenges include social and political unrest associated with rising immigration in Europe, as well as the mountain of debt accrued and still growing from aggressive monetary and fiscal policy stimulus. In this uncertain environment, our decision to invest in a particular stock depends on a detailed analysis of a company's fundamentals, where we look for well-managed companies with healthy balance sheets, attractive business models, and the potential to grow earnings over time.