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August 2014

The China Region Fund remained unchanged in August, slightly outperforming its benchmark Hang Seng Composite Index which declined 0.06 percent for the month. See complete fund performance here.

Strengths

  • Country allocation to investments in China via U.S.-listed American depository receipts (ADRs) contributed the most to fund performance against the benchmark, as investor sentiment towards China improves.  
  • Industry allocation to information technology worked best in the fund’s favor, as investors resumed interest in quality growth names within the Internet space, warming up to the September initial public offering (IPO) of Alibaba Group.
  • Cheetah Mobile, Inc., a mobile security software provider in China, was the top dollar contributor to the fund with a 37.7 percent gain.

Weaknesses

  • In terms of industries, the fund’s underweight position to telecommunication, which was significantly overbought at the end of July on our proprietary model, was the largest detractor from fund performance. Telecomm remained the best performer in the benchmark in August.    
  • Stock picking in a handful of Hong Kong-registered companies also made a negative contribution to fund performance.
  • Country Garden Holdings, a real estate developer in China, was the worst dollar contributor with a 13.35 percent decline for the month.  

Opportunities

  • Quality leaders in China’s technology industry should continue to outperform with the public listing of Alibaba Group. This IPO showcases the tremendous potential of further monetizing the Internet, especially in a country where the vast consumer base is going mobile.
  • Health care and clean energy-related companies could continue to recover with the upcoming drafting of China’s 13th Five-Year Plan, where environmental protection and pollution control may claim policy priority.  
  • After sideways consolidation in August, Chinese property developers should resume their mean reversion climb to historical average valuation as the peak selling season approaches. Any significant slump may be countered by further government policy accommodation.

Threats

  • Government policy uncertainty remains in post-election Indonesia, junta-controlled Thailand and inflation-encumbered Philippines.  Global investors might rotate out of Southeast Asian markets into undervalued Chinese equities.  
  • Growth prospects of China’s mass-consumer sector, such as infant foods and diapers, has significantly diminished due to structural migration to e-commerce and rising competition to name brands.
  • Continued negative surprises for the year-over-year revenue growth in Macau casino operators, could further dampen investor expectations of any near-term industry recovery. 

Past performance does not guarantee future results.

The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 06/30/2014: Cheetah Mobile Inc. 0.00%, Country Garden Holdings 0.00%.

Net Asset Value
as of 09/29/2014

Global Resources Fund PSPFX $9.11 -0.01 Gold and Precious Metals Fund USERX $6.26 -0.04 World Precious Minerals Fund UNWPX $5.90 -0.02 China Region Fund USCOX $7.83 -0.18 Emerging Europe Fund EUROX $7.51 -0.03 All American Equity Fund GBTFX $32.98 -0.09 Holmes Macro Trends Fund MEGAX $23.80 0.01 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change