March 2016

The China Region Fund declined 4.05 percent in the first quarter of 2016, outperforming its benchmark, the Hang Seng Composite Index, which fell 5.51 percent during the same period. See complete fund performance here.

Strengths

  • The fund's diversified allocations outside of Hong Kong proved quite useful in the first quarter, with South Korea, Taiwan and the Philippines helping the most. Higher cash levels also buffered the fund in a down quarter.
  • Careful selection and exposure within the financials sector provided the fund's strongest contributions relative to the benchmark, while information technology--a distant second in terms of relative contribution--also helped.
  • The top contributor for the China Region Fund during the first quarter period was CITIC Securities, which rose 0.33 percent for the quarter and significantly more than that during intra-quarter periods.

Weaknesses

  • The weakest country allocation for the fund within the first quarter lay in its exposure to Hong Kong, where the benchmark Hang Seng Composite Index is based.
  • The largest detraction with respect to sector allocation in the China Region Fund for the first quarter was in properties and construction, in which stock selection remained regrettably poor.
  • The unfortunate title of worst stock in the fund for the quarter goes to the large diversified insurer AIA Group, which fell 5.69 percent for the quarter and significantly more intra-quarter.

Opportunities

  • The unfortunate title of worst stock in the fund for the quarter goes to the large diversified insurer AIA Group, which fell 5.69 percent for the quarter and significantly more intra-quarter.
  • Recent stabilization in China's FX reserve level allows investors to breathe a momentary sigh of relief, gaining a bit of respite from the panicked concern of late fourth-quarter 2015 and early first-quarter 2016. With stabilizing and/or rising FX reserves, short-term global worries about the stability of the renminbi and about capital flight out of China should be expected to moderate.
  • Most regional markets continue to claw back ground lost in the largescale global selloff that marked the beginning of the year. Elevated levels of concern and distrust have, at least in part, fueled the recent regional rallies as markets climbed the proverbial wall of worry. Better data going forward may lead more investors to continue to step back in.

Threats

  • While official manufacturing purchasing manager's index (PMI) in China rose unexpectedly above 50 to 50.2 in its March print, the gauge of manufacturing activity in China came in at 49.4 and 49.0 for January and February, respectively. In addition to the official manufacturing PMI, the Caixin China Manufacturing PMI remains below 50 in contraction territory at its last print in March, at 49.7, with readings in January and February of 48.4 and 48.0, respectively.
  • Slowdowns or perceived slowdowns in Chinese growth--or other concerning Chinese data, especially a dicey FX reserve print--could reignite investor fears again about capital flight and the yuan.
  • The outsized significance of U.S. monetary policy for the region continues to loom as bit of a wildcard, as do oil prices, to some degree.

Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund's prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end here or by calling 1-800-US-FUNDS.

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.

The Chinese HSBC Manufacturing PMI is a composite indicator designed to provide an overall view of activity in the manufacturing sector and acts as an leading indicator for the whole economy. When the PMI is below 50.0 this indicates that the manufacturing economy is declining and a value above 50.0 indicates an expansion of the manufacturing economy.

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 3/31/2016: CITIC Securities Co. Ltd. 3.52%, AIA Group Ltd. 0.00%.

Net Asset Value
as of 07/29/2016

Global Resources Fund PSPFX $5.62 0.06 Gold and Precious Metals Fund USERX $10.07 0.26 World Precious Minerals Fund UNWPX $8.85 0.17 China Region Fund USCOX $7.31 -0.06 Emerging Europe Fund EUROX $5.43 0.04 All American Equity Fund GBTFX $23.93 -0.09 Holmes Macro Trends Fund MEGAX $18.80 0.08 Near-Term Tax Free Fund NEARX $2.26 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change