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First Quarter 2014

Strengths

  • The China Region Fund declined 3.38 percent during the first quarter, outperforming its benchmark Hang Seng Composite Index which lost 5.11 percent. See complete fund performance here.
  • Country allocation to Hong Kong remained a positive contributor to the fund's outperformance, whereas selective exposure to South Korea, Taiwan, the Philippines and Indonesia was also accretive.
  • Industry allocation to information technology was the largest alpha generator against the benchmark index, as mobile internet and e-commerce continued their creative disruption through the Chinese consumer market.   
  • Four of the top five stock contributors to fund performance were technology names. E-Commerce China Dangdang Inc., a business-to-consumer Internet retailer in China, finished the quarter with a 50.37 percent gain, a top-dollar winner for the fund.

Weaknesses

  • Macau casino operators experienced increased volatility during the quarter on intermittent investor concerns over intermediate-term growth prospects and valuation after a very strong 2013.
  • Clean energy plays owned by the fund, including natural gas distributors and wind-power generators, were also targets of profit-taking activity since mid-March.
  • Biostime International Holdings Ltd, a maker of nutritional products for infants, turned out to be the worst dollar contributor for the fund with a 23.1 percent decline for the quarter.  

Opportunities

  • Likely improvement in macroeconomic imbalances has partially repaired investor sentiment towards Indonesian equities and currencies. Additionally, a potential victory of the leading candidate in the upcoming parliamentary and presidential elections in April and July, offers hope of accelerating a new investment cycle in Indonesia.
  • Underowned, exports-oriented markets such as South Korea and Taiwan should benefit from not only growth recovery in the U.S. and Europe, but also a possible cyclical rebound in the Chinese economy moving forward. 
  • The approaching first-quarter earnings season may be the next catalyst to justify a comeback of privately owned Chinese companies with robust fundamentals, quality growth and moderated valuation after the recent correction, especially in industries such as technology, casinos and health care. 

Threats

  • An ongoing, global market style shift from quality growth to speculative value, coupled with conceptual bets on seemingly accelerating Chinese reforms on state-owned enterprises, may sustain the countertrend rally in industries within China that are chronically out of favor in the near term.  
  • Volatility in Hong Kong-traded Chinese equities may increase going forward. This is due to the overhang associated with potentially rising debt defaults with a maturity schedule for wealth management products peaking in the second half of this year, along with no consistent government policy solutions in sight.
  • Potentially higher 10-year U.S. Treasury yields, driven by a faster-than-warranted exit from the quantitative easing (QE) program of the Federal Reserve, may sour investor sentiment towards Southeast Asia, especially Indonesia, in anticipation of further capital flight and slower recovery of economic fundamentals.

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. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

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 03/31/2014: Biostime International Holdings Ltd. 1.51%, E-Commerce China Dangdang Inc. 0.75%.

Net Asset Value
as of 04/22/2014

Global Resources Fund PSPFX $9.82 0.06 Gold and Precious Metals Fund USERX $6.59 0.08 World Precious Minerals Fund UNWPX $6.32 0.06 China Region Fund USCOX $8.05 0.02 Emerging Europe Fund EUROX $8.13 0.02 All American Equity Fund GBTFX $32.40 0.30 Holmes Macro Trends Fund MEGAX $23.74 0.34 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change