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October 2014

The China Region Fund gained 4.50 percent in October, outperforming its benchmark Hang Seng Composite Index which rose 4.38 percent. See complete fund performance here.

Strengths

  • Country allocation to investments in China via U.S.-listed American depository receipts (ADRs) remained the top contributor to fund performance against the benchmark, driven by a swift recovery of a technology-heavy NASDAQ in the second half of October.  
  • An overweight position in technology and an underweight position in energy proved conducive to fund performance. Technology recovered as earnings season unfolded and energy equities sold off globally on lower oil prices.
  • AIA Group Ltd, the second-largest Hong Kong-based insurer by market value, was the top dollar contributor to the fund with a 7.86 percent gain during the month.

Weaknesses

  • In terms of industries, consumer services and materials were large detractors from fund performance. Continued weakness from China’s domestic demand made rallies in materials unsustainable.    
  • Stock selection in Thailand and South Korea, coupled with a higher-than-average cash holding, made a negative contribution to relative fund performance.
  • CNOOC Ltd, China’s largest offshore oil and gas producer, was the worst dollar contributor with a 10.87 percent decline for the month.  

Opportunities

  • Chinese government policy efforts to stabilize the property market and rein in excessive local government borrowing should help reduce systemic risk and enhance asset quality of Chinese banks over time.  The imminent official start of the Shanghai-Hong Kong market integration program could be a near-term catalyst for re-rating as Chinese banks are still trading at near-trough valuations.
  • Health care and clean energy-related companies may be able to regain leadership with China’s upcoming 13th Five-Year Plan, in which environmental protection and pollution control may claim policy priority.  
  • China’s promotion of ground and marine transportation links with the rest of Asia, the Middle East, Europe and Africa, along with its offer to fund overseas infrastructure projects, should help sustain positive market sentiment on state-owned construction companies, especially railroads.

Threats

  • Speculation of intervention by Bank of Korea to weaken the South Korean won, following Bank of Japan’s aggressive yen-weakening measures at the end of October, is likely to weigh on the South Korean currency against the U.S. dollar in the near term. This would simultaneously challenge won-denominated assets.
  • Growth prospects of China’s mass-consumer sector, such as infant foods and diapers, have significantly diminished due to structural migration to e-commerce and rising competition to name brands.
  • Renewed deterioration of eurozone economies and sharp depreciation of the euro since July may negatively affect Asian companies with significant revenue exposure from Europe. 

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 09/30/2014: AIA Group Ltd. 3.86%, CNOOC Ltd. 1.07%.

Net Asset Value
as of 11/25/2014

Global Resources Fund PSPFX $8.13 No Change Gold and Precious Metals Fund USERX $5.78 No Change World Precious Minerals Fund UNWPX $5.16 No Change China Region Fund USCOX $8.18 No Change Emerging Europe Fund EUROX $7.44 No Change All American Equity Fund GBTFX $33.39 No Change Holmes Macro Trends Fund MEGAX $23.45 No Change Near-Term Tax Free Fund NEARX $2.26 No Change China Region Fund USCOX $8.18 No Change