Second Quarter 2019

The Emerging Europe Fund had a total return of 9.66 percent in the second quarter of 2019, underperforming its benchmark, the MSCI EM Europe 10/40 Index, which returned 11.65 percent. See complete fund performance here.

The fund underperformed its index by 1.99 percent in the second quarter mostly due to a small underweight position in Gazprom, Russia’s giant oil and gas company, whose shares appreciated by almost 60 percent in the quarter ended June 30. This had the greatest negative effect of the fund’s performance against its index. A higher cash level also contributed to the fund’s underperformance relative to its index. 

Past performance does not guarantee future results. 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.


  • The fund’s stock selection in Turkey and underweight in Hungary had the greatest positive effects on the fund’s performance relative to its index. In Turkey, holding shares of commercial airline Pegasus and construction company Tekfen, neither of which was found in the index, was a winning strategy. Pegasus benefited from Turkey opening a new airport, while Tekfen continued to outperform due to its low cost of production and heathy cash flow from operations. In Hungary, underweighting OTP Bank against the index was the most helpful strategy. OTP’s latest plan to acquire another smaller Easter European bank, Slovenia’s Abanka, failed. 
  • On the sector level, the fund’s underweight in financials had the most positive effect on the fund’s performance relative to the index. In particular, underweighting regional banks was beneficial, as the low-rate environment and prospects of further rates cuts in Europe put further pressure on financials’ revenue.
  • The top three most positive contributors to the fund’s performance were all Russian stocks. The lack of new sanctions against Russia and prospects of higher oil prices pushed Russian equities higher. Stocks trading on the Moscow Exchange gained 18 percent in the quarter ended June 30.
    • Gazprom, Russia’s oil and gas producer and distributor, contributed 3.86 percent to the fund’s performance. Gazprom announced a long-awaited higher dividend payout ratio, and a change in management—the company got a new chief financial officer—may indicate its stronger focus on efficiency, performance and transparency. Gazprom was the fund’s third largest position in the second quarter, but the fund underweighted it against the index due to prospects for new sanctions on the company’s Nord Stream 2 project.
    • Sberbank contributed 1.9 percent to the fund’s performance. One of the largest and most profitable banks in Europe, Sberbank was the fund’s second largest position in the second quarter. The fund slightly overweighed this position against the index.
    • Novatek, a Russian natural gas producer and distributor, contributed 0.78 percent to the fund’s performance. Novatek was one of the fund’s top five positions in the second quarter but was underweighted against the index. Novatek is focused on expansion with a higher debt level than other domestic producers in Russia.  


  • The fund’s stock selection in Russia and overweight position in Austria impacted the fund most negatively in the second quarter. Underweighting Gazprom, explained in the section above, had the single most negative effect on the fund’s performance against its index. In Austria, political scandal put pressure on domestic equites. Also, a higher cash level had a negative effect on fund’s performance against the index. The fund was positioned defensively due to ongoing Brexit negotiations and trade talks, but European equites moved higher especially after the European Central Bank (ECB) and Federal Reserve both announced readiness to cut rates.
  • On the sector level, the fund’s stock selection in customer discretionary and overweight in industrials had the most negative effect on the fund’s performance relative to the index. Within customer discretionary, overweighting jewelry maker and distributor Pandora had the most negative effect. Its stock continued to sell off due to weaker demand from China. Within industrial names, airlines sold off on worries about future revenue as Europe struggled to bring its economy to a faster growth rate. Brexit worries also put pressure on companies that benefit from open markets.
  • The bottom three negative contributors were as follows:
    • Lukoil, a Russian oil producer, had the greatest negative impact on the fund quarter in the quarter ended June 30. The company sold off with the price of crude oil. Its stock price was also affected by the news of contaminated oil delivered to Europe from Russia by the Druzhba pipeline. The flow of oil was suspended for a few weeks while the cleanup process of the pipeline and equipment was completed. Lukoil was the fund’s largest position. We like the company for its strong cash flow, share buyback program and high dividends.
    • Jastrzebska Spolka Weglowa, Poland’s state-run coking coal producer, also had a negative effect on the fund’s performance relative to the index. There is a threat that the company’s large cash savings could be used by the Polish government to cover its own projects. The fund held overweight positions due to the company’s healthy balance sheet.  
    • Österreichische Post, an Austrian postal services company, also had a negative impact on the fund’s performance. We like the company for its strong cash generation, but Österreichische is dealing with a challenging postal services environment. Letters have largely been replaced by internet communication, while shipments are increasingly serviced by Amazon.    


Eastern European markets have performed very well year-to-date despite Brexit worries and trade tensions, beating Western Europe (as measured by STOXX Europe 600 Index) and the United States (as measured by the S&P 1500 Composite). Therefore, investors could see a small correction, but Eastern European markets could continue to move higher especially if the trade tensions subside. Brexit should not worry investors in the next three months as the deadline is set for later in 2019. Turkey could present opportunity for investors as it trades at a large discount to its long-term average and emerging markets. But first we have to see the country’s solution to a contract that was signed with Russia for the delivery of the S-400 missile defense system. Russia may continue to outperform, depending on the price of oil and lack of new sanctions. And with its banks performing well and snap elections scheduled for July, Greece could be a good place to look for new opportunities.

The MSCI Emerging Markets Europe 10/40 Index is a free float-adjusted market capitalization index that is designed to measure equity performance in the emerging market countries of Europe (Czech Republic, Greece, Hungary, Poland, Russia and Turkey). The index is calculated on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax). The index is periodically rebalanced relative to the constituents' weights in the parent index. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The S&P 1500 Composite is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600. The index was developed with a base value of 100 as of December 30, 1994.

Cash flow is the total amount of money being transferred into and out of a business, especially as affecting liquidity. The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is the percentage of earnings paid to shareholders in dividends. There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings are reported as of the most recent quarter-end. Holdings in the Emerging Europe Fund as a percentage of net assets as of 6/30/2019: Gazprom PJSC 7.64%, Pegasus Hava Tasimaciligi AS 0.74%, Tatneft PJSC 4.21%, Sberbank of Russia PJSC 8.34%, Novatek PJSC 2.75%, Pandora A/S 0.56%, LUKOIL PJSC 9.54%, Jastrzebska Spolka Weglowa SA 0.72%, Oesterreichische Post AG 0.87%, Inc. 0.00%.

Net Asset Value
as of 09/20/2019

Global Resources Fund PSPFX $4.46 No Change Gold and Precious Metals Fund USERX $8.94 0.16 World Precious Minerals Fund UNWPX $3.27 0.05 China Region Fund USCOX $8.40 -0.11 Emerging Europe Fund EUROX $7.05 -0.03 All American Equity Fund GBTFX $24.81 -0.14 Holmes Macro Trends Fund MEGAX $16.91 -0.13 Near-Term Tax Free Fund NEARX $2.22 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change