First Quarter 2017

During the first quarter, the Emerging Europe Fund gained 2.86 percent while the MSCI Emerging Europe 10/40 Index appreciated by 1.55 percent. See complete fund performance here.

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.

Polish, Turkish, Czech and Greek equities outperformed the MSCI Emerging Europe 10/40 Index, while Hungarian and Russian bourses underperformed. On a sector basis, utilities, telecommunication services, consumer discretionary, health care, industrials, financials and materials outperformed while real estate and consumer staples underperformed

Strengths

  • The fund’s underweight of Russia and stock selection in Greece had the largest positive contributions to the fund’s performance this quarter.
  • The fund’s overweight in the industrial sector and stock selection in energy had the largest positive contribution to the fund’s performance this quarter.
  • Budimex SA, a Polish construction company, made the largest single contribution to the performance of the fund.

Weaknesses

  • The fund’s underweight of Poland and higher cash level had the largest negative contribution to the fund’s performance this quarter.
  • The fund’s underweight in the financial sector had the largest negative contribution to the fund’s performance this quarter.
  • Direxion Russia Bull 3x ETF was the greatest absolute detractor to the fund’s performance during the quarter.

Opportunities

  • The European Central Bank’s (ECB) President Mario Draghi told economists that it is too soon to reduce stimulus. The conditions for ending the quantitative easing (QE) program are not in place yet, mostly because of the fragile economic and political situation in Italy. The central bank is buying 60 billion euros of bonds per month, and the current bond buying program is set to run until the end of the year. Low rates and the QE program will continue to support a European recovery.
  • Russian President Vladimir Putin told Bank of Russia Governor Elvira Nabiullina he plans to nominate her for a new five-year term. Putin appointed her to the central bank post in July 2013. A year later the European Union (EU) and the U.S. imposed sanctions on Russia over the Ukraine crisis and oil was plunging. Nabiullina first tried to stabilize the falling ruble, but later let the currency float freely, triggering a nearly 50 percent drop against the dollar. But the markets stabilized and the weak ruble helped ease the economic impact of crude’s collapse. Inflation is currently near a record low. If she is re-appointed in June, she will contribute to stabilize the country’s economy further.
  • Easing continues in Hungary, as the central bank lowered its cap on benchmark deposits more than economists expected and has left the benchmark unchanged at a record low 0.9 percent for a tenth month. The cap on deposits, which limits the funds commercial banks can place in the central bank facility, has boosted liquidity in the economy, pushing interbank rates to a record low 0.21 percent. Hungary was able to sell bonds at negative yields for the first time recently.

Threats

  • The United Kingdom formally began the process of exiting the EU. Managing Britain’s exit will be a major political test for U.K. Prime Minister Theresa May, who has only a small majority in Parliament. The negotiations will also test the unity of the remaining 27 nations in the EU.
  • According to polish government officials, Poland may deliver its first increase in interest rates since 2012 this year. Faster price growth is set to help the economy’s expansion, paving the way for monetary tightening. Gross domestic product will expand an estimated 3.5 percent in 2017, after a gain of 2.7 percent last year. Inflation is picking up, but still remains below the central bank’s target of 2.5 percent.
  • Unemployment in Turkey rose to its highest level since 2010, reaching 12.7 percent in December from 12.1 percent in November. Turkey also suffers from the worst economic slump since 2008, with growth shrinking by 1.8 percent in the third quarter. The Turkish lira has also been the worst performing emerging market currency of 2017.Turkey is hit by political and security fears that put pressure on sectors from tourism to banking. The executive presidency referendum is scheduled for April 16.

The MSCI Emerging Markets Europe 10/40 Index (Net Total Return) 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.

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 3/31/2017: Budimex SA 1.40%, Direxion Russia Bull 3x ETF 3.37%.

Net Asset Value
as of 07/26/2017

Global Resources Fund PSPFX $5.70 0.03 Gold and Precious Metals Fund USERX $7.20 0.13 World Precious Minerals Fund UNWPX $6.52 0.15 China Region Fund USCOX $10.09 -0.06 Emerging Europe Fund EUROX $6.68 0.08 All American Equity Fund GBTFX $24.60 -0.04 Holmes Macro Trends Fund MEGAX $20.10 -0.12 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change