Third Quarter 2019

The Emerging Europe fund had a total loss of 2.94 percent in the third quarter of 2019, underperforming its benchmark, the Emerging Europe 10/40 Index, which lost 2.53 percent. See complete fund performance here.

The fund underperformed its index by 40 basis points in the third quarter mostly due to stock selection in Russia. In particular, the fund’s overweight positon in the Russian steel industry had the most negative effect on the fund’s performance.  Steel producers sold off as global steel demand was cut due to worries over trade tensions and a global slowdown in manufacturing activity. Moreover, hedging against the Turkish lira had a negative effect on the fund’s performance as the lira appreciated against the U.S. dollar in the third quarter.

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.


  • On the country level, the fund’s underweight position and stock selection in Poland had the most positive effect on the fund’s performance.  In particular, the strategy to underweight Polish banks and avoid lenders with high exposure to Swiss franc loans worked well. Banks sold off on worries that long awaited EU court ruling regarding Swiss franc mortgages would be unfavorable and lenders would be forced to convert Swiss franc loans into the Polish zloty at below current values.
  • On the sector level, the fund’s underweight in the financial sector had the most positive effect on the fund’s performance. European lenders are facing deeper cost cuts and consolidation after the European Central Bank announced a prolonged stretch of negative interest rates. Many banks are already passing at least some of the cost of negative rates to companies and other financial institutions. In Switzerland, UBS and Credit Suisse recently started charging their wealthiest clients to deposit francs and euros.
  • The top three positive contributors to the fund were as follows:
    • MMC Norilsk Nickel PJSC ADR, a Russian nickel and palladium producer, contributed a positive 56 basis points to the fund’s performance. Norilsk Nickel controls around 40 percent of global palladium output and a deficit of the metal may only widen in the years to come. Moreover, global supply of nickel could potentially decline as Indonesia, the world’s top producer, announced that will stop raw ore exports from the beginning of 2020. The prices of palladium and nickel appreciated sharply in the third quarter.
    • Surgutneftegas, a Russian gas producer and distributor, contributed a positive 40 basis points to the fund’s performance.  Shares of the company gained more than 30 percent in just a few days after news came out that company will start investing its huge pile of cash in securities. The company has more than $50 billion in cash, which mostly seats in large state-owned banks.
    • Migros Ticaret A.S., a Turkish supermarket operator, contributed a positive 30 basis points to the fund’s performance.  The company reported strong second quarter results. Management has almost achieved its full year guidance of 100 gross new store openings as of the end of September by opening 95 new stores. The fund over-weighed this position against the index.


  • On the country level, the fund’s stock selection in Russia had the most negative effect on the fund’s performance. In particular, an overweight toward the steel industry did work well. Shares of Evraz, a Russian steel producer, which is not part of the index, sold off sharply as declining global manufacturing activity and trade tensions put pressure on steel producers. Shares of TCS Bank, which is not part of the index, declined more than 10 percent after strong performance in the prior quarter.  Moreover, the Turkish lira hedge had a negative effect on fund’s performance against the index, as the lira appreciated against the U.S. dollar after the government took steps to revive the economy.
  • On the sector level, the fund’s stock selection in energy and materials had the most negative effect on the fund’s performance. Within energy, an overweight toward Jastrzebska Spolka Weglowa, a Polish coal producer, had the most negative effect. Within the material sector, steel producers underperformed.
  • The bottom three negative contributors to the fund were as follows:
    • The Turkish lira hedge contributed negative 87 basis points to the fund’s performance. Over the long-term, the Turkish lira has declined significantly against the U.S. dollar, but during the third quarter it appreciated due to the government announcing steps to revive Turkey’s economy and falling inflation. The lira was also supported by carry traders searching for higher yielding instruments.
    • Sberbank Russia PJSC contributed negative 61 basis points to the fund’s performance. The Russian bank reported strong second quarter results from operations. However, a sell of Denizbank, its Turkish unit, was completed with a negative 70 billion ruble effect due to the lira depreciating by 37 percent versus the ruble since Sberbank acquired Denizbank in 2012. The fund equal weighted this company against the index. We like this bank due to its high return on equity, strong balance sheet and prospects for higher dividends.
    • Jastrzebska Spolka Weglowa, a Polish coal producer controlled by the government, contributed negative 40 basis points to the fund’s performance. There is a threat that the company’s large cash savings could be used by the Polish government to cover its own projects. The company may have a problem meeting its production targets this year and weak coal prices have had a negative effect on revenue generation. The fund had overweight positions due to company’s healthy balance sheet.


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), but slightly underperforming United States (as measured by S&P 1500). In the next few months, Europe will see increased tensions around Brexit negotiations as deadline for the Great Britain to depart from the Eurozone is set for October 31. The New Prime Minister of the U.K., Boris Johnson, wants to take his country out of the EU with or without a deal. Investors may expect increased volatility in equites and currencies.

On a positive note, Eastern European countries continue to grow at a much faster pace than Western Europe and the United States. However, weaker manufacturing activity in Germany, Europe’s largest economy, and ongoing tensions around the trade war between China and the U.S. may have a negative effect on business and consumer sentiment in Eastern Europe. Poland significantly underperformed in the past three months on worries over banks, but we could see a rebound there.

Turkish equites bounced and there is more upside as Turkish stocks still trade at a large discount to its long-term average. The Turkish lira could be exposed to geopolitical tension and developments in Northern Syria. Russian equites should continue to trade with the price of oil. Russia may also continue to see inflows as its equites offer very high dividend yields – the highest in the region after Romanian equites. Greece may continue to outperform with the new pro-business government pushing its reforms and taking steps to bring back investor confidence. 


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.

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 9/30/2019: MMC Norilsk Nickel PJSC ADR 4.43%, Surgutneftegas PJSC 1.34%, Migros Ticaret A.S. 0.55%, Evraz PLC 0.94%, TCS Group Holding PLC 1.45%, Jastrzebska Spolka Weglowa SA 0.33%, Sberbank of Russia PJSC 8.04%.

Net Asset Value
as of 11/11/2019

Global Resources Fund PSPFX $4.37 -0.02 Gold and Precious Metals Fund USERX $8.47 -0.06 World Precious Minerals Fund UNWPX $2.91 -0.03 China Region Fund USCOX $9.00 -0.17 Emerging Europe Fund EUROX $7.44 -0.05 All American Equity Fund GBTFX $25.33 -0.10 Holmes Macro Trends Fund MEGAX $16.77 -0.05 Near-Term Tax Free Fund NEARX $2.22 0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change