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March 2013

Strengths

• The fund’s overweight position in Malaysia, the Philippines, Taiwan and Thailand, as well as its underweight position in Brazil, Hong Kong, South Korea and Russia, made a positive contribution to the fund’s performance relative to its benchmark, the MSCI Emerging Markets Net Total Return Index.
• The fund’s overweighting in financials and underweighting in energy and materials had a positive contribution to the performance of the fund.
• Stock selection was strong in energy, materials, telecommunication services and industrials. The top contributor for the quarter was a Malaysian REIT named MBK PCL.

Weaknesses

• The fund’s overweight position in Poland had a negative contribution to the relative performance of the fund.
• The fund’s overweight position in industrials had a negative effect on the performance relative to the benchmark.
• The worst performer was Hexindo Adiperkasa, a heavy equipment distributor in Indonesia.

Opportunities

• While relative underperformance of emerging markets equities versus developed peers is likely to continue in 2013, any signs of Chinese stability would likely cause a trading bounce in the resource stocks of Brazil, Russia, India and China, which are trading at 10-year low price-to-book multiples.
• Mexico released very encouraging gross fixed investment numbers for the month of January. According to the National Institute of Statistics, gross fixed asset investment increased at a pace of 4.6 percent from last year, beating analysts’ expectations by 100 basis points. The greatest expanding subcategory was machinery and equipment which bodes well for bullishness in the construction sector for the remainder of the year.
• Odds on Macau’s gaming revenue are rising as credit rating service Fitch raised its outlook, the latest in a string of upbeat reports on the Chinese gambling enclave. Fitch now expects Macau’s gambling revenue to rise 11.5 percent in 2013, up from its prior 8 percent forecast. Macau officials recently said gambling revenue jumped 25 percent in March, to nearly $4 billion, a new monthly record.

Threats

• Fourth-quarter GDP growth placed Brazil significantly behind its major emerging market peers. The central government has lowered benchmark rates to record lows, depreciated the country’s currency, the real, and pressured banks to extend lending without tangible success. A lack of clarity on fiscal policy guidance and exaggerated government intervention will likely continue to undermine investor confidence.
• Amid Russian security forces shaking down non-governmental organizations, the Russian navy parading unannounced in the Black Sea, and Pravda making a statement about Russian nuclear warheads being installed in Cuba, the sentiment toward the Russian equities is set to worsen.
• China’s new wealth management product (WMP) regulation may curb financing for small- to medium-sized companies. Those are the companies that have benefited from WMP loans. Many banks have started to lend to small businesses since a year ago to look for loan growth, which might offset the WMP tightening impact.

Past performance does not guarantee future results.

The MSCI Emerging Markets Total Net Return Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in emerging market countries on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax.)

Holdings in the Global Emerging Markets Fund as a percentage of net assets as of 3/31/2013: Hexindo Adiperkasa 2.11%; MBK PCL 3.57%.