Global stocks wrapped up 2011 by posting their first annual loss in three years. Markets in 2011 were characterized by periods of intense volatility and surging bond yields in the euro zone periphery. The year began with high hopes of an improving U.S. economy, which drove stocks to a peak at the end of April. But worries about Europe’s debt woes increased as investors fretted about contagion.
Portfolio 21’s 2011 and fourth quarter performance trailed that of the MSCI World Equity Index, as returns were inhibited by a higher-than-benchmark allocation to foreign stocks. Lack of energy exposure throughout 2011 and an underweighting of consumer staples stocks in the fourth quarter also detracted from fund performance. Portfolio 21 lost 7.78% for the year and gained 5.67% in the quarter. The MSCI World Equity Index fell 4.98% and rose 7.74%, respectively.
See Portfolio 21's complete standardized performance. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 877.351.4115.
Performance data quoted does not reflect the 2.0% redemption fee on shares held less than 60 days. If reflected, total returns would be reduced.
Global stocks wrapped up 2011 by posting their first annual loss in three years. Markets in 2011 were characterized by periods of intense volatility and surging bond yields in the euro zone periphery. The year began with high hopes of an improving U.S. economy, which drove stocks to a peak at the end of April. But worries about Europe’s debt woes increased as investors fretted about contagion. The MSCI World All Country Index declined 6.87% for the year.
Risk on, risk off. No four words could better describe the frustrating year that was 2011. Markets followed a rather manic path through year-end with stocks trading on the news of the day. Sovereign debt imbalances and debt auction yields were of the utmost concern and drove the risk trade. The good news is things could have been worse. The bad news is investors face distressing tests of their convictions. The heightened volatility requires ongoing judgments that must be made correctly for investors to perform. The U.S. stock market ended a tumultuous year right where it started. In Europe, the biggest markets ended down for the year, including the FTSE 100 Index in Britain, Germany’s DAX Index and the CAC-40 Index in France. Many Asian and other emerging markets fared even worse.
As Europe's debt crisis spread, the global financial system has shown signs of another credit crunch like the one that followed the 2008 collapse of U.S. investment bank Lehman Brothers. Banks are afraid to lend to each other. Greece, Ireland, and Portugal have all been forced to take international bailouts, and Italy, Spain, and Belgium have seen their borrowing costs rise sharply. Banks already had to agree to forgive 50% of the value of their Greek debt holdings, and many fear that other struggling European countries might also demand a "haircut" on bonds. The Federal Reserve cut the cost of emergency dollar funding for European banks as part of a globally coordinated central-bank response to the continent’s sovereign-debt crisis. These moves were designed to increase the flow of dollar liquidity to European banks. Still, the coordinated action does not address the larger issue of Europe’s debt crisis and signals that there is fear among central bankers about global financial stresses.
Despite heroic efforts by many of the world’s central banks, all major economies are headed for an economic slowdown. The last few decades of growth, from Asia to the U.S. to Europe, have been fueled by large amounts of consumer debt, bank debt, and government debt. The world's debt problem is not getting better, it’s getting worse. Until the debt dissipates, the world may chug along at a very slow pace. The most likely course for the world economy in the near term is toward continued deleveraging. Furthermore, slowing population growth, an aging citizenry, and colossal entitlement commitment are diverting resources that would otherwise fuel growth in developed markets.
The U.S. economy has been resilient. However, we question how much longer it can last considering the rest of world’s data points. Most economists expect Europe to slip into recession and the Chinese economy is braking. Fiscal restraint at the state, federal, and local levels may also dampen growth prospects. The U.S. economy has been held up by very strong consumer spending, which has been helped by a lower savings rate not by higher income, which suggests that consumers may have trouble sustaining their spending into 2012. A near 9% unemployment rate, a bear market in housing going on year five, and political gridlock over deficit-cutting have hurt confidence, which may be a hurdle to a further pickup in the pace of growth. Federal Reserve policy makers are considering additional stimulus even as the economy picks up. However, by keeping the economy addicted to cheap money, the Fed is preventing a real restructuring from taking place. The global sell-off in risk assets in the third quarter reflected concerns about the inability of policymakers to catch up with unsettling economic and financial realities, particularly in Europe and America. The same concerns persisted during the fourth quarter, yet stocks ended the period decisively in the black. The S&P 500 Index rose more than 11%. U.S. stocks in Portfolio 21 gained just over 10% during the fourth quarter.
The European debt crisis is far from fixed and ongoing tension in financial markets is restricting growth in the euro area. Economic data in the euro zone reinforced the view that the region's economy contracted in the fourth quarter and is likely slip into a recession in 2012. Euro area governments have to repay more than €1.1 trillion of long and short-term debt in 2012, with about €519 billion of Italian, French, and German debt maturing in the first half alone. On top of that, European banks are estimated to need to refinance as much as €700 billion in 2012. Borrowing costs for Italy and Spain have increased to levels at which Greece, Ireland, and Portugal applied for international bailouts and many fear the crisis could spread beyond Italy and Spain to AAA-rated France, Austria, Finland, and the Netherlands. European leaders added euros to the war chest and tightened rules to curb future debts. The European Central Bank (ECB) has cut interest rates and extended emergency loans to banks under new head Mario Draghi. The week before Christmas the ECB granted $630 billion in three-year loans to banks across the European Union and loosened collateral requirements. This operation involves printing euros and constitutes quantitative easing through the back door. There is a chance that the euro zone will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008. One potential resolution is that fiscally weaker countries leave the euro zone over the next year─Greece is the poster child here. The nations that remain may form a stronger political union over time. Nonetheless, tighter fiscal discipline is required to secure funding to euro zone sovereigns in need. Euro zone domiciled companies in Portfolio 21 performed better than their broad market counterparts, thanks in part to strong performance out of Sweden, the Netherlands, and Belgium.
In addition to the euro crisis, which is hampering growth in Britain’s biggest trading partner, the UK recovery is being restrained by the government’s fiscal squeeze. The European Commission cut its UK outlook as export demand weakens and the economy suffers from the impact of government spending cuts. The Bank of England, which has restarted bond purchases to aid the recovery, has said that the UK economy may fail to grow in the current quarter and the first part of 2012. British stocks in Portfolio 21 underperformed the FTSE 100 Index, due to lackluster performance of British utilities, which constitute a significant share of fund’s UK stocks.
Several European nations remain economically and fiscally solid, including Germany, Sweden, Denmark, and Norway. Germany’s economy minister insisted Europe's biggest economy will stay strong next year despite a tougher international climate and the fallout of the euro zone's debt crisis. More than 80% of German manufacturing companies say they think business will stay steady or improve in 2012 and German unemployment reached its best level since 1991. Sweden is enjoying the lowest borrowing cost ever, as the country has cut debt and forced discipline on its banks two decades after resolving its last banking crisis. Success is in part due to its focus on income equality. The Nordic country is among the most heavily taxed, second as a percentage of gross domestic product after Denmark. Sweden will post a budget surplus this year and pays less than any other EU country to borrow for ten years. Sweden, Denmark, and Norway all have current account deficits signaling money flows. Portfolio 21 is overweight Scandinavian stocks, which boosted fund performance during the fourth quarter. German stocks in Portfolio 21 also outperformed.
In the third quarter Japan’s economy expanded for the first time in four quarters as exports recovered from a record earthquake. However, this expansion is already slowing because of weakening overseas demand. A sustained rebound will depend on how much reconstruction demand can offset a slowdown in global growth. Nonetheless, the nation’s growth trajectory is expected to cool, as a persistently high yen and a still-weak global economy threaten its key export sector. Longer term, Japan may be biding its time until a possible demographic inspired collapse. Government debt is financed internally, though Japanese savers and the aging population will soon stop saving and spend, causing rates to spike and the nation to potentially default. We are underweight Japan on economic concerns, as well as on transparency and governance concerns. Japanese companies are notoriously private in terms of communicating business strategies and are often engaged in “off-the-books” activities. Fund allocation is half that of the MSCI World Equity Index. We have instead increased exposure to other Asian and emerging economies.
Fast-growing emerging markets such as China, India, and Brazil led the recovery in 2009, and they are still growing more quickly than most developed economies. But they are not immune to weak demand abroad. A slew of bad data from China and India suggest that the euro crisis is infecting emerging economies. Corporate profits have been pressured as companies face higher wages, higher interest rates, and currency volatility, although effects of monetary policy loosening may provide a boost in the second half of 2012. Asian nations from Indonesia to South Korea are either cutting rates or keeping them on hold to protect expansion as Europe’s debt crisis threatens to trigger a global slump.
Nothing lasts forever, and that includes China's explosive growth. There are several factors contributing to China's slowdown, and Europe certainly plays a big factor. Europe's festering debt crisis is adding to strains on China just as the country is pricking its property bubble and facing a manufacturing downturn. China's leaders are reversing their two-year effort to cool the economy and are now seeking to counter slowdowns in manufacturing and property that are dragging growth lower and threatening to spur unrest. Many analysts expect GDP growth to slip below 9% next year for the first time in over a decade. China's recent economic problems may be disconcerting, but the country faces a much bigger dilemma: its political system. Chinese stocks sank to a fresh 33-month low in the fourth quarter. While Portfolio 21 doesn’t hold any mainland listed Chinese companies, the fund does invest in China Mobile and MTR Corporation, which trade on the Hong Kong Stock Exchange.
Concerns about the global outlook have weighed on Latin American stocks, but rising living standards and a rapidly growing middle class should continue to drive long-term economic growth. Brazil’s economy stalled in the third quarter after eight consecutive quarters of growth, demonstrating that the world’s emerging market growth engines are not immune to the global slowdown. Still, Brazil's economy has grown to become world's sixth biggest, replacing Britain. Brazil has taken the lead among emerging markets in trying to prevent spillover from Europe’s sovereign-debt crisis. Central bank President Alexandre Tombini cut the key interest rate by half a percentage point for a third straight meeting late in 2011. Brazilian stocks in Portfolio 21 performed very well in the fourth quarter, rising more than 15% a group and outstripping the Bovespa Index by a wide margin.
It took a few months of an expanding European financial crisis to do the job, but sell-side analysts have finally begun to reduce to their expected revenue growth for large U.S.-based multinationals. Since Wall Street analysts’ estimates are often informed by official corporate guidance, it would appear that large companies are increasingly worried that the current problems in Europe will significantly spoil growth into 2012. 2011’s rebound in corporate earnings is losing steam as slower economic growth and greater strain on consumers threaten sales and profit margins. Corporations are sitting on record amounts of cash but insist that growth opportunities are hard to find.
Portfolio 21’s strategy for 2012 is to proceed with caution. The same trends that have defined the global economy for much of the last two years remain in place. Specifically, countries and consumers still have too much debt, and their efforts to reduce it will constrain spending and GDP growth in developed economies, and developing economies to a lesser extent. Deleveraging of a global massive debt load still has a long way to go. Debts need to be repaid and savings need to be restored. There will be some defaults and write-downs along the way. Stocks seem inexpensive based on trailing fundamentals because global economic growth is faltering. Stocks may begin to appear “expensive” in 2012 as earnings growth slows or grinds to halt, before the stage is set for a market recovery. However, fundamental measures of corporate well being, such as earnings power, take a distant back seat to European political drama. However, U.S. earnings multiples could get a boost from improvement in the domestic labor market or coherent decision-making in Washington on the federal deficit. We will stay focused on innovative companies with strong balance sheets.
Another debt crisis is still looming here at home. There are ongoing debates in Washington over how to rein in America's debt, whose rapid growth triggered a downgrade to the U.S. credit rating in August and sparked a market sell-off. After watching the European debt drama, which made austerity a new buzz word, the reality is that some form of it is making its way to America. The question is how it will be accomplished and whether the markets and the general public will accept the proposals.
Moves by the Federal Reserve to flood the world with cash did little to dent the U.S. currency’s value in 2011, which bolstered the appeal of U.S. assets at a time when the government needs the support of foreign investors the most. Regardless of the problems America is facing, investors continue to feel that the U.S. is better positioned to weather an impending economic storm than most other economies. The dollar strengthened during the fourth quarter, driven by European banks scrambling to fund liquidity needs. The U.S. dollar is artificially high as demand for liquidity has intensified amid sovereign debt concerns.
Despite recent moves to the contrary, the U.S. dollar may be in a secular decline. The deleveraging of consumer debt will likely result in slowing consumer spending, a narrowing trade deficit, and lower international demand for U.S. dollar reserves. Along with lower U.S. dollar reserves comes lower demand for U.S. denominated assets, particularly U.S. government debt. This could snowball into a sovereign debt crisis in the U.S. as foreign investors require higher yields to finance the U.S. economy.
The euro was resilient for much of the year, but ended 2011 near 15 month lows against the dollar and at a ten year low against the Japanese yen. Hopes of a comprehensive response to Europe’s debt and banking crises helped sustain the euro, but it slumped late in the year as European countries showed the strain of efforts to force through austerity policies and impose tough new spending rules. Europe needs to get to euro version 2.0, and the sooner the better. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.
Foreign-exchange strategists have reduced their forecasts for the euro and investors fled assets denominated in the euro zone currency in the fourth quarter as EU leaders failed to end concerns that Italy and Spain will succumb to a sovereign-debt crisis. Far from benefiting from being outside the euro zone, eastern European countries are feeling strained. Fears over the effects of euro zone turmoil in the Czech Republic, Hungary, and Poland have sent the value of their currencies plummeting.
Japan has been selling yen after it hit another record high against the dollar in the fourth quarter, saying it has intervened to counter excessive speculation. The yen has climbed to records this year as investors sought havens from fiscal crises in the U.S. and Europe. Tokyo is seeking to gain understanding that a strong yen is crippling an economy grappling with a nuclear crisis, a $250 billion rebuilding effort, and ballooning public debt. Japan's economy has been recovering from its post-quake recession with companies swiftly restoring production and supply chains. Tokyo has counted on reconstruction spending and robust emerging market demand to sustain the momentum.
Emerging market currencies depreciated against the U.S. dollar during the fourth quarter. India’s currency tumbled in 2011, claiming the title of the worst performance among ten major Asian currencies. It was hurt by India’s parliamentary gridlock, elevated inflation, a widening budget gap, and the weakest economic growth in two years. The concerns are warranted but many believe India can outgrow its deficits. The South African rand was the world’s third-worst performing currency last year, ahead of only the Argentine peso and Indian rupee. The rand fell nearly 20% in 2011 to trade at 8.30 per dollar as Europe’s sovereign debt crisis led to a sell-off in riskier assets. The world’s biggest major-currency decline is benefiting South Africa’s largest companies as export earnings in dollars rise and commodity producers beat peers in the stock market. Fears about the euro zone crisis and harsh government measures to clamp down on speculation have caused the Brazilian real to sink against the dollar, causing so much alarm that the central bank has stepped into the market to defend the currency. Portfolio 21 has exposure to the real, minimal exposure to the rand, and zero direct exposure to the rupee as of year-end.
The most dull and conservative assets outperformed during 2011. Investors would have been better off parking their money in U.S. Government bonds than investing in stocks, as the Treasury market was propped up by central banks around the globe that have made trillions of dollars in purchases since the financial crisis began. The consumer staples sector was the best performing economic sector during the year, rising nearly 10% over the period. Portfolio 21 is underweight this sector and fund stock returns were lackluster here. U.S. stocks, Whole Foods Market and United Natural Foods, helped but foreign stocks, which account for the bulk of fund exposure to this sector, lost value. The energy and the telecommunications services sectors were the only other sectors in MSCI World Index to yield positive returns in 2011. The worst performing sectors during 2011 were the financials and materials sectors. Portfolio 21 financial and material stocks performed much better than global peers, but not enough to make up for underperformance elsewhere.
In contrast to full-year returns, a rising tide lifted all stocks in the fourth quarter. U.S. stocks led the charge. U.S. companies beat Wall Street profit estimates for the 11th straight quarter. American factories benefited as demand from China and other emerging economies drove orders and production. U.S. corporations were also helped by tax depreciation allowances on equipment purchases and other cost cutting initiatives.
Energy stocks led the “risk on” trade during the quarter. Energy stocks in the MSCI World Equity Index gained almost 16% over the period, which dwarfed other economic sector returns. Energy producers rallied as crude oil rose above $100 a barrel on tighter supplies and signs of economic recovery in the U.S. Tensions in the Middle East also contributed to higher oil prices. The threat of tougher sanctions on Iran and violence in Iraq provided fuel for the rise. Portfolio 21 performance was inhibited by lack of portfolio exposure to traditional energy stocks. Instead, the fund invests in renewable energy technologies and sources. Unfortunately, allocation to these stocks didn’t aid fund performance as renewable energy stocks were crushed over the period. Many solar cell and wind turbine manufactures plummeted double-digit percentages on slowing growth rates and intense competition out of Asia. The industrial and healthcare sectors performed well. Portfolio 21 is overweight both sectors, but fund stocks lagged global peers. Many fund industrial stocks were strong during the quarter, but overall returns were inhibited by a poor showing from Vestas Wind Systems and Kurita Water. Fund healthcare returns were weighed down by a near 60% drop in Olympus, which declined to the lowest price in 37 years after a corporate governance scandal emerged.
Defensive stocks and sectors lagged in the fourth quarter. The utilities sector barely budged after outperforming during the previous quarter. Utility stocks in the MSCI World Equity Index rose just over 1%. Portfolio 21 is overweight the sector and fund utility stocks lost value as a group. Spanish and Italian utility stocks in the fund, including Iberdrola, Enel Green Power, and Red Electrica, dropped as investors fretted about the fiscal crisis in Spain and electricity demand declined. Austerity is expected to depress demand further. The telecommunication services sector performed a bit better, but Spanish telecom carrier Telefonica dragged down fund returns here.
Some Portfolio 21 stocks appreciated double-digit percentages during the fourth quarter. Google, owner of the world’s most popular search engine and the fund’s largest position, increased 20% over the period after the company reported sales and profits that beat analyst estimates as businesses spent more to reach online consumers through advertisements. Samsung Electronics gained 25% on strong mobile handset momentum. The company secured the top position in smartphones worldwide, ahead of Apple, and is likely to surpass Nokia to become the leader in overall global handsets. Ameresco climbed more than 30% on solid third quarter earnings results and an optimism about future projects. Canadian Pacific climbed after Pershing Square Capital Management, headed by William Ackman, reported taking a 12.2% stake in railroad operator. Cisco jumped after posting a dip in profit as expected for its first fiscal quarter and issued a forecast for the current period that was ahead of analysts’ predictions on accelerating order growth. The company has been in recovery mode and reorganization mode and they executed well through that transition. Svenska Cellulosa gained after agreeing to buy Georgia-Pacific LLC’s European tissue operations. Nucor, FedEx, Eaton, Deere, Itron, and Novo Nordisk also outperformed over the period.
Some Portfolio 21 stocks lost value during the fourth quarter. Telefonica fell after Spain’s former telephone monopoly reduced its 2012 dividend forecast, abandoning a policy set up two years ago, as market conditions worsened. Baxter International, the maker of blood products and intravenous drugs, declined after a major health insurer indicated it planned to favor a rival’s treatment for immune system disorders. Many analysts expect cuts to 2012 earnings guidance as a result. Olympus plummeted amid concerns about corporate governance. The company is under regulatory and legal scrutiny because of payments made to advisors in a 2008 transaction. Vestas Wind Systems tumbled after the biggest maker of wind turbines announced third-quarter losses, prompting it to abandon its 2015 sales and profit margin goals and announce plans to reduce the size of its global work force. Wind turbine manufacturers are suffering from slow demand growth and narrowing margins caused by rising competition from Asian companies and subsidy cuts across Europe. Cree, the maker of energy-efficient lighting products, fell after reducing fourth quarter earnings and margin guidance due to lower demand and pricing pressures. Hyflux, Sharp, and CapitaLand also underperformed over the period.
Trading activity was a bit higher than usual as market volatility provided opportunities to add positions at good prices and take profits. We initiated positions in SMRT, Vodafone, Corning, New Resource Bank, CapitaLand and Apple. We also added shares to existing positions in Tesco, Waste Management, SolarWorld, Banco Bradesco, China Mobile, and Bank of New York. We sold our stake in Severn Trent, Itau Unibanco, Olympus, Carrefour, Sims, Denso, British Land, and TNT Express.
SMRT Corporation operates the Mass Rail Transit and Light Rail Transit system in Singapore. Population growth and rail line extensions are helping to increase ridership. A large part of the Singapore population does not use MRT and environmental constraints will likely aid in a migration to public transport. Government controls on vehicle growth should increase public transport appetite as well. We view SMRT as the primary beneficiary. Vodafone is a mobile telecommunication services company based in the UK with broad exposure across the globe, which implies some stability amid the current economic climate. The company generates significant free cash flow, which is used to reinvest in the business, increase dividends, and make strategic acquisitions. Vodafone’s crown jewel is its 45% stake in Verizon Wireless, which has been estimated at around $75 billion, or about one-half of VOD’s market cap. The company’s M-Pesa service is another attractive asset; it enables money transfers via cell phone and is targeted at emerging-market customers that don’t have traditional bank accounts. We initiated a position in Corning on a bullish long-term outlook for the liquid crystal display market as well as the success and future potential of company branded Gorilla Glass. We expect Corning to remain a leading supplier of glass to the display market due to heavy investment in research and development and manufacturing expertise. Furthermore, we are optimistic about new market penetration. Corning engineers have been adapting the company’s super strong Gorilla Glass to address the photovoltaic market, in addition to other markets, including automotive. Investment in New Resource Bank provides Portfolio 21 with exposure to the banking sector. The fund is under-allocated here as we have had difficulty uncovering quality banks that measure up to Portfolio 21’s investment philosophy and criteria. We are optimistic about New Resource Bank’s future. The bank is planning to grow loans and deposits with a regional focus on Northern California. New Resource Bank is well positioned geographically as environmentally minded entrepreneurs and potential customers are drawn to this region. The bank also has a significant loan book in Southern California and will continue to pursue opportunities there as well as in neighboring states such as Nevada and Oregon. CapitaLand shares have been weighed down by concerns over its Chinese exposure. The company is geographically attractive, domiciled in the new gateway to Asia, and is well positioned to continue its growth path in Singapore and China. CapitaLand exceeded its full‐year 2011 investment target and remains in sound financial position should new investment opportunities arise. Finally, we established a small position in Apple on weakness. The stock seems fairly valued and we will look to add on weakness.
Severn Trent’s stock has had a good run. It was up 50% over the past two years and paid a nice dividend along the way. However, the company is stuck in the UK with an aging infrastructure that will require a massive amount of capital over the next decade. Austerity is likely to inhibit returns on that invested capital and dividend cuts are likely to ensue. We sold Itau Unibanco on concern over its capital markets exposure and integration risk. The bank reported good third-quarter results, but much of the upside came from market-related gains and lower provision charges, which we view as low quality. Furthermore, we wouldn’t be surprised to learn about operating disruptions associated with the merger of Unibanco and forthcoming dilutive acquisitions. We sold Olympus after evaluating the possible scenarios stemming from lapses in corporate governance that have come to light. Bottom line: Significant asset writedowns are likely and could result in little to zero shareholder equity. We are not willing to stick around and wait for this to potentially play out. We have concerns about transparency in the Japanese market and the Olympus fiasco underscores those concerns. Denso is a play on Japan and cars and we feel there are better ways to play both things in other companies. After years of disappointments, Carrefour seemed to have some upside but management has shown little besides further promises and pleas for time. We had a small position in Sims and have decided that we are more comfortable with the outlooks for Nucor and Schnitzer in the sector and so will consolidate. We sold our stake in British Land as we see more downside risk than upside potential. A renewed credit crunch in Europe would certainly pressure the company’s property development ambitions. Additionally, financial institutions, such as UBS, account for a significant part of British Land’s commercial property leases. We sold TNT Express as we near completion of our transports retooling. We had hoped FedEx would bid for the company after the mail/express unit break-up. But we cut our losses in the stock before conditions worsen for company.
The information provided herein represents the opinion of the Portfolio Manager of the Fund and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
Past performance does not guarantee future results.
Holdings are subject to change and are not recommendations to buy or sell any security. See complete fund holdings information.
The MSCI World Equity Index is a capitalization weighted index that monitors the performance of stocks from around the world. The MSCI All Country World Index is a market-capitalization-weighted index composed of over 2,000 companies, and is representative of the market structure of 48 developed and emerging market countries in North and South America, Europe, Africa, and the Pacific Rim. The index is calculated with net dividends reinvested in U.S. dollars. The FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. The DAX Index is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index tracks the 40 largest French stocks based on market capitalization on the Paris Bourse. The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as representative of the U.S. equity market. The Bovespa Index is an index of 50 leading stocks traded on the São Paulo Stock, Mercantile & Futures Exchange. One cannot invest directly in an index.
Earnings Growth is a measure of growth in a company's net income over a specific period, often one year. This is not a forecast of the Fund's future performance. Earnings growth for a Fund holding does not guarantee a corresponding increase in the market value of the holding or the Fund.
Gross Domestic Product (GDP) is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living.
Free cash flow is revenue less operating expenses including interest expenses and maintenance capital spending. It is the discretionary cash that a company has after all expenses and is available for purposes such as dividend payments, investing back into the business or share repurchases.