Emerging market equities, as measured by the MSCI Emerging Markets Index, posted a return of 5.77% during the third quarter. Amid a volatile three-month period for the markets, emerging market stocks ended with a solid return due in part to better-than-expected economic reports from China. From a regional perspective, Europe, Middle East and Africa (EMEA) fared best with a return of 9.0%, followed by Asia with a return of 5.5% and Latin America with a return of 4.1%. Several countries that outperformed the broader market tended to have an energy and materials emphasis. As such, Russia, Brazil and South Africa all outperformed the Index during the quarter. Conversely, Indonesia, Turkey and India suffered from concerns over their fiscal health.
The Multi-Manager Emerging Markets Equity Fund outperformed during the quarter with a return of 7.46%, compared with the MSCI Emerging Markets Index return of 5.77%. Stock selection was strong across the asset class, most notably in India and the Pacific. Stock selection in select frontier markets also was positive. From a sector perspective, the Fund delivered strong results in the consumer and technology areas.
Sub-adviser performance was within expectations during the quarter. Sub-advisers Pzena and Westwood were the strongest performers over the period, each returning over 10%. For Pzena, returns were driven by strength in Pacific ex-China, while Westwood performed exceptionally well in India. Quantitative manager PanAgora underperformed during the quarter, driven by negative stock selection across a variety of sectors.
If you're a long-term investor looking to diversify your investments by pursuing the growth potential of emerging and frontier market equities, then this Fund may be right for you. It is intended for investors who are aware that foreign markets may involve additional risks, such as social and political instability, reduced market liquidity and currency volatility.
Investing in emerging markets entails extra risk. The securities markets of emerging countries are less liquid, more volatility, and less regulated than the markets of more developed countries. This risk is magnified in frontier countries since they generally have smaller economies or less developed capital markets than traditional emerging markets.
- Invest at least 80% of net assets in equity securities of emerging and frontier markets — emerging and frontier markets are defined as markets in MSCI Emerging Markets Index and MSCI Frontier Markets Index.
- Select complementary managers from a broad universe of investment managers.
- Blend managers into a single fund in an effort to provide an attractive combination of risk and return.