While developed markets experienced a strong first quarter, emerging markets lagged, posting one of their worst quarters of relative performance in recent years. Economic recovery in the developed world proceeded along, and many developed-market central banks maintained “easy” monetary policies. Japan, in particular, announced its intention to implement significant measures to curb deflation, which helped Japanese exports to become more competitive with those from China. Investors’ concerns regarding China —including slower growth, a lack of transparency in government statistics and concern over credit-fueled overexpansion — contributed to the unfavorable performance.

Emerging market returns were driven by the weak showing of some of the largest countries in the Index. All of the BRIC markets experienced losses, including returns of -0.80% in Brazil, -3.18% in Russia, -2.55% in India and -4.54% in China. Additionally, Korea and Taiwan — which collectively make up more than more than 24% of the Index — returned -3.41% and -0.21%, respectively. These negative returns were partially offset by Indonesia, which returned 13.39%, and the Philippines, which has a relatively small weight in the Index but delivered the best performance at 18.64%. The top-performing sectors in the Index were health care and consumer staples, which returned 2.57% and 2.02%, respectively. Materials, energy and telecommunications services had a negative impact on performance, returning -9.94%, -5.78% and -4.97%, respectively.

• Select stocks on the basis of quantitative analysis with the aim of producing a portfolio that will approximate the performance of the MSCI Emerging Markets Index.
• Maintain industry diversification, country weightings, market capitalization and other financial characteristics similar to the Index.
• Buy and sell securities in response to changes in the Index.