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| September 30, 2011 |
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Market Environment
Spurred by concerns about European debt contagion, the lack of progress toward a solution to the debt crisis, and a progressively more cautious view toward global growth, global stock markets tumbled during the quarter. For the full quarter, the MSCI ACWI (All Country World Index ex U.S.) had a double-digit negative return. The performance of the Munder International Fund - Core Equity reflected the negative market environment and trailed the MSCI ACWI benchmark. (Please Note: The benchmark for the Munder International Fund – Core Equity was changed from the MSCI EAFE (Europe, Australasia and the Far East) Index to the MSCI ACWI (All Country World) Index ex U.S. in April 2011. In connection with this change, the Fund’s primary investment strategy was changed to primarily invest in securities of companies in countries represented in the MSCI ACWI ex U.S. and its limitation on investments in emerging markets countries was removed.)
Not surprisingly, Greece was the worst performing country in the ACWI universe, as continued fear over a potential sovereign debt default sent Greece down 46.6%. There was no place to hide within continental Europe, as the region as a whole dropped 26.0%. The largest economy, Germany, a bright spot in the second quarter, was penalized for being at the forefront of any perceived rescue plan and declined 31.0%. German business confidence dropped to its lowest level in more than a year and the German economic recovery appears to be stalling. Thinly traded Peru (-4.7%) was the best performing country, as the market’s fear of the new socialist president waned. Japan was also an outperformer and returned -6.4%. Japanese GDP shrank less than forecast, signaling the country is continuing to rebound from March’s earthquake disaster. Canada was down 19.0% as the Bank of Canada left interest rates on hold and announced that the need to withdraw stimulus has diminished, signaling that growth prospects had weakened. Brazil finished down 27.0%. The Brazilian real dropped almost 20% as inflation accelerated more than forecast after the recent interest rate cut. Switzerland (-17.5%) managed to outperform the overall market after an unexpected interest rate cut and exchange rate ceiling was instituted by the Swiss National Bank to curb the Swiss franc’s appreciation versus the dollar and euro.
Sector returns once again reflected the market’s smaller appetite for risk as two defensive sectors, consumer staples (-9.4%) and health care (-10.3%), were the best performers. Materials (-25.9%) was the worst performing sector as commodity prices fell on the expectation of slowing global growth.
Strategy Review
Overall security selection detracted from relative performance within both countries and sectors and was responsible for all of the Fund’s underperformance. Despite the lagging performance of the Fund for the quarter, there was notable outperformance from the telecommunication services and financials sectors. Within telecommunication services, Thailand-based mobile phone operator Total Access Communication PLC (2.7% of the Fund) was up 36.8%. The company launched 3G services in August and also benefited from a supportive regulatory environment in Thailand. The relative performance of the Fund’s financials sector was boosted by two Japanese holdings in particular. Japanese real estate builder and brokerage company Daito Trust Construction Co. Ltd. (1.6% of the Fund) rose 12.1%. Daito continues to benefit from reconstruction efforts in regions damaged by the March 11th earthquake and tsunami. Also within financials, the Fund’s holding of Japanese bank Chiba Bank Ltd. (0.9%) returned 13.7%. Chiba’s mortgage and apartment loans are flourishing, thanks to a population influx into the bank’s region. Security selection within the Fund’s information technology sector was boosted by Japanese social media site operator DeNA Co., Ltd. (0.8% of the Fund), which returned -0.8% in the quarter. The company expects its smartphone and overseas strategies to boost long-term earnings.
In contrast to these positive factors, security selection within the Fund’s industrials sector detracted from relative performance for the quarter. Canadian transportation equipment manufacturer, Bombardier, Inc. (0.8% of the Fund), fell 50.9% in the quarter. The company may cut production on some of its aircraft as slowing economic growth impacts purchases. Within the Fund’s materials sector, German-based chemical company, BASF SE (1.0% of the Fund) dropped 36.9%. The company has been especially hurt by slowing economic growth in both Europe and China.
Market Outlook
Western central banks are focused on faltering growth and the threats posed by Europe’s debt crisis. At the moment, the top priority seems to be about protecting the liquidity of the European banks. On September 15th, the European Central Bank and the Federal Reserve, along with other central banks around the globe, announced that they will coordinate efforts to provide dollar liquidity to Euro area banks in an effort to ensure cash is available for the rest of the year. This coordinated act could be the first step toward providing the market with optimism that policy makers can contain the sovereign debt crisis. Within Asia, central banks are less focused on declining growth and more focused on curbing inflation. In early July, China boosted interest rates for the third time this year, after inflation accelerated to its quickest pace since 2008. Japan unemployment is relatively low at 4.3% and the government has taken measures to help companies cope with the surging yen. Many emerging market central banks are confronting a challenging situation in which inflation rates are above target while growth concerns persist. The Reserve Bank of India recently hiked interest rates because the current inflation rate of close to 10% is above its comfort zone. Recent deliberations within both South Africa and the Czech Republic confirmed that concerns over weakening currencies are likely to keep monetary easing on hold. Widespread bearish sentiment and lower global growth expectations now appear to be discounted by investors. At the same time, corporate balance sheets are healthy and lowered market expectations leave room for potential positive earnings surprise. In these volatile times we continue to execute our process of stock selection in a disciplined manner. The Munder International Fund - Core Equity will continue to minimize unintended risk while simultaneously looking for companies with valuation and business momentum advantages relative to their peers. |
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| June 30, 2011 |
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Market Review
Despite enhanced European sovereign debt concerns and a string of disappointing macroeconomic reports late in the quarter, global markets managed to finish in positive territory. The Munder International Fund-Core Equity also posted a positive return and finished ahead of its MSCI ACWI (All Country World) Index ex U.S. benchmark. (Note: The benchmark for the Munder International Fund – Core Equity was changed from the MSCI EAFE (Europe, Australasia and the Far East) Index to the MSCI ACWI (All Country World) Index ex U.S. in April 2011. In connection with this change, the Fund’s primary investment strategy was changed to primarily invest in securities of companies in countries represented in the MSCI ACWI ex U.S. and its limitation on investments in emerging markets countries was removed.
Concern over potential sovereign debt default left Greece (-16.3%) as the runaway worst performing country. Peru plunged 15.2% over fear that the new socialist president would increase the government’s role in the economy and impair the economic growth of the last decade. Canada dropped 4.6% as the mineral-rich country suffered from declining commodity prices and concerns over a slowdown in exports to China. Despite widespread fears of contagion from peripheral European countries, there were notable bright spots. Germany (+7.0%) reported strong first quarter Gross Domestic Product (GDP) figures due to higher exports and domestic spending. The German central bank, Bundesbank, raised its forecasts for German economic growth, as it believes Germany has entered a broad and prolonged upswing. Switzerland finished up 7.3% as unemployment dropped to 3.1% and consumer prices remained stable. Within emerging markets, Indonesia’s ability to control inflation boosted the market by 8.0%.
Sector returns reflected the market’s smaller appetite for risk as defensive sectors such as health care (+8.6%), and consumer staples (+7.3), outperformed the more cyclical energy (-5.3%) and information technology (-3.0%) sectors.
Strategy Review
Security selection within the Fund was strong for both countries and sectors, with excess return generated in six of ten sectors. Particularly notable outperformance came from the information technology and materials sectors. Information technology’s relative return was boosted by Catcher Technology Co. Ltd. (0.5% of the Fund), which rose by 11.1% during the quarter. The Taiwanese handset and notebook casing manufacturer saw revenue climb from rising smartphone and tablet demand. Within the materials sector, Norwegian fertilizer producer, Yara International ASA (0.3% of the Fund) was up by 13.8%, benefiting from higher fertilizer prices. Another materials holding, German chemical producer BASF SE (0.9% of the Fund) returned 16.9% due to a combination of increased demand for its products and services, and higher prices that have improved profitability to a greater extent than anticipated by the market. The Fund’s financials holdings also generated solid relative performance, as Korean financial services company BS Financial Group, Inc. (0.9% of the Fund) returned 10.3% after the company reported record high net profit for the first quarter due to lower credit costs. The underweight of Japanese utilities also added value in the quarter, as the Fund continued to have no exposure to Japanese nuclear power generation.
In contrast to these positive factors, security selection in the Fund’s consumer staples sector detracted from relative performance during the quarter. The share price of Norwegian-based fish farmer Marine Harvest ASA (0.4% of the Fund) dropped 26.4% as the company was hurt by higher costs and lower than expected contract prices.
Market Outlook
The market outlook remains unsettled at the macroeconomic level. While Japan recently posted its first trade deficit in 31 years, as exports slumped in the aftermath of the March triple disaster, Japanese supply disruptions are proving temporary. The recent string of below-expectation macroeconomic reports has been accompanied by renewed investor speculation regarding sovereign default for parts of Europe’s periphery. Within emerging markets, inflation has been a problem for much of 2011. Several markets, including India and China, have been raising interest rates and increasing reserve requirements at banks to help curb higher prices. A different approach toward inflation has taken place within developed markets. While inflation concerns still exist, they seem to have taken a back seat to concern over slowing economic growth. This has allowed central banks to maintain accommodative stances until labor markets and production improves. At the same time, earnings season in most sectors surprised on the upside and corporate balance sheets remain in healthy condition. We believe that this environment favors our strategy’s continued disciplined focus on bottom-up stock selection. Any increased economic headwinds going forward are likely to drive separation between winners and losers. As always, the Munder International Fund-Core Equity will look for companies with valuation and business momentum advantages relative to their peers. |
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| March 31, 2011 |
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Market Environment
Despite geopolitical turmoil in North Africa and the Middle East and the devastating earthquake, tsunami and subsequent nuclear radiation crisis in Japan, international equity markets posted positive returns in the first quarter of 2011. The Munder International Fund - Core Equity also posted a positive return and finished slightly ahead of its MSCI EAFE (Europe, Australasia, and Far East) Net Dividends benchmark for the quarter. Performance was the strongest in Europe, as certain fiscally constrained countries saw their markets post double-digit returns after the European Union widened the scope of the rescue facility for the region’s most indebted countries. Greece (15.2%), Italy (13.8%), and Spain (13.7%) were the top performers. France (10.6%) also outperformed after the January reading of business sentiment advanced to a three-year high. Not surprisingly, Japan (-4.8%) was the worst performing country for the quarter, as the market sold off following the March 11th earthquake and tsunami. The price of oil surged over 20% in the quarter as fighting between Libyan rebels and troops loyal to Muammar Qaddafi intensified. This was reflected in sector returns, as energy (11.1%) was the top performing sector. Telecommunication services (8.7%) also had strong performance as a result of the announcement of Deutsche Telecom’s intentions to sell T-Mobile USA to AT&T. Information technology (-1.0%) was the worst performing sector.
Fund Review
Overall, sector returns were somewhat mixed for the quarter with seven of the ten sectors posting a positive return. In a clear reversal of recent trends, value stocks outperformed growth. Security selection was quite strong in the Fund’s utilities sector, as the Fund had no exposure to Japanese nuclear power generation. The Fund’s holding of Italian electric power generator Enel S.p.A. (0.9% of the Fund) rose 25.8% in the quarter as the company benefited from rising power prices, driven partly by higher oil and gas prices and partly by the shutdown of many nuclear plants across the globe after the earthquake/tsunami. The Fund’s information technology holdings also generated solid relative performance, outperforming the corresponding benchmark sector by over 3%. The Fund’s holding of STMicroelectronics (0.4%) rose 20.2%. The French-Italian semiconductor company reported better than expected fourth quarter revenue and margins and was also supported by new product launches from its handset joint venture with Ericsson.
Security selection in the Fund’s consumer discretionary and industrials sectors detracted from relative performance in the quarter. The share price of automaker Nissan Motor Co. Ltd. (0.9%) fell by 5.9% following the disaster in Northern Japan. It will take at least a few months before all of the impacts of the damage to plants, suppliers’ plants and electricity suppliers can be quantified. Relative to Japanese peers, Nissan’s having just 30% of global production in Japan may mitigate the total impact on the company. The shares of Hong Kong-based airline Cathay Pacific Airways Ltd. (0.3%) were down 13.2%, as fuel costs continued to rise and both passenger and cargo traffic disappointed in January and February.
Market Outlook
Global markets are digesting quite a few unusual events as of late. The triple disaster in Japan has serious short-term ramifications for the country’s economy, although reconstruction efforts will surely stimulate growth in the long term. Instability remains throughout most of the Middle Eastern nations where potential regime change brings uncertainty to the oil and energy markets. On the positive side, the overall macroeconomic environment has shown improvement in the U.S., Asia and parts of Europe since the beginning of the year. In Europe, the European Central Bank (ECB) will continue to play a balancing act between the forced austerity measures that must be taken by some peripheral countries and the robust expansion occurring in other countries, such as Germany. Inflation concerns are likely to persist however, as the Central Bank President announced in early March that an interest rate increase could be warranted in April. These uncertain times call for a disciplined approach to security selection and a watchful eye towards valuation. The Munder International Fund - Core Equity will continue to focus on companies that exhibit improving business momentum with price multiples in a reasonable range given earnings expectations and sustainability. |
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Past performance does not guarantee future results. There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including potential loss of principal. The Fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a prospectus and summary prospectus, click here. Read the prospectus and summary prospectuses carefully before investing.
RISKS: Investors should note that investments in foreign securities involve additional risks due to currency fluctuations, economic and political conditions, and differences in financial. The Fund may concentrate its investments in one or more countries. A substantial portion of the Fund’s assets is invested in securities of Japanese and U.K. issuers; therefore, adverse market conditions impacting those countries may have a more pronounced effect on the Fund. There are greater risks involved in investing in emerging market countries than those associated with investment in developed foreign markets. Further, value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
Fund holdings mentioned in the Quarterly Commentary are as of 12.31.11 and the percentages shown are based on net assets as of that date. Fund holdings are subject to change and should not be considered purchase recommendations. There is no assurance that the securities mentioned remain in the Fund’s portfolio or that securities sold have not been repurchased. The most currently available data regarding portfolio holdings can be found on our website, www.munder.com.
Effective April 18, 2011, the Fund's primary benchmark was changed from the MSCI EAFE Index to the MSCI ACWI (All Country World Index) Index ex U.S. In addition, the Fund's primary investment strategy was changed to primarily invest in securities of companies in countries represented in the MSCI ACWI ex U.S., which gives the Fund additional exposure to emerging markets countries.
The MSCI All Country World Index (ACWI) ex U.S. is an unmanaged index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States.
The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index that is designed to measure developed equity market performance, excluding the U.S. and Canada. Returns provided for the MSCI EAFE Index are net dividends (i.e., net of foreign withholding taxes applicable to U.S. investors). You cannot invest directly in an index, securities in the Fund will not match those in the index, and performance of the Fund will differ. Although reinvestment of dividend and interest payments is assumed, no expenses are netted against an index’s returns.
Munder Funds are distributed by Funds Distributor, LLC 01.12
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| Munder Funds distributed by Funds Distributor, LLC. |
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