Over the last few months, we have witnessed a sharp decline in global oil prices, sending energy markets into turmoil. The price of West Texas Intermediate crude oil declined nearly 20% in November alone, and prices have fallen almost 40% since they began their slide in July. Not surprisingly, world energy stocks have followed suit, declining about 21% since the summer. Many causes are cited for these recent trends, from rising production in the shale oilfields of North America to weakening demand from China and Western Europe and the return of Iraqi production, and commentators continue to debate the impact as energy markets adjust to oil price levels not seen since May 2010. Macro strategists around the world are second-guessing their energy positioning and oil and gas sector specialists are recalibrating their forecasts for commodity prices. We approach the Energy sector in the same way we approach any other sector; we focus only on those companies that adhere to our key criteria and therefore are, we believe, of superior quality with long-duration growth prospects. We do not attempt to forecast oil or gas prices, nor do we invest in companies whose fortunes solely depend on the price of oil, natural gas, or any other commodity. While some companies in the portfolio are exposed to the vagaries of the commodity markets, each company has been carefully evaluated on the basis of its competitive advantage and long-term growth potential.
The European Monetary Union (EMU) had the strongest performance by region in November, including a solid 5% return from Germany, its largest economy. This month Germany announced a 0.1% rise in GDP for the third quarter as consumer spending and exports grew enough to offset decreased investment and construction. The country’s ability to grow exports by over 1% during the quarter despite the economic weakness of its main trading partners in the eurozone and Russia was particularly encouraging. Unemployment in Germany, at about 5%, also remains relatively low compared to other countries in the EMU. In our last quarterly letter, we noted how recently valuations in the EMU were relatively rich compared to other regions in the Index based upon trailing price-to-earnings ratio data. The portfolio continues to have a large overweight to EMU, which is based on our process of bottom-up stock picking rather than a top-down bullish view. One of the common characteristics of our EMU holdings is that they are largely multinational companies: of our 25 holdings in the region, only 3 serve markets exclusively in Europe. The others have significant exposure to faster-growing markets outside their home region.
We build diversified portfolios of high-quality, growing companies identified through fundamental research.