Market Sector Update

• Emerging market equity performance was positive for the quarter (generating mid-single-digit returns) and outperformed developed market equities. Emerging markets benefitted from strong global trade and economic activity across developed markets. The best performing regions were Eastern Europe and Northern Asia. The best performing sectors were Chinese information technology and consumer durables as well as Korean information technology and healthcare. Turkish equities also generated strong returns thanks to government stimulus programs.
• The recovery in Brazil’s economy suffered a setback as new political corruption accusations developed over the quarter. Most critical are the accusations that President Michel Temer allegedly committed crimes. This has chilled fiscal reform efforts which led to a very sharp one day correction in Brazilian equities and the real.
• Oil prices declined in the quarter which negatively impacted returns in the energy sector as well as those markets which generate the majority of their budgets from the sale of oil and natural gas.
• Despite continued concerns over North Korea’s efforts to develop capabilities to launch intercontinental nuclear weapons, economic activity in the Asia-Pacific region remains resilient. Diplomatic and economic efforts to halt the progress of Pyongyang’s military research seem to be accelerating.
• We continue to see trade negotiations progressing in a pragmatic fashion and do not expect any trade wars to develop.
• The Indian economy was and will temporarily be impacted by the July 1 rollout of a national Goods and Services Tax (GST). We believe GST will lead to a simpler tax system which should boost revenues for the government while making the country more efficient. The hiccup from the GST rollout likely hurt June business revenues, but we believe the short-term pain will lead to a higher rate of economic growth in the medium term.

Portfolio Strategy

• The Fund had a positive return for the quarter (before the effects of sales charges) but modestly underperformed the benchmark index.
• Key positive contributors to performance were a significant overweight in information technology names and strong stock selection in consumer staples and consumer durables. Key detractors to performance were holdings in Russian and Brazilian financial and energy names as well as select South Korean holdings. The exposure to Brazil was reduced during the quarter which benefited performance.
• At quarter end, the Fund’s largest country overweights were India, Turkey and Brazil. The Fund added to Indian consumer facing names, Indonesian telecommunications, Chinese insurance and Chilean materials. The largest country and regional underweights are South Africa and Association of Southeast Asian Nations (ASEAN). The Fund’s biggest sector underweight is financials.

Outlook

• We believe the outlook for global growth remains strong and could accelerate. Global leading economic indicators continue to flash green. Key Asian exporters continue to show strong activity. This is a positive for commodity producers as well as goods and services exporters.
• We have heard the Saudi oil minister say that key OPEC and non-OPEC oil producers will do “what it takes” to get global oil inventories under control. Compliance with agreed to production cuts appear solid. Despite this, U.S. shale, Libyan and Nigerian production have been much stronger than anticipated, leading to weak energy prices.
• As was the case in recent quarters, geopolitical events can lead to temporary volatility. The new Trump administration continues to struggle in implementing a reformulated healthcare plan. Tax, trade and infrastructure policies are still on the drawing board. Positive French election results bode well for the European Union. The reshuffle of China’s standing committee this fall could also have lasting impacts on Fund performance.
• Emerging market valuations remain attractive as earnings revisions continue to be revised upwards across many regions and sectors. We continue to be overweight new economy stocks (such as internet, advanced automotive systems, biosimilars and other technology) as well as consumer discretionary and private bank names. These stocks have performed well year to date and we believe that trend will continue.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through June 30, 2017, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Aditya Kapoor, CFA, was named a portfolio manager on the Fund in January 2017.

Class R6 shares were renamed Class N on March 3, 2017. Class T shares were introduced July 5, 2017.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. These and other risks are more fully described in the fund's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

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