Market Sector Update

• To close an unprecedented and historic year, emerging markets were up sharply in the final quarter. Despite the challenges presented throughout 2020, with the support of strong underlying fundamentals, emerging markets showed resiliency and persevered. The pandemic that shined a light on the value of innovation and forward-thinking business models proved to be the driving force behind markets and emerging market’s leadership in these areas was further brought to light.
• The prospects of “reopening” coupled with more clarity surrounding the U.S. elections and future stimulus drove a recovery in cyclical areas of the global economy and in countries that had lagged for much of the year. Latin American countries, particularly Brazil, posted significant gains during the quarter. South Africa and Russia, both with commoditylinked economies, also did well. The best performing major emerging market was South Korea. Performance was largely driven by the country’s technology and health care companies, but also benefitted from some of the more cyclical commodity-based businesses that operate there.
• China, which had led emerging markets this year, was positive in the quarter, but lagged other major markets. The rally in Chinese equities slowed as several developments on the regulatory front caused investors to pause. As the market digested this news, certain stocks found their footing, but many saw relatively minor gains in the sharp November/December emerging-markets rally.
• Commodities were up sharply during the quarter, which sparked healthy performance from materials. Cyclical companies within other sectors, namely information technology and financials, also did well. Communication services and consumer discretionary stocks lagged as several of the large benchmark names within those sectors were down or had small gains over the period.
• Major emerging-market currencies continued to appreciate relative to the U.S. dollar which also helped U.S. dollarbased returns.

Portfolio Strategy

• The Fund posted strong double-digit gains and outperformed its benchmark. Performance was driven by strong stock selection, primarily in consumer discretionary, financials and materials while stock selection in health care was a drag on relative returns. From a country standpoint, stock selection in several U.S. listed companies as well as Brazil and Taiwan contributed. Holdings in China were relatively weak during the quarter.
• The top relative contributors to performance were Samsung Electronics Co. Ltd., a global leader in memory chips and electronics, including handsets; MercadoLibre, Inc., a South American ecommerce and financial technology company; and Freeport-McMoRan Copper & Gold, Inc., a U.S. based natural resources (primarily copper) company with significant operations in emerging-market countries. Overall, unlike most of the year, this quarter’s performance had significant contribution from a diverse group of cyclical companies.
• The three greatest individual detractors were BeiGene, Ltd. ADR, a China-based biologics company; Reliance Industries, Ltd., an Indian conglomerate with market leading operations in petrochemicals, telecom and retail; and Tencent Holdings Ltd., a leading Chinese communication services company. While all three companies were a drag on relative performance this quarter, they have contributed on a year-to-date basis.
• We made few changes to the portfolio. The Fund has two new holdings and sold three. For instance, EOFlow Co. Ltd., a Korean medical device company that specializes in diabetes pumps, is a new position. We believe the company’s innovative technology has strong long-term prospects locally and on a global basis. We sold Meituan Dianping as the stock had reached the higher end of our valuation range and at the same time, we believe, may face more near-term regulatory related challenges than many peers.

Outlook

• In the face of all odds, 2020 sparked a major rally in global markets. Much of the emerging world participated as innovative companies, clear beneficiaries of the pandemic, continued to grow, pick up market share and, as a result, attracted a high level of investment from around the world. Where does that leave the prospects for 2021?
• As emerging markets continue to come into their own, we expect many trends to remain. We believe our newer investments in more cyclical companies, including copper, our airline holding, as well as some energy related companies, will benefit as global growth accelerates and normalcy begins to return to individuals’ everyday lives. While we approach cyclicals with tighter valuation limits, we believe there is runway.
• Innovation and companies benefitting from the powerful long-term themes in emerging markets is still core to the portfolio. While many of those stocks had sharp rallies since the March 2020 bottoms, we believe the long-term durability of their business models and competitive advantages puts them in position to add shareholder value over time. In addition to the “blue chips” of innovation in emerging markets, we continue to find new opportunities as they emerge. Technology, consumer and, particularly, health care are areas that we expect to produce new market leaders.
• With new regulatory developments in China, we will monitor and adjust to material shifts as we recognize them. The initial stock reaction to news out of China is often quite harsh, but typically normalizes. In our opinion, the current proposed regulation does not change the investment case. Our approach is not impacted.
• Even with emerging markets up considerably in 2020, we believe they are still an attractive area to invest. Virus management in much of the emerging market market cap has been the best in the world. China, South Korea and Taiwan have been operating closer to normal levels of economic activity and, therefore, in many ways represent a more visible investment case than other areas of the globe. Additionally, a return of global economic activity should, like it has in past cycles, benefit emerging markets.
• Most importantly, industries in the emerging world continue to develop and companies are flourishing. We expect the opportunity set of investments to give investors the ability to generate strong risk-adjusted returns for many years to come.

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 December 31, 2020, 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.

Top 10 equity holdings as a percent of net assets as of 12/31/2020: Taiwan Semiconductor Manufacturing Co. Ltd., 9.4%; Samsung Electronics Co. Ltd. 8.4%; Tencent Holdings Ltd., 7.1%; Alibaba Group Holding Ltd. ADR, 5.4%; Midea Group Co. Ltd., Class A 3.2%; MercadoLibre, Inc. 3.2%; Ling Ning Co. Ltd. 3.0%; Yandex N.V., Class A, 2.5%; ICICI Bank Ltd. 2.5%; and Hyundai Motor Co. 2.4%.

All information is based on Class I shares. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. 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. To the extent the Fund invests a significant portion of its assets in a particular geographical region or country, conditions in that region or country will have a greater effect on Fund performance than they would in a more geographically diversified fund. 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.