Market Sector Update

• Emerging markets continued to stage its historic rally that started in late March. This area of the world is home to many companies at the forefront of technology and innovation, a hallmark characteristic of this epic rally achieved in the face of the sharpest modern-day economic collapse. As the proliferation of work-from-home trends accelerated, these companies stood out.
• The unique ability of certain emerging-market countries to contain COVID-19 also stands out as a catalyst for equity markets. This has proven true, specifically, in China, Taiwan and South Korea, where their technology infrastructure and cooperation from the population has allowed them to manage inevitable virus flair-ups. Further normalization of economic activity has proven beneficial in the region.
• Other emerging-market countries have faced more difficult circumstances. As the virus has been difficult to contain in places like India and Brazil, they have been faced with the challenge of managing the virus at the expense of the economy. As we exited the quarter, both countries appeared to be fighting on both fronts. More normalized economic activity has been slower to resume in these countries as virus containment has been difficult.
• Oil experienced a volatile quarter but finished relatively flat. Meanwhile, industrial metals rallied as expectations for improved demand returned. With that backdrop, oil stocks were, overall, flat for the quarter while the materials sector posted significant positive return.
• Emerging-market stocks continue to be driven by the consumer and technology sectors as they are, generally, clear winners in the current environment. Many of these companies are also in North Asia where the economic environment is healthier. The worst performing sector was utilities, a sector with an insignificant weighting in the benchmark index. • Major emerging-market currencies appreciated relative to the U.S. dollar during the quarter – a welcome backdrop for U.S.-based investors in emerging-market stocks.

Portfolio Strategy

• The Fund generated significant positive returns over the quarter and outperformed its benchmark index. The primary driver of relative return was stock selection. Sector allocation also provided a tailwind to performance for the period.
• Specifically, stock selection in health care, energy, information technology and financials was strong. An overweight to consumer discretionary and an underweight to financials also benefited performance. On a country basis, stock selection in China, Taiwan and South Korea helped performance.
• The top relative contributors to performance were Taiwan Semiconductor Manufacturing Co. Ltd., the world’s largest semiconductor manufacturer; Hyundai Motor, a South Korea-based auto company; and Beigene, a Chinese biopharmaceutical business. There was a continuation of trends from the second quarter where COVID-19 winners like ecommerce performed well, though cyclical business models began to experience a rebound off depressed levels.
• From a sector standpoint, poor stock selection in industrials detracted from performance. Additionally, stock selection in India also detracted from performance, while a slight overweight to Vietnam hurt slightly.
• At the stock level, the three greatest detractors were Bharti Airtel, an India-based telecom company that came under regulatory pressure which has since abated; Vipshop, a Chinese ecommerce company that was down after earnings; and Lukoil, a Russian energy company.
• To end the quarter, the largest sector overweight in the Fund was to consumer discretionary. This reflects our conviction in companies with perceived long-term competitive advantages that should thrive from the emergingmarket consumer. The largest underweight in the Fund is financials. Regionally, the largest exposure in the portfolio is to China as we believe the country remains a global hub for innovation and future corporate leaders within emerging markets. There are no notable overweight country exposures. The largest country underweight is to Saudi Arabia where the portfolio has no exposure.

Outlook

• As we look toward the end of the year, we are faced with many interesting circumstances. The upcoming U.S. elections, new waves of virus (particularly in the U.S. and Europe), cold weather in the northern hemisphere, and a stock market that has rebounded significantly off lows.
• Overall, we continue to see a wide dispersion between COVID-19 “winners” and “losers.” This goes for both stocks and countries. North Asian countries, where they have done better to contain the virus, will likely continue to recover toward more normal levels. At the same time, we have less visibility into other areas of the world. For example, as a result of COVID-19, Brazil is faced with certain challenges in the coming months. Their fiscal budget will be under pressure and their aggressive approach toward stimulus may be tested.
• At the same time, our disciplined approach toward valuation is requiring us to look at individual COVID-19 beneficiaries with more scrutiny. Innovative consumer and technology companies, while having superior business models, have rallied to historic highs. With valuations at the higher end of our target ranges, we have trimmed many positions and are looking toward companies where we believe future value is not fully appreciated. This includes certain pockets of cyclical companies and high-quality businesses that are experiencing transitory pressures. For example, over the previous quarter the portfolio entered into a chemicals company that is also one of the world’s leading electric vehicle battery manufacturer. While cyclical, it has the long-term growth backdrop of electric vehicles. Another new holding is a perceived high-quality Latin American airline that has historically been out of our price range. This environment allowed us to initiate a position.
• The pandemic continues to be an unprecedented situation. While the near future has question marks, we are encouraged by certain areas of emerging markets where growth may be stronger than the rest of the world and some cyclical industries may benefit by low inventory levels around the world. We believe this may provide support even as global growth remains in the balance. As active investors, this environment presents opportunity and we will continue to work diligently to take advantage of those that arise.

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 September 30, 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 09/30/2020: Taiwan Semiconductor Manufacturing Co. Ltd., 9.2%; Alibaba Group Holding Ltd. ADR, 8.4%; Tencent Holdings Ltd., 8.2%; Samsung Electronics Co. Ltd., 6.9%; Reliance Industries Ltd., 3.3%; Yandex N.V., Class A, 2.9%; Midea Group Co. Ltd., Class A 2.8%; JD.com, Inc. ADR 2.6%; Li Ning Co. Ltd., 2.5% and MercadoLibre, Inc. 2.5%.

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.