Market Sector Update

• Global equities as a whole were flat during the quarter. The U.S. was a standout performer (up approximately 3%). European markets were up in local currency, though posted slightly negative performance in U.S. dollar terms. The U.S. dollar rebounded strongly over the quarter, gaining approximately 4% versus a basket of other currencies. Emergingmarket equities underperformed – as demonstrated by a 13% local currency decline in Chinese A shares. Additionally, many emerging-market currencies were particularly hard hit and detracted from market performance.
• Conviction of continued solid global gross domestic product (GDP) growth remains. We believe the Tax Cuts and Jobs Act passed at the end of 2017, along with higher federal spending, will serve as a tailwind to economic growth in 2018 and into 2019 via increase business and consumer spending. However, inflation concerns and a higher-thanexpected U.S. Federal deficit have added to concerns of unsustainably strong economic growth.
• During the quarter, the U.S. Federal Reserve (Fed) expectedly raised rates and indicated they plan on two additional rate increases in 2018. The Fed has stated they will continue on the path to unwind its multi-trillion-dollar balance sheet, which the market anticipates.
• The European Central Bank (ECB) began to taper its bond purchases in early 2018, and their first rate increase is expected during the fourth quarter of 2019. The ECB has focused its attention on getting the banking system fit to handle any additional shocks by pushing for more capital into weaker Italian, German, Spanish and Greek banks as well as sales of non-performing loans to third parties.
• Emerging-market growth is now under pressure from the combination of a stronger U.S. dollar and higher oil prices. The outlook is further clouded due to aggressive U.S. trade policy and rhetoric regarding numerous nations, with China being a particular focus of escalating tariffs. These headwinds could result in sales and earnings pressure for multinational and emerging-market companies.

Portfolio Strategy

• The Fund outperformed its benchmark (Class I shares) for the quarter. Strong sector allocation drove relative outperformance, led by overweight allocations to the energy and information technology sectors. Additionally, an underweight allocation to the poor-performing financials sector aided performance. Stock selection slightly detracted from performance, with selection in consumer discretionary the top detractor.
• Currency hedges stemming from the U.S. dollar strengthening versus the euro slightly aided performance. At quarter end, the Fund maintains no currency hedges.
• Country allocation benefited performance, with the Fund’s overweight allocation to the U.K. and underweight allocation to Switzerland top contributors. Stock selection was solid in France and more than offset poor selection in Spain. By and large, the Fund’s country allocations are driven by sector and company analysis, rather than macroeconomic viewpoints.
• As the quarter progressed, we maintained a growth and cyclical overweight allocation relative to the benchmark. We reduced exposure to consumer discretionary, while adding to energy.
• The Fund’s largest sector overweights continue to include information technology, industrials and energy where we continue to find companies we believe provide good recovery potential or growth prospects. In our view, our underweight allocations to consumer discretionary, consumer staples and financials tend to have poor relative fundamentals and valuation.

Outlook

• We think global economic growth will remain moderate as we move through 2018 and 2019. We expect the U.S., Europe, China and some parts of emerging markets to be the main engines of growth. We anticipate moderate earnings growth, somewhat high valuations and a market environment with continued political and macroeconomic uncertainty in the U.S., Europe and Asia.
• We believe the largest macro risks include an expanding trade war between the U.S. and China, as well as higherthan- expected inflation. Nevertheless, bonds are becoming less attractive relative to equities and we believe this trend will continue if global inflation reaccelerates. We expect the Fed to enact additional rate increases in 2018 and 2019, as well as continue to shrink its balance sheet as planned. We believe the ECB will begin to raise rates during the fourth quarter of 2019, while continuing to taper its purchase of bonds.
• In Europe, political uncertainty has increased largely due the region’s inability to effectively manage and absorb a large population of refugees. The new Italian government is headed by a coalition of two parties that are Euro-skeptics, an environment that could induce increased instability to the region. We feel the U.K. faces additional long-term headwinds stemming from Brexit, as unknowns and “an uncertainty tax” will hurt its economy. In France, pro-business reformer Emmanuel Macron pushed through labor reforms. That said, we believe expectations for major European Union reforms look poor. Interests in the region are widely disparate, and leadership is slow moving and seemingly lacks the political capital necessary to drive substantive reform.
• We continue to target sectors, stocks and countries we believe best reflect our economic outlook and that have solid and growing free cash flow. We believe the odds of a recession are low as there has not been a boom in spending, excluding some property markets around the world, and the U.S. has a large tax cut that should encourage capital investment and consumer spending. In our view, the strongest long-term GDP growth should still occur in emerging markets and the U.S. due to better demographics. In an effort to capture this growth, we intend to continue investing in European multinationals with high revenue exposure to the U.S. and/or emerging markets.

The opinions expressed are those of the Fund’s manager regarding Class I shares 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, 2018, 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.

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. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact that if the Fund were invested in a larger number of securities. 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.