Market Sector Update

• After rallying aggressively in the first part of the quarter, returns on riskier asset classes turned to losses by quarter end. While economic growth remained steady, headlines around potential trade disruptions took equity prices lower, widened credit spreads and introduced volatility back into markets.
• Despite the volatility, the U.S. Federal Reserve (Fed) continued to hike interest rates with another 0.25% increase at the March meeting.
• After continuing to decline early in the quarter, the U.S. dollar stabilized as volatility came back into markets.

Portfolio Strategy

• The Fund underperformed its benchmark for the quarter. Underperformance was driven by the equity portion of the portfolio, which materially underperformed the benchmark index. On the other hand, the fixed-income portion of the portfolio outperformed its benchmark index. Outperformance in the fixed-income portfolio was driven by credit selection. Exposure to bank loans as well as fixed-to-floating securities proved additive to performance for the period. Currency hedging and asset allocation were slight drags to performance.
• The equity portfolio had broad underperformance in most sectors and geographies, with selection in information technology and utilities the top relative detractors. On the other hand, strong stock selection and an overweight allocation to financials benefitted performance for the quarter.

Outlook

• In the interim, we expect volatility to remain in markets as negotiations around potential trade tariffs continue.
• As a result of the increased volatility, we have made adjustments to the portfolio. On the equity side, we have made an effort to reduce volatility mainly by adding positions to close an underweight in consumer staples. On the fixedincome side, we have lowered duration, and are concentrating more on short-call, higher coupon credit instruments which we believe are highly likely to be refinanced. These instruments tend to have less price volatility, while still providing a medium for returns.
• Despite the volatility, we have been hesitant to shift asset allocation as we believe the Fed is likely to continue hiking interest rates despite the market volatility as inflation indicators rise. We remain slightly overweight equities to the blended benchmark.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 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.

Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

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. Fixed-income securities are subject to interest-rate risks and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as non-dividend-paying instruments. Dividend-paying companies may choose not to pay a dividend, or dividends may be less than was anticipated. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.