Market Sector Update

• For the quarter, the benchmark index delivered a steady rally, with all sectors in positive territory in U.S. dollar terms. The U.S. dollar depreciated 2.8% against a basket of foreign currencies as the euro and British pound appreciated.
• The quarter was marked by relief from several of the overhanging threats surrounding the global economy. While this relief may be temporary, markets cheered the significant progress made toward a “phase one” U.S. and China trade deal and increased clarity surrounding Brexit. Additionally, there was supportive monetary policy across the globe as well as signs the world’s industrial and manufacturing slowdown may be bottoming. Despite several steps in the right direction, the year closed with many geopolitical issues unresolved and an escalating conflict in the Middle East.
• Brent crude was up a little more than 12% during the quarter, a move that reflects output declines and U.S. dollar depreciation. Meanwhile, bond yields moved higher in most major economies as trade deal related bullishness toward risk assets turned more positive.

Portfolio Strategy

• The Fund posted a positive return for the quarter but underperformed its benchmark index. Index performance was driven by cyclical sectors, while defensive sectors (with the exception of health care) underperformed. Within sectors, there was a bias toward higher multiple growth companies, an area of the market this strategy generally avoids. For example, European luxury goods companies performed well, as did Japanese factory automation companies. These stocks have relatively large weightings in the index, so the avoidance of these types of companies in the Fund weighed on performance.
• Underperformance for the Fund was largely driven by poor stock selection in the consumer discretionary and information technology sectors as well as the Fund’s relatively large cash allocation in a rising market. On the positive side, the Fund delivered strong stock selection in the industrials and energy sectors.
• Of note, top relative detractors to performance included Subaru Corp., Zozo, Inc. and Newcrest Mining Ltd. We believe Subaru, a Japanese auto company, is still well positioned looking forward as we expect their current product cycle to be successful. After recovering in previous the quarter, the stock declined due to, what we believe are, temporary headwinds. ZoZo, a Japanese online fashion retailer, underperformed due to an unexpected technical overhang as the company’s founder tendered fewer shares in the announced Yahoo Japan deal. Despite this, we believe the stock trades at a discount and has opportunities to leverage the partnership with Yahoo Japan. Newcrest Mining, an Australian gold mining company, has performed well this year, but declined over the quarter as investors sold safe-haven gold assets on the heels of positive news stemming from U.S.-China trade negotiations.
• On the positive side, Ferguson plc, UniCredit S.p.A. and Alibaba Group Holding Ltd. ADR were the top relative contributors to performance for the quarter. Ferguson, a U.K.-based plumbing supply company, benefitted from good financial performance and improving U.S. housing data as nearly 90% of company sales stem from the U.S. Going forward, we believe the company offers investor upside. UniCredit, one of the two largest Italian banks, performed well as the company improved its balance sheet, Italy’s political situation improved and investor interest in more cyclical stocks increased. We believe UniCredit maintains an attractive relative valuation. Alibaba, a Chinese e-commerce platform and technology ecosystem leader, had several positive events that led to the stock reaching all-time highs in the quarter. Trade war relief, listing on the Hong Kong stock exchange and a positive sales growth outlook all helped drive the rally.
• Over the quarter, the Fund redeployed cash into several new holdings bringing the cash balance from 9.2% to 3.9% to end the quarter. The Fund also removed hedges to the Chinese yuan, but remains long the Japanese yen, bringing the Japanese equity weight up to a neutral economic exposure relative to the benchmark. New positions were initiated across multiple sectors. Of note, a new utilities company was added to the portfolio as well as three financial companies, including two Indian financials.

Outlook

• The outset of 2020 has several conflicting circumstances to consider. Global growth is still fragile. Manufacturing and industrial production has been weak and the lasting impacts of trade disputes on capital investment and business confidence is still unknown. The consumer has rescued and supported economic growth across much of the world, a source of growth that may not be sustainable. Tensions in the Middle East are boiling, which could continue to drive oil prices to levels that hurt consumers and major oil importing nations around the world. It may also carry with it a risk premium that discounts current market valuations.
• On the positive side, there are signs of cyclical bottoming across Europe and Asia. If these economies can sustain improvements in key economic growth drivers, this would be positive for the global economy. We believe a U.S.-China trade deal expected to be signed in January should bring confidence to industries that had previously experienced significant trade-related slowdowns. Lastly, Brexit is several steps closer toward an orderly conclusion. There are still variables that could derail this soft exit, but the situation has improved which should support improvements in the U.K. and Europe.
• Looking forward, we believe 2020 should prove to be an eventful year. Geopolitics will likely continue to be an unrelenting driver of asset values across the globe. An election year in the U.S. will bring a new slate of risks to consider. And tensions in the Middle East could bring market shocks. At the same time, the positive factors mentioned above could bring another year of positive returns, particularly in international markets.
• We continue to believe there is opportunity in developed international markets. We believe valuations remain attractive, particularly in the companies we own, and growth prospects are brightening. The relative value approach this Fund employs led us to be underexposed to many of the large gainers in the international universe; however, we are confident the value discrepancies in the stocks we own are temporary.

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 Dec. 31, 2019, 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 12/31/2019: Total S.A. 2.8%, Nestle S.A., Registered Shares 2.7%, Airbus SE 2.4%, SAP AG 2.3%, Roche Holdings AG, Genusscheine 2.0%, Subaru Corp. 2.0%, UniCredit S.p.A. 1.8%, Bayer AG 1.7%, Seven & i Holdings Co. Ltd. 1.7% and Merck KGaA 1.6%.

All information is based on Class I shares.

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.