Market Sector Update

• Global real estate securities and the broader equity market declined in the first quarter of 2018. A higher 10-year U.S. Treasury yield, anxiety over aggressive U.S. Federal Reserve (Fed) monetary policy and enthusiasm for the potential of greater corporate earnings growth resulting from the new tax laws all factored into an environment where investors favored investments that are less defensive than real estate for much of the quarter.
• However, in the quarter’s final month, property companies rebounded and outperformed broader equities.
• Real estate securities benefitted as investors shifted their attention to investment vehicles offering cash flow stability as market volatility was more elevated than recent levels. Investor sentiment was impacted by a deceleration in economic growth expectations, tension in global trade relations and concerns over heightened equity valuations.
• Real estate securities benefitted as the health of underlying fundamentals in a supportive economic backdrop drew investors to the space. The late quarter rally improved global real estate security performance.

Portfolio Strategy

• Although the Fund posted negative returns, it outperformed its benchmark for the quarter.
• The Fund’s relative performance was driven by positive stock selection results with outperformance in the United States (U.S.), Hong Kong and the United Kingdom (U.K.), with all three regions benefitting from tilts in their respective office markets.
• In the U.S., the Fund’s overweight position to the cell tower sector was also a significant contributor as strong wireless carrier demand is expected to drive accelerating internal growth for the property type.
• Several of the Fund’s regional allocations were adjusted during the quarter. The Fund’s position to Australia was increased, reducing its underweight position to the country. This shift was funded from increases to the Fund’s underweight positions to Singapore and Continental Europe. The Fund maintained overweight positions to the United States, Japan and the United Kingdom; an underweight Canada; and a modest overweight to Hong Kong.

Outlook

• Leading economic indicators remain positive across much of the globe, continuing to suggest healthy levels of global economic growth. While further improvement in economic growth expectations may be moderating, the healthy outlook supports the fundamentals of the real estate sector and offers potential upside to earnings growth for real estate securities.
• Real estate operating fundamentals remain healthy across much of the globe, evidenced by healthy earnings and operating results relayed by management teams in recent reporting periods. Given the health of real estate fundamentals in the current economic and capital market environment, we continue to expect solid levels of earnings and dividend growth from real estate securities.
• Global real estate securities currently offer compelling pricing discounts relative to the underlying value of their real estate, as well as to broader market alternatives – particularly compared to their historical pricing relationship with direct real estate.

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 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.

The FTSE EPRA/NAREIT Developed Index is an unmanaged index that tracks the performance of listed real estate companies and REITs worldwide. It is not possible to invest directly in an index.

Risk factors: The value of the Fund's shares will change and you could lose money on your investment. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Because the Fund invests more than 25% of its total assets in the real estate industry, it may be more susceptible to a single economic, regulatory, or technical occurrence than a fund that does not concentrate its investments in this industry. 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. The Fund is non-diversified, meaning that it may invest a significant portion of its total assets in a limited number of issuers, and a decline in value of those investments would cause the Fund's overall value to decline greater than that of a more diversified portfolio. 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.