Market Sector Update

• Global real estate securities (GRES) and other risk assets are off to a strong start in 2021 through the first quarter, building on the 2020 year-end vaccine induced rally.
• Risk assets advanced this quarter with support from accelerating vaccine deployment, lower case counts in much of the globe and additional fiscal stimulus. The combination has boosted expectations for a quicker and stronger economic reopening. Concerns over the rapid increase in sovereign bond yields experienced in February eased as the quarter progressed, as the rate of increase slowed. Select markets have been impacted by vaccine delays and/or increased case counts more recently, bur this should be temporary.
• Global sector performance was positive across most property types, with the strongest returns from the economically sensitive or virus exposed sectors. Regional malls, shopping centers and lodging sectors have been top performers as investors favored more cyclical sectors with broadening reopening. Secular, tech or demographic demand sectors, have been mixed with self-storage and single-family homes outperforming, but cell tower, data center and life science sectors gave back some of their 2020 outperformance.

Portfolio Strategy

• The Fund outperformed its benchmark in the period. First quarter relative performance stemmed from positive stock selection and positive regional allocation results.
• Stock selection results stemmed from outperformance in the U.S., Canada, Hong Kong and Singapore. An overweight position to U.S. and Canadian shopping center companies, particularly First Capital, Retail Properties of America and Urban Edge, were notable contributors to relative outperformance. Shopping center companies were among the largest beneficiaries as investors favored more cyclical or reopening plays in the quarter. U.S. outperformance was supported by an underweight position to the more defensive life sciences sector which declined and underperformed. Canadian outperformance was boosted by an overweight to the single-family housing sector which continues to benefit from supportive demographic shifts and growing institutional interest. Hong Kong results stemmed from an overweight to the market’s development focused companies which have outperformed with the reflation trade.
• Regional allocation results benefitted from an overweight position to Canada, the top performing market in the first quarter. An underweight position to Australia and Continental Europe (for most of the quarter) also contributed to positive relative performance, as those markets trailed the global index.
• The Fund’s country allocations were adjusted during the quarter. The Fund’s underweight position to Continental Europe was transitioned to an overweight. Additionally, the Fund’s underweight positions to the U.K. and Australia were reduced to more modest underweights. These changes were largely funded by a reduction in the overweight position to Canada and transitioning the Fund’s overweight position to the U.S. to an underweight. The Fund did remain overweight to Canada despite the position reduction. Overweight positions to Hong Kong and Japan were maintained this quarter, as was a modest underweight position to Singapore.

Outlook

• As vaccine deployment continues to accelerate in much of the developed world, the strong economic recovery is poised to continue and possibly intensify moving forward. Financial conditions remain supportive and largely below pre-COVID-19 levels as conviction in the economic outlook has strengthened. The strengthening economic recovery has been accompanied by an increase in sovereign bond yields, as should be expected with an improving growth outlook. Global central banks have reaffirmed their accommodative commitment, which coupled with additional fiscal stimulus, should bolster the recovery and real estate values.
• The pandemic is expected to continue to disrupt real estate operations to varying degrees over the near-term, but fundamental outlooks are improving as the cyclical impact of the pandemic moves to the rearview. As the pandemic impact subsides, we expect the headwinds facing select traditional sectors are likely to be more structural and weigh on medium- and long-term growth expectations.
• From a valuation perspective, GRES continue to offer attractive value. With the vaccine-induced rally, GRES trade in line with our reduced NAVs, with certain sectors and regions offering discounts. With the improving economic outlook and vaccine progress, there has been an uptick in transaction activity at better pricing than we estimated, and as a result, we have increased our NAV estimates in various sectors.
• GRES remain attractively priced relative to equities and may continue to enjoy attractive relative returns as highly valued sectors of the equity market contend with rising interest rates and, potentially, higher U.S. corporate taxes. Additionally, GRES remain attractively priced relative to their historical relationship with bonds, particularly corporate bonds.
• Despite the recent gains, GRES have not fully participated in the equity market recovery and are yet to fully recover their pre-COVID levels. Attractive valuations, an improving fundamental backdrop and supportive financial conditions should position the sector to deliver attractive investment returns as the economy continues to strengthen.

The opinions expressed are those of the Fund’s managers 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, 2021, 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.

All information is based on Class I shares.

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

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. 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, the Fund 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.