Market Sector Update

• Global real estate securities (GRES) and other risk assets rallied in the year’s final quarter on the back of positive vaccine momentum.
• After a slow start to the quarter, risk assets across the spectrum rallied beginning with November’s positive vaccine news, and to a lesser extent, a market friendly result to U.S. elections. Additional stimulus measures announced around much of the globe during the period also offered support.
• Nearly all property sectors finished higher in the fourth quarter, with a clear “risk-on” trend. Strongest returns came from the property sectors most directly exposed to the virus and related containment efforts, such as the retail, office and lodging sectors, as investors positioned for an economic recovery. Most of the secular growth or more defensive sectors advanced, but underperformed the broader real estate index.
• The fourth quarter GRES rally helped to erase a portion of 2020 losses. GRES finished 2020 below levels at the start of the year, while equities closed above start-of-year levels. GRES lagged as retail, lodging and office sectors weighed heavily on the index as those sectors have been most exposed to the virus’ unique impact on physical locations.

Portfolio Strategy

• The Fund produced a robust absolute return but underperformed its benchmark in the period. The relative underperformance stemmed from negative stock selection effect, largely in the U.S. and Canada, and to a lesser extent, negative regional allocation results.
• Underperformance in the U.S. was largely driven by underweight positions to the more “risk-on” sectors, such as regional malls, lodging and healthcare, which rallied with news of the vaccine and its upcoming deployment. An overweight to the more secular growth sectors like cell towers and single-family homes also weighed on results, as these sectors underperformed, despite remaining strong year-to-date outperformers.
• Similar to the U.S., underperformance in Canada stemmed from an overweight position to the single-family homes sector. Positioning within Canada’s shopping center sector weighed on results this quarter.
• An underweight to Australia negatively impacted results as the region rallied with sizable office and retail exposure, which performed best in the rally.
• Positioning in the U.S. and Europe office sectors, as well as an overweight to the Japanese developers, contributed to performance.
• In terms of country allocations, the Fund’s overweight positions to Canada and Hong Kong were increased, and the Fund’s underweight positions to Continental Europe and Singapore were reduced. The Fund’s overweight position to the U.S. was reduced to a more modest overweight position, and the Fund’s underweight position to the U.K. was increased to a more meaningful underweight. An underweight position to Australia and an overweight to Japan were maintained.

Outlook

• With greater certainty around the efficacy and timeframe of vaccine deployment, we believe the strong recovery that is well underway is poised to continue and possibly intensify in 2021. With the commencement of vaccine deployment, increasing COVID-19 cases around much of the globe should remain only a near-term setback, merely delaying rather than derailing a synchronized global growth cycle.
• Highly supportive financial conditions and further fiscal and monetary stimulus efforts offer additional tailwinds for economic growth and are an important support to real estate and GRES values.
• Although the impact of the pandemic will likely continue to disrupt real estate operations to varying degrees over the near-term, for most sectors the changes will be cyclical not structural. In a few traditional asset classes, such as discretionary retail, lodging and office, the impacts are likely to be more structural and enduring.
• With the recent share price rally, GRES trade at a modest discount to our reduced NAVs – an approximation of where private market pricing may settle once transaction activity resumes more normalized levels – with certain sectors and regions offering more meaningful discounts.
• We think GRES are attractive relative to their historical trading range with broader equities as share prices have underperformed equity share prices significantly, despite comparable reductions to earnings expectations. We believe GRES are attractively priced relative to historical relationship with government and corporate bonds.
• Global real estate securities have not fully participated in the equity market recovery. We believe attractive valuations, coupled with highly supportive financial conditions, positions 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 Dec. 31, 2020, 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.