Market Sector Update

• Global real estate securities posted strong returns in the second quarter, advancing and outperforming the broader equity market in all three of the quarter’s months.
• Real estate securities benefitted from positive operating commentary and ongoing mergers and acquisitions within the sector, as well as a modestly risk-averse investment environment. During the quarter, investor sentiment was affected by a softening in leading economic indicators in several markets and uncertainty surrounding future global trade relations.
• 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.
• With the quarter’s strong results, global real estate securities offset all of the group’s earlier year weakness and relative underperformance compared to broader equities.

Portfolio Strategy

• The Fund performed in line with its benchmark for the quarter, based on Class I shares.
• Regional allocation results were positive, benefitting from an underweight position to Singapore, which underperformed during the period and has been the weakest performing country in 2018. An overweight position to the U.S. and underweight position to eurozone also contributed positively to results.
• However, the positive impact of regional allocation was offset by negative stock selection, noted by underperformance in the U.S. and European Union (EU.) In the U.S., the majority of underperformance stemmed from an overweight position to the cell tower sector, which came under pressure from investors’ fears that demand for cell tower space would reduce because of wireless consolidation. In the EU, a large portion of underperformance stemmed from a tilt to the Spanish real estate investment trust (REIT) market. Despite healthy operating results, Spanish REITs were negatively impacted by political unrest stemming from changes in the country’s government during the period.
• Several of the Fund’s country allocations were adjusted during the quarter. The Fund’s modest underweight to Australia was transitioned to an overweight, while its overweight position to Hong Kong was increased. Additionally, the Fund’s overweight position to the United Kingdom was transitioned to a market weight, underweight positions to Continental Europe and Singapore were increased and the overweight position to the U.S. was modestly reduced. Despite the modest reduction in U.S. exposure, the Fund remains significantly overweight the country. An overweight position to Japan and underweight position to Canada were maintained during the quarter.

Outlook

• The global economy is healthy as economic growth expectations remain near current cycle peak levels. Leading economic indicators, while recently off highs, remain at levels supportive of continued economic expansion in most regions. While uncertainty related to future global trade relations and political tensions linger, growth prospects have yet to be meaningfully impacted.
• The current economic backdrop has been accompanied by higher interest rates and inflation expectations this year. However, these tighter financial conditions have not reached a level that has significantly impacted the pricing of direct real estate and is likely to be mitigated to some degree by the benefits an improved economic environment would generate for the real estate sector – such as greater consumer spending, business travel, corporate profits, demand for office and warehouse space.
• 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. Management teams in several regions have suggested the potential for a modest acceleration in the second half of 2018. 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 are trading at discounts to their net asset value (NAV) and continue to offer attractive pricing compared to their historical trading pattern with private real estate.

The opinions expressed are those of the Fund’s managers at Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through June 30, 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.