Market Sector Update

• The Fund's benchmark, the JP Morgan GBI-EM Global Diversified Index, returned 9.62% in U.S. dollar terms over the quarter. All countries in the index delivered positive returns over the period.
• Market activity in the last quarter of the year has been supportive for emerging economies, particularly following the strong performance after the U.S. elections which brought year-to-date returns back into positive territory.
• Emerging markets have managed to maintain solid growth momentum through the fourth quarter due to higher-thanexpected activity data.
• Manufacturing, in particular, has surprised to the upside with strong figures from Russia, China, South Korea and India, but the recovery in mobility still remains challenging.
• Confirmation of positive developments in the vaccine rollout continued to spur the market on in the final month of the year and this, combined with continued U.S. dollar weakness, higher commodity prices and increasing strength of inflows into emerging markets, gives the market a solid starting block going into 2021.

Portfolio Strategy

• The Fund outperformed the index over the quarter with positive contributions from both local rates and currencies. Off benchmark positions were also additive to performance. Active positioning in emerging-market currencies was the main driver of performance, with the largest contribution coming from the overweight to the Chinese renminbi as the currency has continued to strengthen in line with the rapid recovery of China’s economy.
• The overweight to the Russian ruble also contributed as the currency has continued to appreciate as the weaker dollar theme continues and higher oil prices have been supportive. Overweight positions in the Czech koruna, Mexican peso and Brazilian real also contributed to performance. In local rates, the overweights in South Africa and Mexico were the largest contributors.
• Mexican rates were supported upon confirmation of a Biden win in the U.S. election and, in South Africa, the local bonds have offered a perceived attractive risk premium due to concerns surrounding debt sustainability.
• Marginal detractors to performance came from underweight positions in the South African rand and the Hungarian forint as well the underweight in Turkey as market sentiment improved regarding the economy’s economic outlook.
• We see opportunities in selected high yielding countries such as Russia, Mexico and South Africa as well as maintaining our constructive outlook for emerging-market currencies where we have high conviction positions in the Russian ruble and the Chinese renminbi.

Outlook

• We believe the global economic recovery is slowly making progress and with continued support from central banks, the recovery may be positive for emerging-market assets in the medium term. As we move into the end of the year, there is potential for a slowdown in activity momentum as the initial gains from countries coming out of lockdown diminish and the upcoming U.S. election adds more uncertainty to the immediate outlook. However, the U.S. Federal Reserves's adoption of Flexible Average Inflation Targeting may provide some relief for emerging markets by allowing them to continue to keep rates low without the potential negative consequences from currency instability.
• In terms of the virus, it is unlikely that national lockdowns will be re-established in emerging markets due to the strong political pressure to keep economies running and policy makers will favor alternative tools, such as regional restrictions/distancing if required. As such, although the emerging-market recovery from the pandemic is unlikely to run completely smoothly, we don't foresee any major setbacks related to the virus.
• Following a strong end to the year for emerging markets, we expect this sentiment to continue in the early stages of 2021 given the supportive backdrop of a Democratic administration and the associated benefits for global trade and reduced emphasis on tariffs against China. Following on from this, we anticipate continued inflows into emerging markets driven by consensus surrounding an uplift in growth later in the year as the vaccine is rolled out more widely, albeit later than most developed markets. It is possible that we will see more differentiation between emerging-market countries as the global economy recovers. This will be dependent on which economies will benefit the most from a potential vaccine rollout as well as which countries will be advantaged from an uptick in export growth.
• Overall, emerging markets are likely to experience strengthening capital inflows and improvement in external positions against a backdrop of U.S. dollar weakness and low U.S. yields. These factors, alongside the aforementioned improving global trade environment and the pending vaccine rollout, may be conducive for emerging-market growth, but risk surrounding management of monetary and fiscal policy must be monitored closely.

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 December 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.

The JP Morgan GBI-EM Global Diversified is an unmanaged index that tracks the performance of emerging market debt. It is not possible to invest directly in an index.

All information is based on Class I shares.

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: As with any fund, 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. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the fund may fall as interest rates rise, especially securities with longer maturities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Fund may seek to manage exposure to various foreign currencies, which may involve additional risks. The value of securities, as measured in U.S. dollars, may be unfavorably affected by changes in foreign currency exchange rates or exchange control regulations. Investing in foreign securities involves a number of risks that may not be associated with the U.S. markets and that could affect the Fund’s performance unfavorably, such as greater price volatility; comparatively weak supervision and regulation of securities exchanges, fluctuation in foreign currency exchange rates and related conversion costs, adverse foreign tax consequences, or different and/or less stringent financial reporting standards. Sovereign debt instruments are also subject to the risk that a government or agency issuing the debt may be unable to pay interest and/or principal due to cash flow problems, insufficient foreign currency reserves or political concerns. Risks of credit-linked notes include those risks associated with the underlying reference obligation, including but not limited to market risk, interest rate risk, credit risk, default risk and foreign currency risk. The buyer of a credit-linked note assumes the risk of default by the issuer and the underlying reference asset or entity. If the underlying investment defaults, the payments and principal received by the Fund will be reduced or eliminated. Also, in the event the issuer defaults or there is a credit event that relates to the reference asset, the recovery rate generally is less than the Fund’s initial investment, and the Fund may lose money. The use of derivatives presents several risks including the risk that fluctuation in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. Moreover, some derivatives are more sensitive to interest rate changes and market fluctuations than others, and the risk of loss may be greater than if the derivative technique(s) had not been used. Derivatives also may be subject to counterparty risk, which includes the risk that a loss may be sustained by the Fund as a result of the insolvency or bankruptcy of, or other non-compliance by, another party to the transaction. These and other risks are more fully described in the Fund's prospectus.