Market Sector Update

• The Fund's benchmark, the JP Morgan GBI-EM Global Diversified Index, gained 5.6% with most of the gains seen in June and coming from stronger local bond prices.
• Argentina dropped 5%, but gained 22% in June, disguising most of its earlier losses as industrial production started declining again. Brazil gained 7.4% and we believe the expected pension reform will help fiscal savings, though economic data moderated. Colombia gained 3.2%, impacted by the sharp move lower in oil and coal prices. Mexico was up 6.1%, almost all from local bond prices given a central bank now likely to cut rates.
• Russia gained 10.4%, with interest rates cut by 25 basis points (bps) and while growth slowed, external sector balances remained strong. Turkey gained 10.1% and the currency weakened, but was more than offset by local bond prices supported by lower inflation and a dovish central bank. The Philippines gained 6.8%, mostly from local bond prices as inflation declined and interest rates were cut by 25 bps.

Portfolio Strategy

• The Fund posted a positive return but underperformed the benchmark for the quarter. Our current strategy continues to be overweight local rates where we believe yields look attractive, such as in Russia, or where the central bank is now likely to cut interest rates such as in Mexico. The dovish U.S. Federal Reserve (Fed) with interest rate cuts on the horizon is also a key factor.
• Conversely, markets where inflation may surprise on the upside and fundamentals on the downside may result in selective opportunities to move underweight. Hungary is a key example where inflation pressures are building.
• We continue to look for the perceived right entry point to selectively move overweight emerging market currencies that have improving growth and fundamentals. We expect more idiosyncratic moves over the coming months which will result in our implementing more relative value plays with overweights versus underweights to certain markets.

Outlook

• We expect global data and growth to remain weak, but believe emerging market growth is holding up better than developed market growth, which is more late cycle. U.S. growth is expected to soften with an increasingly dovish Fed with interest rate cuts well priced in and this could continue to be supportive for some emerging market local rate markets. While less optimism over growth is normally not supportive for currencies, a favorable growth differential would be supportive while valuations look appealing compared to their long-term equilibrium levels.
• We believe emerging market inflation remains low on average and the outlook remains favorable given output gaps are not yet closed in most countries.
• In local rates, we see select Asian countries, Mexico, Peru and Russia with a dovish bias offering opportunities to be overweight while eastern Europe is more likely to have a bias towards tighter policy should the economic environment in Europe improve. To be sure, this is still a sovereign investment-grade asset class, yielding over 5.5%, with potential returns from currencies.

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The opinions expressed are those of the Fund’s managers regarding 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 March 31, 2019, 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.

Effective December 2018, Wee-Wing Ting, portfolio manager, left the firm to pursue other opportunities.

All information is based on Class I shares.

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.