Market Sector Update

• 2019 finished on a high note for most asset classes. The year-end optimism probably reflects a relief of major geopolitical headwinds as U.S.-China trade war and hard Brexit concerns were slightly alleviated over the quarter. Also supportive of the rally was the more accommodative shift in monetary policy across the globe as well as increasing commitment of fiscal spending by major economies. These factors resulted in a sell-off in both U.S. and European core rates, especially in the long-end of the yield curve.
• In terms of monetary policy, the European Central Bank restarted its open-ended quantitative easing purchases in October. Additionally, the U.S. Federal Reserve cut rates for the third time in 2019. The theme of fiscal easing in developed markets started to emerge, as Japan, New Zealand and the Netherlands announced fiscal stimulus packages for 2020.
• In peripheral Europe, spreads continued to tighten over the quarter with the exception of Italy. Emerging markets performed well thanks to a weaker U.S. dollar, a trade truce between the U.S. and China as well as monetary and fiscal easing from China.
• In developed markets, the British pound and the New Zealand dollar were the two best performers, while the U.S. dollar underperformed. In emerging markets, the Chilean peso and the Turkish lira were the only major emerging market currencies that underperformed the U.S. dollar on a total return basis for the period.

Portfolio Strategy

• The Fund posted positive performance and performed in line with the benchmark for the quarter. Our rates positions subtracted from relative performance as U.S. and European core rates sold off and yield curves steepened. However, our curve steepening position in New Zealand contributed positively. Our spread positions, both in developed and emerging markets, had strong positive contributions to performance for the period. In developed market credit, our long U.S. BBBs and long European (including U.K.) financials and sub-insurance holdings contributed the most to relative performance. In emerging markets, positive contributions came from both our hard currency sovereign and credit holdings as well as our positions in local rates.
• We increased the overall portfolio duration in the quarter (mainly in October), by adding to the long-end of U.S. treasuries where the curve remains relatively steep. We also initiated a small curve steepening position in Japan due to attractive valuations and the central bank’s stated intention for a steeper curve.
• In Europe, we closed our long U.K. duration position, while adding slightly to Sweden duration. We also reduced slightly our curve flattening position in France, while adding to our curve flattening position in Italy. Additionally, we reduced European sub-insurance holdings due to expensive valuations and deteriorating fundamentals, while adding to select European autos.
• In emerging market local rates, the overall duration was increased slightly as we added a long position in Mexico, while closing our short position in South Korea. We increased our duration in China early in the quarter but reduced that position after a sharp rally in November.

Outlook

• After a phenomenal year for financial market returns, investors are beginning to question the odds of having a repeat of the performance seen in 2019. We believe this is fair, but that is not to say that returns for markets in 2020 (in particular fixed income markets) have to be negative.
• With the very pre-emptive switch to accommodative monetary policy by main central banks and positive (albeit moderate) growth in the world, we believe the prospects for fixed income and emerging markets continue to be strong in 2020. As usual, there are risks to this view as the U.S.-China trade war, escalation of the conflict in the Middle East, the U.S. election and negotiations around Brexit are a few of the many concerns to monitor going forward.
• Nevertheless, we believe the amount of policy support for markets is strong and could likely improve as many countries consider the implementation of additional fiscal policy.

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 Dec. 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.

All information is based on Class I shares.

Risk factors: 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. Mortgage-backed and asset-backed securities in which the Fund may invest are subject to prepayment risk and extension risk. The Fund employs investment management techniques that differ from those often used by traditional bond funds, including a targeted return strategy, and may not always perform in line with the performance of the bond markets. The Fund is also non-diversified and may hold fewer securities than other funds and a decline in the value of these holdings would cause the Fund's overall value to decline to a greater degree than a more diversified fund. The Fund expects to use derivatives in pursuing its investment objective. 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. These and other risks are more fully described in the Fund's prospectus.