Market Sector Update

• International markets finished the year on an upswing as the big uncertainties (U.S.-China trade war, Brexit, possible recession) unwound with more favorable news.
• Unlike the pattern over the last two years, both non-U.S. developed markets and emerging markets outpaced the U.S. Emerging markets performed considerably well as did Europe and Japan.
• The top performing sectors for the period were information technology, health care and materials, with all sectors posted positive performance for the period. By geography, Ireland, New Zealand, Denmark and Sweden were the top performing countries, while Belgium was slightly lower.

Portfolio Strategy

• The Fund posted strong positive performance and outperformed its benchmark for the period. Strong stock selection in industrials, financials and consumer staples were the top relative contributors to performance for the period. The top individual contributors to performance included Hitachi Metals Ltd., a Japanese manufacturer of specialty steel and metals; Travis Perkins plc, a U.K. builder merchant; and A.P. Moller-Maersk A/S, a global shipping company. Hitachi Metals rebounded as its industrial customers’ outlooks improved. Travis Perkins was higher on clarity around Brexit as well as its announcement of better-than-peer sales growth. A.P. Moller-Maersk saw some improvement in both the outlook for the shipping industry and excellent traction in its cost reduction efforts.
• Publicis Groupe S.A., global advertising agency, was the largest individual detractor to performance after announcing a worse-than-expected organic sales outlook that was caused by a rapid decline in U.S. traditional advertising. While traditional advertising is in structural decline, we believe management is taking the right actions to turn around the business. Additionally, we believe much of the headwinds the company is facing are currently displayed in the company’s perceived depressed valuation. We are not surprised by weakness in the traditional advertising space and believe the weakness in their digital businesses is transitory. TechnipFMC plc, an oil services company, performed poorly after it announced disappointing sales and profits primarily due to a slowdown in its North America onshore business. We continue to believe we are at the trough in the cycle of energy capital spending and that TechnipFMC will be a big beneficiary of the next up cycle, especially in deep water spending. In addition, they are doing a massive restructuring, dividing the company into two additional focused entities.
• During the quarter, we initiated a new position in Compagnie Generale des Etablissements Michelin, Class B, the leading manufacturer of tires for the premium car and off-highway markets. Michelin enjoys strong market positions and we believe commands premium pricing due to its brand, research and development scale as well as performance capabilities. We believe the stock is discounted and should be anchored by its large base of non-discretionary replacement tire sales as well as its new plans to tackle Michelin’s bloated cost structure by shutting down small, highcost plants. We also added to our positions in J Sainsbury plc, a U.K. grocer; JXTG Holdings, Inc., a Japanese oil refiner; and BASF Aktiengesellschaft, a German chemicals company. We funded these purchases by selling Total SA, as we continue to shrink our integrated oil exposure, and by trimming our exposure to Tesco plc, Travis Perkins and Fujitsu Ltd.

Outlook

• In 2020, politics could be at the forefront as uncertainty around the U.S. Presidential election, U.S.-China trade war, Brexit and slowing global economic growth, among other stories, could lead to further volatility.
• Blinded by the glare of politics and macro uncertainty (e.g., recession fears, tariff distortions, etc.), investors have shunned cyclical companies and favored high-growth disrupters as well as lower volatility bond proxies. We believe this has led to near-record valuation dispersions and offers attractive investment opportunities.
• We seek to take advantage of this perceived valuation disparity, and while a number of our holdings experienced robust gains in the quarter, we believe the portfolio’s valuation remains significantly discounted versus the broader market. The Fund’s largest exposures remain in financials, energy and industrials, while we maintain small exposures in consumer staples and health care. The Fund has no exposure to real estate.

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.

Top 10 equity holdings as a percent of net assets as of 12/31/2019: Hitachi Metals Ltd. 3.6%, ENEL S.p.A. 3.3%, A.P. Moller-Maersk A/S 3.2%, Schneider Electric S.A. 3.1%, Rexel S.A. 3.1%, Roche Holdings AG, Genusscheine 3.1%, Honda Motor Co. Ltd. 3.0%, Volkswagen AG 2.5%, Inpex Corp. 2.5% and J Sainsbury plc 2.3%.

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. The value of a security believed by the Fund's manager to be undervalued may never reach what the manager believes to be its full value, or such security's value may decrease. These and other risks are more fully described in the Fund's prospectus.