Market Sector Update

• Global equity markets were up modestly in the quarter. Uncertainty around trade negotiations between the U.S. and China continued to move global markets as expectations for a deal shifted regularly. Global growth was slow across multiple regions, but central banks remained very accommodative, expanding balance sheets in an effort to offset some of the pressure.
• One of the more notable events over the quarter was the rally in value stocks during September. Despite the rally, growth and value stocks both performed relatively in line with one another over the period. This is a stark contrast to recent history as growth stocks have outperformed their value peers by a significant margin. The valuation spread between growth and value stocks was at its widest margin in decades.
• During the quarter, utilities, real estate, consumer staples and information technology outperformed the benchmark, while energy, materials and health care underperformed. Developed markets generally outperformed emerging markets during the period with China, Brazil, India and Mexico all posting negative returns in the period. Among developed markets, Japan and the U.S. performed well, while Europe underperformed. Germany, France and the U.K. posted modest negative returns over the quarter.

Portfolio Strategy

• The Portfolio posted a negative return and underperformed its benchmark for the period. Underperformance was primarily driven by poor stock selection in financials, communication services, consumer staples and industrials. On a positive note, stock selection in information technology was strong. In general, the rally in value-oriented equities in September was a detriment to performance given the Portfolio’s relative growth tilt.
• The lack of exposure to utilities (the best performing sector in the index) was also a detractor to performance in the period, though no exposure to materials benefited Portfolio performance as that sector performed poorly. At quarter end, the Portfolio’s largest sector overweights include information technology, consumer discretionary and, to a lesser degree, industrials. The Portfolio’s largest sector underweights include materials, communication services and utilities.
• At an individual stock performance level, Airbus SE, Prudential plc and Amazon.com, Inc. were top relative detractors to performance, while Dollar General Corp., Ambarella, Inc. and CME Group, Inc. were top relative contributors.

Outlook

• Global growth remains slow despite significant balance sheet expansion and accommodative interest rate policies from a number of central banks. Corporate earnings growth is slowing in many economies around the world including the U.S., China and parts of Europe.
• On a positive note, employment remains strong in many developed countries. In addition, the U.S. and Chinese consumers have both held up relatively well despite uncertainty surrounding trade. We are hopeful that a modest trade deal between the U.S. and China can be reached in the near term that could stop further tariffs from being enacted. In our view, the ongoing trade dispute between the U.S. and China is the most important issue effecting global equities in the near term as tariffs planned for later this year will directly impact the U.S. consumer.
• Over the past few months, the Portfolio’s country allocations have evolved, primarily driven by our bottom-up stock selection process. At quarter end, our weighting to the U.S. stood at 47%, lower than previous quarters and less than the benchmark’s 61% allocation. The Portfolio is also underweight Japan, while overweight China and Europe.

The opinions expressed are those of the Portfolio’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through September 30, 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 holdings as a percent of net assets as of 09/30/2019 include: Airbus SE 5.0%, Amazon.com, Inc. 4.6%, Microsoft Corp. 3.9%, Visa Inc. Class A 3.6%, CME Group, Inc. 3.2%, Dollar General Corp. 3.1%, Thermo Fisher Scientific, Inc. 2.8%, Ping An Insurance (Group) Co. of China Ltd., H Shares 2.7%, Alimentation Couche-Tard, Inc. Class B 2.6% and Ferrari N.V. 2.5%.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. 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 Portfolio typically holds a limited number of stocks (generally 45 to 70). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a larger number of securities. These and other risks are more fully described in the Portfolio's prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.