Market Sector Update

• Global equity markets were up approximately 4% during the quarter, continuing the positive recovery from the first quarter of 2019. Markets moved, in large part, during the period on the sentiment surrounding the U.S.-China trade negotiations. Fears of a deal falling apart escalated in May pressuring equities, followed by a more encouraging tone at quarter end. More accommodative language from the U.S. Federal Reserve also benefitted global markets during the period.
• As the global economy continued to slow, growth-oriented equities continued to outperform their value-oriented peers. Generally, growth stocks with strong secular trends continued to see widening valuation gaps relative to value stocks. The financials, consumer discretionary and information technology sectors performed well, while the weakest sectors included energy, real estate, health care and consumer staples.
• Among developed markets, the U.S. performed in line with the benchmark, while Europe slightly underperformed with mix results across regions. Germany and France both performed well, while the U.K. was weak. Within emerging markets, China was weak as the outcome of the U.S.-China trade war remains uncertain.

Portfolio Strategy

• The Portfolio posted positive performance and outperformed the benchmark during the quarter. Strong stock selection was the predominate driver of relative outperformance, led by strong selection in the financials, industrials and consumer discretionary sectors. In financials, our underweight to traditional interest rate spread driven banks in Europe and the U.S. helped as rates remained low stemming from slowing growth. CME Group, Inc., a defensive holding in the sector, was a notable relative contributor to performance for the period.
• Top relative detractors to performance included stock selection in consumer staples and communication services. In consumer staples, our exposure to tobacco stocks hurt performance in the period on fears of waning U.S. demand. In communication services, our exposure to gaming company Ubisoft Entertainment S.A. was a detractor to performance. The Portfolio’s allocation to health care was an addition detractor, primarily driven by health care services as political and regulatory uncertainties pressured the sector as the 2020 presidential election draws near.
• Top individual contributors to performance included CME Group, Inc., Ferrari N.V., Dollar General Corp. and Airbus SE. The largest detractors to performance included Imperial Tobacco Group plc, Cognizant Technology Solutions Corp., Ubisoft Entertainment S.A., HCA Holdings, Inc. and UnitedHealth Group, Inc.
• The Portfolio’s largest sector overweights include consumer discretionary, information technology and industrials, while the largest underweights include materials, communication services and utilities.

Outlook

• Global growth continues to slow. Despite valuation gaps between growth and value presently, we do not see a strong push for those gaps to narrow. In our view, the largest factor effecting global equities continues to be the uncertainty surrounding the ongoing U.S.-China trade war. Regardless of rhetoric out of the U.S and China, which changes often, we believe the pathway forward will be rocky with challenges around monitoring and implementation if a trade deal is reached. We continue to look for opportunities in perceived high quality equities that are unduly punished when sentiment weakens, and remain cautious on stocks that we believe are priced for a quick trade resolution.
• We continue to position the Portfolio overweight U.S. equities as we see more opportunities from a bottom-up stock selection standpoint. We have reduced some of our health care exposure as political fears are heating up, which could adversely impact pricing and growth rates in the sector.
• We remain cautious on Japan, expecting slowing growth on an increase in consumer tax later in the year. We are neutral in Europe with exposure to stocks we believe are secular growers and can outpace slowing economic growth. In China, we are looking for opportunistic names to add on weakness that have strong growth and less susceptibility to trade war concerns. Overall we continue to believe our portfolio of secular growth companies with sustainable competitive advantages is well positioned for the slow growth environment we expect going forward.

The opinions expressed are those of the Product’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 June 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 06/30/2019 include: Airbus SE 5.2%, Amazon.com, Inc. 4.9%, CME Group, Inc. 3.7%, Microsoft Corp. 3.7%, Visa Inc. Class A 3.5%, Dollar General Corp. 3.4%, Thermo Fisher Scientific, Inc. 2.7%, Ping An Insurance (Group) Co. of China Ltd., H Shares 2.6%, Prudential plc 2.5% 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 Fund 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.