Market Sector Update

• Global equity markets posted strong gains, driven by the resolution of a phase 1 trade deal between the U.S. and China as well as improving global growth. Emerging markets generally outperformed developed markets in the period, with strength from China and Brazil, in particular. Among developed markets, the U.S. performed generally in line with the index. The U.K. and Germany modestly outperformed, while Japan performed slightly below index performance. Increased global liquidity provided by central banks and multiple expansion contributed to equity market strength.
• Growth outperformed value in the period. Health care and information technology were strong sector performers, while consumer staples, utilities and energy materially underperformed. Risk appetite among investors increased following the U.S.-China trade war resolution in the back half of the period.

Portfolio Strategy

• The Portfolio slightly underperformed the benchmark for the quarter. Stock selection in information technology and health care detracted from performance, while strong stock selection in industrials and energy benefited performance. The Portfolio’s sector allocation contributed, with an overweight allocation to the strong-performing industrials sector and underweight allocation to the relatively poor-performing utilities sectors driving the gains. Holdings outside the U.S. drove gains relative to the Portfolio’s U.S. exposure.
• At an individual stock performance level, Infineon Technologies AG, Prudential plc and Alibaba Group Holding Ltd. ADR were all strong performers. The largest detractor in the period was not owning Apple, Inc. which is our largest benchmark index constituent and performed well in the period. Allocations to CME Group, Inc., Northrop Grumman Corp. and Arista Networks, Inc. were also key detractors to performance for the period.
• At year end, the Portfolio’s largest sector exposure remained information technology, followed by consumer discretionary and industrials. The Portfolio is overweight these sectors relative to the benchmark. Our exposure outside the U.S. is significantly larger than in the past, given perceived attractive valuations relative to the U.S.

Outlook

• With phase 1 of the U.S. China trade deal complete, we believe equity markets in 2020 will have less of a focus on trade. With the U.S. presidential election approaching, we expect relative calm on the trade front as President Donald Trump is unlikely to want to unsettle markets in advance of an election. However, the U.S. political landscape is likely to be very relevant for domestic equities, which are over 50% of the Portfolio’s benchmark, given some of the populist candidates on the Democratic side. Given the macro overlay we apply in our bottom-up portfolio construction, we try to avoid exposure to holdings with significant political or regulatory risk that we find hard to predict.
• In the second half of 2019, we increased our cyclical exposure in the Portfolio and continue to be overweight the industrials and information technology sectors. We have been gradually adding to financial stocks (including banks) and other holdings that we feel look undervalued in the current market environment. Appreciation of global equities in 2019 far exceeded earnings growth in the period and we do have some greater concerns about valuations.
• We have increased our exposure to non-U.S. holdings, finding more compelling value outside of the U.S. at the current moment. While European economic growth remains anemic, we have found pockets of opportunity there along with parts of Asia that were under pressure from trade war concerns. We continue to believe our Portfolio of sustainable growth companies can outperform in this late cycle growth environment.

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 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 holdings as a percent of net assets as of 12/31/2019 include: Airbus SE 5.2%, Amazon.com, Inc. 4.7%, Microsoft Corp. 4.3%, Visa Inc. Class A 3.7%, Thermo Fisher Scientific, Inc. 3.0%, Alimentation Couche-Tard, Inc. Class B 2.6%, Ping An Insurance (Group) Co. of China Ltd., H Shares 2.6%, Johnson & Johnson 2.5%, Infineon Technologies AG 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 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.