Fund Commentary – November 2019 MARKET ENVIRONMENT: Chinese equities posted higher returns in November as positive sentiment surrounding trade was a catalyst for bargain hunting. Market participants have begun to price in decelerating trade tensions and current valuations may provide a reasonable balance of risk/reward. Many U.S.-listed Chinese ADRs saw their stock prices rise in November. China’s Purchasing Manager’s Index (PMI) for November was better than market expectations and the overall level of the PMI implied a return to economic expansion for the first time since April 2019. The severity of protests in Hong Kong escalated mid-November and the U.S. congress passed a bill in support of Hong Kong protesters, both of which created uncertainty for investors later in the month. Turning to China’s domestically listed stock markets, on November 27, index provider MSCI completed its planned increase of both the weighting and breadth of China A-share exposure in its indices. In 2019, the inclusion factor rose to 20% from 5% through a three-step implementation process that began in May. Corporate earnings are still being downgraded at the margin but also stabilizing at lower levels of high single digit growth for 2019. Next year consensus earnings for Chinese stocks are higher. PERFORMANCE, CONTRIBUTORS AND DETRACTORS: For the month ending November 30, 2019, the Fund returned 2.28%, outperforming its benchmark, the MSCI China All Shares Index, which returned 0.74%. From a sector perspective, the Fund’s holdings in the real estate and communication services sectors contributed to relative performance. In contrast, the Fund’s holdings in the financials sector detracted from relative performance. A contributor among individual stocks was property developer Times China, which focuses on developments in the Greater Bay Area in Guangdong province. This area has been earmarked for further development in high-value-adding sectors such as the technology and financial industries, and is likely to see growth in infrastructure connectivity over time. Times China has an ample land bank in this region, allowing it to continue to grow its footprint. Valuations were also attractive at low single digits forward P/E. Times China is also spinning off its property management business as a separately listed company, unlocking value for Times China’s shareholders. A detractor was brokerage firm China International Capital which saw its stock price suffer on negative sentiment toward brokerage businesses in general. Retail brokerage businesses are experiencing declining pricing power and margin compression in a competitive environment. China International Capital, however, has a large institutional business engaged in investment banking activities, and much less exposure to the retail brokerage business than other companies in its sector. We believe China International Capital is the premier investment bank in China and has room to grow its investment-banking business. We continue to like the company’s prospects over the longer term. OUTLOOK: Year to date through November, China’s domestically listed stocks have surged, running neck in neck with U.S. equities. The MSCI China A Onshore Index, representing China's domestic stock markets, is up 27.13% year to date through Nov. 30, 2019, in U.S. dollars terms, while the S&P 500 Index is up 27.63%. Meanwhile, Hong Kong listed Chinese shares have lagged during the same time period, returning 5.66%. As active managers with the flexibility to go anywhere for growth, we’re starting to see more attractive valuations in Chinese companies listed offshore, as weak foreign sentiment has depressed Hong Kong stock prices and U.S. ADRs on a year to date basis. We expect that Hong Kong’s protests will take additional time to unwind in the near term, but foreign investor sentiment is likely to recover over the long term. The strength of China’s domestic markets reflects several key investment themes we’re following. Notably, China’s economy is primarily driven by consumption, rather than exports, so local investor sentiment is stronger than foreign sentiment. Consumption remains healthy, benefiting many of the consumer-related sectors we tend to favor. In addition, while GDP growth has slowed slightly, China’s policymakers continue to take a prudent, surgical approach to managing their fiscal and monetary stimulus. Stimulus in recent years has been modest and strategic. In the absence of any sudden shocks to China’s economy, we do not expect much major stimulus ahead. As ever, we continue to follow the theme of income growth in China, particularly in lower-tier, less developed urban centers. While much of the developed world has neglected its less developed and interior cities, China’s policymakers are developing these areas through strategic infrastructure planning, including the expansion of its high-speed rail networks, as well as through housing policies that encourage educated workers to live in these areas. From a bottom-up perspective, we seek to find companies with attractive growth potential with the ability to tap into this rising middle class income. When viewed through a lens of active stock selection, we believe China’s domestic growth engine creates compelling opportunities for long-term investors.