Q4 2025 Fund Commentary

Commentary and opinions are provided by Brandywine Global Investment Management, LLC.

Market commentary

The global fixed income market rose over the fourth quarter of 2025, supported by central bank interest rate cuts, resilient economic growth and solid investor demand. These factors offset the inflation concerns and tariff policy impacts.

The U.S. Federal Reserve Board (Fed) lowered its benchmark interest rate 0.25% in October and December. The Bank of England also cut interest rates 0.25% in December, and the European Central Bank kept its policy interest rates steady.

Falling short-term U.S. yields and strong demand supported the credit market and kept credit spreads narrow. Global investment-grade and high-yield spreads widened, and both posted positive total returns for the quarter. Primary market activity finished strong, capping the strongest year of issuance for both investment-grade and high-yield markets since 2020–2021.

Performance

The Fund’s overweight U.S. duration (interest rate sensitivity) contributed to performance. Relative exposure to retail holdings detracted from performance. These select issuers underwent debt restructurings to address challenges and were downgraded by rating agencies as a result. Another notable detractor from performance was a holding in Saks Global Enterprises LLC, which skipped one of its December interest payments.

At a sector level, security selection in basic industry contributed to the Fund’s performance in a stronger commodities backdrop. Credit selection detracted from performance as investors shifted out of lower-quality segments of the market. Underweight exposure to hard-currency emerging-market debt detracted from performance.

Portfolio activity

The sub-advisor added to the Fund a holding in BB-rated Vail Resorts Inc. bonds to upgrade the credit quality of the Fund’s portfolio. A holding in GoDaddy Inc. was increased at just below par, based on its low risk and reasonable yield and spread. The Fund’s holding in Inmarsat PLC was sold to take profits and reduce risk. Exposures in financial services were reduced, along with utilities and telecommunications holdings, because of debt redemptions.

Outlook

High-yield credit has been on a positive run since the end of 2022, supported by the strength of equities and benefiting from lower yields. While credit spread and yield have compressed, the sub-advisor believes the current environment remains supportive.

In the sub-advisor’s view, positive economic growth, business-friendly tax policy and an accommodative Fed should be beneficial.

High-yield spreads have been in a range of 260–460 basis points since June 2023. Credit defaults have been less than half the historic average, and recoveries have been higher than average, while overall credit quality has improved. Absent a sustained downward equity market or core fixed income market, the sub-advisor expects this spread range to hold.

Investors’ shift to the largest, highest-rated issuers has abated somewhat from the peak of the tariff-induced volatility. The sub-advisor expects that to continue moving forward.