TCW Relative Value Large Cap Fund

Quarterly Commentary

September 30, 2018

Investment Environment

The U.S. economy is strong, underpinning robust corporate revenues and earnings. The second reading for 2Q:18 U.S. GDP came in at 4.2% quarter-over-quarter driven by stronger business investment. S&P 500 company earnings were up 25% (17% excluding taxes) in the second quarter (year-over-year) on the heels of nearly 10% revenue growth. The current bull market is now officially the longest in history, and the S&P 500 and NASDAQ are at all-time highs, yet the U.S. GDP recovery is still only up halfway relative to other cycles. As to trade, early in the quarter, Mr. Trump and European Commission President Juncker positively agreed to suspend new tariffs. Tariffs on steel (25%) and aluminum (10%) that went into effect in July have exceptions but remain in place and will be reexamined. More recently, the U.S. and Mexico reached an agreement to revamp NAFTA, and during the last few minutes of the quarter (on a Sunday night), Canada joined the fold. The new pact will now be known as the United States-Mexico-Canada Agreement. On the other hand, the U.S. and China remain mired in an escalating trade war with some political strategists calling it foreplay to a period of China disengagement by the U.S. After each country imposed $50 billion of tariffs on the other in July, the Trump administration announced an additional $200 billion worth of tariffs that went into effect on September 24. Initially, this wave will start at 10% with a rise to 25% on January 1. China, as expected, retaliated with $60 billion worth of U.S. products. More encouraging though, China, perhaps as soon as October, is planning to cut consumer goods’ tariff rates on imports (through the WTO) from many of its trading partners though it is still to be determined how much will affect the U.S....

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Russell 1000® Value Index – Measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

Forward Looking Statement

This report may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. TCW assumes no duty to update any such statements.

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The performance data presented represents past performance and is no guarantee of future results. Total returns include reinvestment of dividends and distributions. Current performance may be lower or higher than the performance data presented. Performance data current to the most recent month end is available on the product detail page for each Fund. Investment returns and principal value will fluctuate with market conditions. The value of an investment in the Fund, when redeemed, may be worth more or less than its original purchase cost.
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