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RI Economic and Market Update EI
RI Economic and Market Update EI
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Date of first use: July 2022 RIFIS-24933
CAR-0822-01565
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AGENDA
Markets in review 04
Equities 09
Fixed income 14
Real Assets 18
Global outlook 19
Inflation 22
Taxes 23
Staying invested 24
/ 3
Economic indicators dashboard
Treasury Yield
Continued to rise as
markets anticipate
additional rate hikes
% Inflation
Economic Expansion
CONSUMER SENTIMENT
Source: http://www.russellinvestments.com, current state as of 7/4/2022. See appendix for category definitions. Russell Investments’ Economic Indicators Dashboard charts several key indicators to help investors assess
economic and market trends.
/ 4
Capital markets
Periods ending June 30, 2022
Capital market returns (%) U.S. Equity
(Annualized for periods greater than 1 year) Non-U.S. Developed Equity
Emerging Markets
U.S. Bonds
24.3
Global REITs
Commodities
14.3
12.6
9.8 10.6
8.4
5.4
3.1 1.5 4.7
(%) Return
QTD
-4.7 -5.7
1 Yr 3 Yrs
-0.9 -1.1
5 Yrs 10 Yrs -0.8
-11.4 -10.3
-13.9 -13.4
-14.5
-16.7 -17.4 -17.8
-25.3
2Q 2022 1 YR 3 YR 5 YR 10 YR
U.S. equity: (Russell 3000® Index) U.S. stock index which includes the CAPITAL MARKETS 2Q 2022:
3,000 largest U.S. stocks as measured by market capitalization U.S. equity slipped into bear market territory during the quarter on rising
Non-U.S. developed equity: (MSCI EAFE Index) International market recessionary fears
index that includes Western Europe, Japan, Australia Non-U.S. developed equity continued to falll on inflationary concerns
Emerging markets: (MSCI Emerging Markets Index) Emerging markets and the ongoing Russia-Ukraine conflict
index that includes S. Korea, Brazil, Russia, India and China Emerging markets held up slightly better as China began to emerge
U.S. bonds: (Bloomberg U.S. Aggregate Bond Index) Broad index for U.S. from lockdown
Fixed Income market U.S. bonds dropped further as interest rates continued to increase
Global REITs: (FTSE EPRA/NAREIT Developed Index) Index for global Global REITs negative with malls and office space the worst performers
publicly traded real estate securities due to turbulent market environment
Commodities: (Bloomberg Commodity Index Total Return) Broad index of Commodities gave up some gains after strong 1Q
common commodities
Source: FTSE/Russell, Bloomberg , MSCI and FTSE NAREIT. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
/ 5
What worked and what didn’t
2Q 2022 vs. YTD 2022
Equities Alternatives Fixed Income
-1.6
-4.69 -5.7
-7.7
-11.3 -11.4 -11.9 -12.5
-14.5
-16.7 -17.2 -17.4
Cash Municipals U.S. Bonds Commodities Infrastruc- Balanced EM Equity Global HY EMD Non-U.S. U.S. Large U.S. Small Global RE-
ture Index Portfo- Equity Cap Cap ITS
lio
Year-to-date 2022 returns (%)
18.4
0.2
(%) Return
-0.9
-6.8 -10.35
-15.3 -17.6 -16.9 -19.6 -20.9 -20.7
-23.4
-26.6
Cash Municipals U.S. Bonds Commodities Infrastruc- Balanced EM Equity Global HY EMD Non-U.S. U.S. Large U.S. Small Global RE-
ture Index Portfo- Equity Cap Cap ITS
lio
Source: U.S. Small Cap: Russell 2000 ® Index; U.S. Large Cap: Russell 1000 ® Index; Global: MSCI World Net Index; Non-U.S.: MSCI EAFE Net index; Infrastructure: S&P Global Infrastructure Index; Global High Yield: Bloomberg
Global High Yield Index; Global REITs: FTSE EPRA/NAREIT Developed Index; Municipals: Bloomberg Municipal Index, Cash: FTSE Treasury Bill 3 Month Index; EM Equity: MSCI Emerging Markets Index; U.S. Bonds:
Bloomberg U.S. Aggregate Bond Index; EMD: JPM EMBI Plus Bond Index; Commodities: Bloomberg Commodity Index Total Return; Balanced Index: 5% U.S. Small Cap,15% U.S. Large Cap, 10% Global, 12% Non-U.S., 4%
Infrastructure, 5% Global High Yield, 4% Global REITs, 0% Cash, 6% EM Equity, 30% U.S. Bonds, 5% EMD and 4% Commodities. Index returns represent past performance, are not a guarantee of future performance, and are
not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 6
Historically difficult start to the year
Worst first half of year since 1970
2020
2018
2016 2021
2015 2017
2011 2014
2009 2013
2007 2012
2006 2003
Over 5% 2010 2005 1999 2019
2001 2004 1996 1998
worse 2008 1994 2000 1993 1997
than 2002 1984 1992 1991 1995
1988
prior low 1974 1982 1990 1980 1989 1987
1973 1981 1978 1979 1985 1986
2022 1970 1977 1972 1971 1976 1983 1975
-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
First Six Months of the Year Portfolio Return%
Historic start to year caused by both stocks and bonds down over 10%
Looking ahead, the markets are offering some optimism:
Equity valuations are more attractive than start of 2022
Bond yields are significantly higher after the first six months
Index portfolio of 60% S&P 500 Index and 40% Bloomberg US Aggregate Bond Index
Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 7
Narrow range of returns so far in 2022
Unlike previous down markets, asset classes have produced similar results
26.4
20 1990 2000 2001 13.9
9.0 11.6 8.4
2.5
Return (%)
0
-4.2 -2.6 -3.0 -0.6 -2.6 -2.9
-10.6 -7.8
-20 -15.4 -13.4 -12.4
-19.5 -21.4
-23.1
-30.6
-40
-60
-6.2
-6.8
-20 -15.8 -10.3
-21.7 -20.5 -20.9 -18.8 -17.6 -19.2 -16.3
-23.4
-23.8
-40 -33.8
-37.6 -37.7
-43.6
-60 -53.3
U.S. Large Cap U.S. Small Cap Int’l Developed Emerging Mkts U.S. Real Estate Core Bonds 60/40 Portfolio
Compared to previous volatile markets there has not been a clear “winner” across size, region or asset class
Portfolios have been impacted by rare negative returns from fixed income during these periods
Diversification remains key as it is difficult to predict which will emerge as the next top performer
Source: Morningstar. U.S. Small Cap: Russell 2000 ® Index; U.S. Large Cap: Russell 1000 ® Index; International Developed: MSCI World ex-USA Index; US Real Estate: FTSE NAREIT All Equity REITs; EM Equity: MSCI Emerging
Markets Index; Core Bonds: Bloomberg U.S. Aggregate Bond Index; 60/40 Portfolio: 5% U.S. Small Cap,34% U.S. Large Cap, 12% International Developed., 4% US Real Estate, 5% EM Equity, 40% U.S. Bonds.. Index returns
represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 8
Headlines have consumers feeling down
Stronger returns tend to follow
14% turn: [Y
12% VALUE] Below Avg: High:
Above Avg:
10% 1 Yr Fwd Re- 1 Yr Fwd Re-
1 Yr Return:
turn: [Y turn:[Y
8% VALUE]
[Y VALUE]
VALUE]
6% Current Sen-
4% timent:
2%
0%
50 60 70 80 90 100 110
Pessimistic Consumer Sentiment Optimistic
Historically, equities have delivered the strongest returns when investors are pessimistic
Source: St. Louis Fred, yCharts and Morningstar Direct. Consumer Sentiment: U.S. Index of Consumer Sentiment Nov. 1952 - Aug 1977, University of Michigan Consumer Sentiment Index Sept 1977-Present., not seasonally
adjusted. Equity Returns: Average cumulative total return of the S&P 500 Index over each measured sentiment category. Low, 4 th quartile, Below Avg.: 3 rd Quartile, Above Avg. 2 nd Quartile, High: 1st Quartile. Periods greater then
1 year are annualized.
/ 9
Volatility presents opportunity
S&P 500 Index pullbacks of at least 15% since 1926
49%
Average 12 Month
Return after a
Market Pullback
Recessions
Not all pullbacks lead to recessions, although returns 12 months later tend to be strong
with an average 49% upside to stocks
Source: S&P Dow Jones. Stocks: S&P 500 Index. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be
invested in directly.
/ 10
Valuations improved after recent drawdown
U.S. valuation premium narrowed during 1H 2022, but remains elevated
82.3%
21.8
17.8
14.3 52.3%
16.4
12.0
13.9 52.7%
11.6 41.1%
10.7
Global Equities U.S. Stocks Int'l Developed Emerging Mkts vs. Int'l Developed vs. Emerging Mkts
Global stock valuations started 2022 at elevated levels compared to their 15-year average
The U.S. now appears fairly-valued, while non-U.S. is cheaper than average
U.S. market’s premium versus non-U.S. is still elevated, potentially offering value to long-term investors
Source: Morningstar. Data as of June 30, 2022. “15-Year Avg” represents the average for each region during the period of 7/1/2007 to 6/30/2022. Global Equities – MSCI ACWI NR USD Index, U.S. Stocks – S&P 500 TR USD
Index, Int’l Developed – MSCI World ex-USA NR USD Index, Emerging Mkts – MSCI Emerging Markets NR USD Index. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a
guarantee of future performance, and are not indicative of any specific investment.
/ 11
Value may have room to run
Turning points lead to long-term leadership changes
2.00
Value suffered
with physical
1.80 economy
shutdown
1.60
Growth
0.80
Cumulative Value outperforms Cumulative
Excess Re-
0.60
Excess Re- outperforms turn: 17%
turn: 82%
Cumulative Excess Return: 52% Cumulative Excess Return: 298%
0.40
0 /... /9/... /7/... /6/... /5 /... /3 /... /2 /... /1/... 0/... 8/... 9/... 7 /... 7 /... 5 /... 4 /... 2 /... 1/... 0/... 8/... 7/... 6/... 4/... 5 /... 3 /... 2 /... 1 /... 0/... /8/... /6/...
6/1 7 8 9 10 11 12 1 1/3 2/2 3/2 4/2 5/2 6/2 7/2 8/2 9/2 0 /2 1/1 2/1 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8 9
1 1 1
Value has outperformed growth in 2022 by 17.4% since interest rates bottomed in 2021
YTD 2022 is reminiscent of the early 2000’s: value outperformed sharply at first and went on to outperform for most of the decade
Higher interest rates and less accommodative monetary policy may favor value stocks
Source: Bloomberg. As of 06/30/2022. Cumulative excess return measures the difference between the S&P 500 Growth Index and the S&P 500 Value Index performance. Index returns represent past performance, are not a
guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 12
Importance of sector diversification
Differences between leaders and laggards can be large and flip quickly
Despite the recent market pullback, all S&P 500 sectors produced positive results over the last 3 years
Top and bottom sectors rotated quickly from the first half of the period to the last with significant differences in return
Chasing recent winners or trying to time reversals can be difficult and costly if wrong
Source: Morningstar. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 13
Changing expectations influence rising rates
Federal reserve actions projected to be more aggressive than the start of the year
8 +1.75%
5 Yr. 1.26% 3.01%
6
5 5
+1.46%
4 10 Yr. 1.52% 2.98%
3
2
+1.24%
30 Yr. 1.90% 3.14%
0
/
3
12
1/
2/
4/
5/
3/
6/
At the start of 2022 markets were expecting just 3 rate increases from the Federal Reserve during the year
Since then, expectations have been adjusted given on-going focus on inflation from the Federal Reserve
A significant rise in rates since the start of the year may suggest further increases may be limited
Source: U.S. Department of the Treasury and CME Group. Number of hikes based highest Target Rate probability for December 2022 meeting as of each month end.
/ 14
Bonds experienced historic drawdowns in 1H 2022
While returns were difficult, yields markedly improved
-8.7% -4.8% Se c u ri ti z e d
Securitized Se c u ri ti z e d
2.0% 3.8%
Q1 2022 Dec 2021 Yield
Q2 2022 -9.0% -6.0% Mu n i Bo nd s
Muni Bonds Mu n i Bo n d s
1.1% 3.2% 6-month change
YTD 2022 -9.1% -5.4% T re a s u rie s
U.S. Treasuries T re a s u ri e s
1.2% 3.1% June 2022 Yield
U.S. Aggregate
U.S. Ag g re g a t e
Bo n d s 1.8% 3.7%
-11.8% -6.2% Hig h Yie ld
Mu n is
Rising interest rates and slowing economic growth concerns created a difficult environment for fixed income in 1H 2022
Interest rate sensitive sectors had a difficult Q1, while lower quality sectors faced headwinds during Q2 2022
However, this environment has presented an opportunity for bond investors to earn higher yields going forward
Source: Morningstar & Barclays Live. Data illustrated represents the total return and yield-to-worst for the specified period as of 6/30/2022. Securitized – Bloomberg U.S. Securitized Index, Muni Bonds – Bloomberg Municipal
Bond Index, U.S. Treasuries – Bloomberg U.S. Treasury Index, U.S. Aggregate – Bloomberg U.S. Aggregate Bond Index, High Yield Muni – Bloomberg High Yield Municipal Index, U.S. High Yield – Bloomberg U.S. Corporate
High Yield, Inv Grade Corporates – Bloomberg U.S. Corporate Investment Grade Index, Global High Yield – Bloomberg Global High Yield Index, Emg Mkt Debt – Bloomberg EM USD Aggregate Index. Indexes are unmanaged
and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
/ 15
Bond yields back above recent averages
Time to buy bonds?
At the start of 2022, bond investors were earning yields well below their 20-year average
After the recent sell-off, interest rates are now above recent averages across most sectors
Higher bond yields offer investors the opportunity for higher returns going forward
Source: Barclays Live. Historical yield analysis includes daily yield-to-worst data for each fixed income sector from 10/1/2002 to 6/30/2022. Securitized – Bloomberg U.S. Securitized Index, Muni Bonds – Bloomberg Municipal
Bond Index, U.S. Treasuries – Bloomberg U.S. Treasury Index, U.S. Aggregate – Bloomberg U.S. Aggregate Bond Index, High Yield Muni – Bloomberg High Yield Municipal Index, U.S. High Yield – Bloomberg U.S. Corporate
High Yield, Inv Grade Corporates – Bloomberg U.S. Corporate Investment Grade Index, Global High Yield – Bloomberg Global High Yield Index, Emg Mkt Debt – Bloomberg EM USD Aggregate Index. Indexes are unmanaged
and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
/ 16
Municipal bond outlook
Yields are higher today than they were at the start of 2022
4.0
Yield to Worst (%)
3.0
2.0
1.0
0.0
6/ 1 7/ 1/ 7/ 2 8/ 2/ 8/ 3 9/ 3/ 9/ 4 10 4/ 10 5 11 5/ 11 6 12 6 / 12 7 1/ 7/ 1/ 8 2/ 8/
Yield to worst 5.45 4.05 3.43 2.84 3.08 3.52 3.50 2.64
1-year return 19.80 14.35 10.18 5.58 9.46 12.99 - 4.17
3-year return 9.93 5.81 6.51 5.02 5.43 - - 4.55
5-year return 7.19 5.86 4.17 4.38 - - - 4.34
Source: Barclays Live & Morningstar Direct. Bloomberg Municipal Bond Index Yield to Worst (YTW) and total return as of 6/30/2022. 1-year, 3-year, & 5-year returns illustrate total returns from the exact date specified. 15-Year
Average: YTW: Average of month-end yields, Returns: Average rolling 1 Yr, 3 Yr, 5 Yr total returns with a one-month step.
/ 17
Risk and return enhancements of real assets
Real assets historically benefited a traditional balanced portfolio
Balanced
6.0
U.S. Bonds
4.0
-11.4%
-11.9%
-12.5%
2.0
2.0 6.0 10.0 14.0 18.0 22.0
30Y Average Drawdown
St. Dev (%)
Over the last 30 years, an allocation to real assets improved return and risk of a balanced index portfolio
Average drawdowns over the past 30 years were lower for portfolios that incorporated an allocation to real assets
YTD real assets have outperformed global equities and provided downside protection
Source: Refinitiv, Morningstar Direct as of 6/30/2022. Global Equity: MSCI World Index; Bonds: Barclays U.S. Aggregate Bond Index; REITs: FTSE NAREIT Developed Index through 3/01/2005, DataStream Developed Real
Estate Index prior; Infrastructure: S&P Global Infrastructure Index 11/30/2001-Present and 50% DataStream World Gas Water & Multi Utilities, 30% DataStream World Pipelines, 20% Data Stream World Railroads prior.
Natural Resources: S&P Global Natural Resources Index 12/31/2002-Presend and 50% DataStream World Oil & Gas, 50% DataStream World Basic Materials prior. Commodity: Bloomberg Commodity Index, 1/1/1991-
Present and S&P Goldman Sachs Commodity Index Prior, Balanced: 60% Global Equity, 40% U.S. Bonds; Balanced +10% Real Assets: 55% Global Equity, 40% U.S. Bonds, 2% REITs, 1.5% Infrastructure and 1.5% Natural
Resources. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 18
Russell Investments’ global market outlook
ECONOMIC VIEWS ASSET CLASSES
U.S. ECONOMY GLOBAL EQUITIES
Fed Reserve trying to stick the elusive “soft landing” More attractive valuations favor non-U.S. stocks
Household and corporate finances are healthy A weaker USD from a less hawkish Fed would also
Recession risk sitting at 35% through mid-2023 favor non-U.S. stocks
Drawing out or escalation of the Ukrainian conflict tips
favor back towards the U.S.
EUROPEAN ECONOMY
Additional large energy price increases would likely
lead to recession FIXED INCOME
Absent energy hike, we expect positive but below U.S. government bonds now offering good value
trend growth Japanese, German, and UK bonds remain expensive
Cyclical sector composition benefits from recovery Markets appear to have priced in expected rate hikes,
hopefully limiting near-term downside
CENTRAL BANKS RATE HIKES
Fed Reserve maintains inflation as top priority
ECB likely to move policy rate to 1.25% by mid 2023
Bank of Japan remains accommodative REAL ASSETS
Infrastructure and REITs could prove attractive if
Ukraine conflict subsides and inflation concerns
continue
INFLATION Commodities demand likely weakened by slower
Risk of headline inflation increasing if Russian growth
sanctions increase energy prices
Core inflation may have peaked in the U.S.
CURRENCIES
The U.S. dollar has risen, acting as a safe-haven
U.S. LABOR MARKETS
during the Ukraine conflict
Some cooling is likely as higher wages lure workers If hostilities subside, USD could weaken with the Euro
back to the labor force
and Yen benefitting
Currently two job openings for every worker looking
/ 19
Manufacturing purchasing managers’ index (PMI)
Global economic activity expanding, but at a slower pace
Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22
Global 55.5 55.4 54.1 54.1 54.2 54.2 54.3 53.2 53.7 52.9 52.3 52.3 52.2
Developed
59.5 59.8 58.3 57.1 56.6 56.9 56.6 56.4 56.6 56.5 56.3 55.0 52.5
Markets
Emerging
51.3 50.6 49.6 50.8 51.6 51.2 51.7 50.0 50.9 49.2 48.1 49.5 51.7
Markets
U.S. 62.1 63.4 61.1 60.7 58.4 58.3 57.7 55.5 57.3 58.8 59.2 57.0 52.7
U.K. 63.9 60.4 60.3 57.1 57.8 58.1 57.9 57.3 58.0 55.2 55.8 54.6 52.8
Japan 52.4 53.0 52.7 51.5 53.2 54.5 54.3 55.4 52.7 54.1 53.5 53.3 52.7
Euro Area 63.4 62.8 61.4 58.6 58.3 58.4 58.0 58.7 58.2 56.5 55.5 54.6 52.1
Canada 56.5 56.2 57.2 57.0 57.7 57.2 56.5 56.2 56.6 58.9 56.2 56.8 54.6
China 51.3 50.3 49.2 50.0 50.6 49.9 50.9 49.1 50.4 48.1 46.0 48.1 51.7
Manufacturing PMI is an indicator of economic activity within the global manufacturing sector
A reading above 50 indicates an expansion within manufacturing from the prior period; below 50 indicates a
contraction
12 months ago, developed markets were experiencing robust growth as economies reopened
The manufacturing sector is still growing today, but has slowed relative to 2021
Source: Refinitiv Datastream & Bloomberg. Data as of June 30, 2022. The heatmap is based on the manufacturing PMI reading for the respective region relative to the 50 level. A reading above 50 indicates an expansion within
the sector, while a reading below 50 indicates a contraction.
/ 20
Market reactions to Federal Funds Rate increases
History suggests volatility is common after first rate hike, but markets recover over time
8
Average annualized returns after initial rate hike
U.S. Stocks U.S. Bonds
rate hike cycles since 1970
15.0 12.9
3.6%
10.0 7.7 8.1
Returns (%)
16
-5.0
FIRST 3 MONTHS FIRST YEAR 3 YEARS ANNUALIZED
months average length
FIRST FIRST THREE YEARS
3 MONTHS YEAR after initial hike
Time of
initial Fed Rate at
hike 1st hike Stocks Bonds Stocks Bonds Stocks Bonds Returns are typically
Aug-80 9.0% 7.7 -5.7 14.9 -5.0 17.0 11.8 muted/negative as the
May-83 8.6% 2.0 -3.5 -0.8 2.2 17.1 15.8 cycle starts
Nov-86 6.0% 11.5 3.2 1.5 2.4 14.0 8.5
Apr-88 6.6% 6.6 1.2 17.3 5.2 16.0 10.1
Markets tend to revert to
Jan-94 3.0% -3.8 -2.9 0.2 -2.9 18.6 6.0
Jun-99 4.8% 0.7 -0.8 11.8 2.1 -4.0 7.7
longer-term averages
Jul-04 1.0% -1.9 3.2 8.1 6.8 12.4 4.0
Dec-15 0.0% 1.0 3.0 8.3 2.2 11.8 1.3
Sources: Federal Reserve Bank of New York, Stocks: Russell 3000® Index (1979 – Present), Bonds: Barclays U.S. Aggregate Bond Index.
Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
/ 21
Investing during inflationary periods
History suggests diversification to help deliver consistent returns
Source: Bureau of Labor & Statistics, Refinitiv, Morningstar Direct as of 5/31/2022. Inflationary environments are selected based on quartile, see appendix for methodology. U.S. Equity: Russell 3000® Index, Non-U.S. Equity:
MSCI World ex-USA Index; Bonds: Barclays U.S. Aggregate Bond Index; REITs: FTSE NAREIT Equity Index; Infrastructure: S&P Global Infrastructure Index 11/30/2001-Present and 50% DataStream World Gas Water & Multi
Utilities, 30% DataStream World Pipelines, 20% Data Stream World Railroads prior. Natural Resources: S&P Global Natural Resources Index 12/31/2002-Presend and 50% DataStream World Oil & Gas, 50% DataStream World
Basic Materials prior. Commodity: Bloomberg Commodity Index, 1/1/1991-Present and S&P Goldman Sachs Commodity Index Prior, TIPS; Bloomberg US Treasury US TIPS Index (Since 4/15/1998): Balanced 60/40: 37% U.S.
Equity, 18% Non-U.S. Equity, 39% U.S. Bonds, 2.5% REITs, 2.5% Infrastructure and 2.5% Natural Resources. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any
specific investment. Indexes are unmanaged and cannot be invested in directly. Inflationary periods are selected based on quartile, see appendix for methodology.
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Capital gain distributions
Distributions occur in both up and down markets
20% 6%
4% 5% 5% 4%
3% 7% 7% 5%
2% 2% 2%
0% 0%
-5%
-20%
-10%
-40% -15%
Source: Morningstar Direct. U.S. Stocks: Russell 3000 ® Index. U.S. equity funds: Morningstar broad category ‘US Equity’, all other categories are based on Morningstar Category Group each including mutual funds and ETFs.
For years 2001 through 2013, used oldest share class, 2014 forward includes all share classes. Average Capital Gain Distribution % = calendar year cap gain distribution ÷ year-end NAV (For years 2001 through 2020), = total
cap gain distribution ÷ respective pre-distribution NAV (For 2021 & 2022). Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not
indicative of any specific investment.
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The road ahead looks bumpy. Time to park on the sidelines?
Guidance from the rearview: the last three years offer perspective
Sources: 60/40 Balanced portfolio – 40% S&P 500 Index, 20% MSCI EAFE Index, 40% Bloomberg US Aggregate Bond Index; Cash: Citigroup Treasury 3Month T-bill Index
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Important information and disclosures
RISKS OF ASSET CLASSES DISCUSSED IN THIS PRESENTATION: Large capitalization (large cap) investments involve stocks of companies generally
having a market capitalization between $10 billion and $200 billion. The value of securities
Global, International and Emerging markets return may be significantly affected by
political or economic conditions and regulatory requirements in a particular country. will rise and fall in response to the activities of the company that issued them, general
market conditions and/or economic conditions.
Investments in non-U.S. markets can involve risks of currency fluctuation, political and
economic instability, different accounting standards and foreign taxation. Such securities Although stocks have historically outperformed bonds, they also have historically been
may be less liquid and more volatile. Investments in emerging or developing markets more volatile. Investors should carefully consider their ability to invest during volatile
involve exposure to economic structures that are generally less diverse and mature, and periods in the market.
political systems with less stability than in more developed countries. Growth: Growth investments focus on stocks of companies whose earnings/profitability
Real Assets: Investments in infrastructure-related companies have greater exposure to are accelerating in the short-term or have grown consistently over the long-term. Such
adverse economic, financial, regulatory, and political risks, including, governmental investments may provide minimal dividends which could otherwise cushion stock prices in
regulations. Global securities may be significantly affected by political or economic a market decline. A stock’s value may rise and fall significantly based, in part, on investors'
conditions and regulatory requirements in a particular country. Declines in the value of real perceptions of the company, rather than on fundamental analysis of the stocks. Investors
estate, economic conditions, property taxes, tax laws and interest rates all present should carefully consider the additional risks involved in growth investments.
potential risks. Investments in international markets can involve risks of currency
Value: Value investments focus on stocks of income-producing companies whose price is
fluctuation, political and economic instability, different accounting standards, and foreign low relative to one or more valuation factors, such as earnings or book value. Such
taxation.
investments are subject to risks that the stocks’ intrinsic values may never be realized by
Commodities: Commodities may have greater volatility than traditional securities. The the market, or, that the stocks may turn out not to have been undervalued. Investors
value of commodities may be affected by changes in overall market movements, changes should carefully consider the additional risks involved in value investments.
in interest rates or sectors affecting a particular industry or commodity, and international
An Investment Grade is a system of gradation for measuring the relative investment
economic, political and regulatory developments.
qualities of bonds by the usage of rating symbols, which range from the highest
Bonds: With fixed income securities, such as bonds, interest rates and bond prices tend investment quality (least investment risk) to the lowest investment quality (greatest
to move in opposite directions. When interest rates fall, bond prices typically rise and investment risk).
conversely when interest rates rise, bond prices typically fall. When interest rates are at Gross domestic product (GDP) refers to the market value of all final goods and services
low levels there is risk that a sustained rise in interest rates may cause losses to the price produced within a country in a given period. It is often considered an indicator of a
of bonds. Bond investors should carefully consider these risks such as interest rate, credit, country's standard of living.
repurchase and reverse repurchase transaction risks. Greater risk, such as increased
volatility, limited liquidity, prepayment, non-payment and increased default risk, is inherent Trailing price-to-earnings (P/E) is a relative valuation multiple that is based on the last
in portfolios that invest in high yield ("junk") bonds or mortgage-backed securities, 12 months of actual earnings. It is calculated by taking the current stock price and dividing
especially mortgage-backed securities with exposure to sub-prime mortgages. Investment it by the trailing earnings per share (EPS) for the past 12 months.
in non-U.S. and emerging market securities is subject to the risk of currency fluctuations Forward price to earnings (forward P/E) is a quantification of the ratio of price-to-
and to economic and political risks associated with such foreign countries. When interest earnings (P/E) using forecasted earnings for the P/E ratio.
rates are at low levels there is risk that a sustained rise in interest rates may cause losses
to the price of bonds. Price-to-book ratio compare a firm's market to book value by dividing price per share by
book value per share.
Small capitalization (small cap) investments involve stocks of companies with smaller
levels of market capitalization (generally less than $2 billion) than larger company stocks
(large cap). Small cap investments are subject to considerable price fluctuations and are
more volatile than large company stocks. Investors should consider the additional risks
involved in small cap investments.
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Index definitions
Bloomberg Global High-Yield Index: An index which provides a broad-based measure of the global high-yield fixed income markets. The Global High-Yield Index represents that union of the U.S
Bloomberg High Yield Municipal Bond Index: An unmanaged index considered representative of noninvestment-grade bonds. FactSet Research Systems Inc. Intermediate U.S. Credit Index is
Bloomberg Intermediate Treasury Index: Measures the performance of U.S. Dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a
Bloomberg Short Treasury Index: Is composed of all treasuries that have a remaining maturity between one and twelve months.
Bloomberg U.S. Aggregate Bond Index: An index, with income reinvested, generally representative of intermediate-term government bonds, investment grade corporate debt securities, and mort
Bloomberg U.S. Credit Bond Index: Measures the performance of investment grade corporate debt and agency bonds that are dollar denominated and have a remaining maturity of greater than o
Bloomberg US Corporate Bond Index: Measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US indu
Bloomberg U.S. Municipal Index: Covers the USD-denominated long-term tax-exempt bond market.
Bloomberg Commodity Index Family: Represents the major commodity sectors within the broad index: Energy (including petroleum and natural gas), Petroleum (including crude oil, heating oil an
Bloomberg Commodity Index Total Return: Composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, comm
BofA Merrill Lynch Global High Yield Index: Tracks the performance of USD, CAD, GBP and EUR denominated below investment grade corporate debt publicly issued in the major domestic or E
Citigroup 1-3 Month T-Bill Index: An unmanaged index that tracks short-term U.S. government debt instruments.
FTSE NAREIT: An Index designed to present investors with a comprehensive family of REIT performance indexes that span the commercial real estate space across the U.S. economy, offering ex
FTSE NAREIT all Equity Index: Measures the performance of the commercial real estate space across the U.S. economy offering exposure to all investment and property sectors.
FTSE EPRA/NAREIT Developed Index: A global market capitalization weighted index composed of listed real estate securities in the North American, European and Asian real estate markets.
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Index definitions (cont’d)
Ibbotson Intermediate Bond Index: Measures the performance of U.S. Dollar denominated treasury and government-related bonds
JPM Emerging Market Bond Index (EMBI): Dollar-denominated sovereign bonds issued by a selection of emerging market countries.
JPM EMBI Plus Bond Index: Tracks total returns for traded external debt instruments in the emerging markets.
MSCI AC World ex-USA Index: An index that tracks global stock market performance that includes developed and emerging markets but excludes the U.S.
MSCI AC World ex-USA Equal-weighted Index: An equal weighted index that tracks global stock market performance that includes developed and emerging markets but excludes the U.S.
MSCI country indices: Indices which include securities that are classified in that country according to the MSCI Global Investable Market Index Methodology, together with companies that are hea
MSCI EAFE (Europe, Australasia, Far East) Index: A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding t
MSCI Emerging Markets Index: A float-adjusted market capitalization index that consists of indices in 24 emerging economies.
MSCI Europe Index: A free float‐adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe. The MSCI Europe
MSCI World Index: A broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries.
Russell 3000® Index: Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market.
Russell 2000® Index: measures the performance of the 2,000 smallest companies in the Russell 3000 index.
Russell 1000® Growth Index: Measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and h
Russell 1000® Value Index: Measures the performance of the broad value segment of U.S. equity value universe. It includes those Russell 1000 companies with lower price-to-book ratios and low
The S&P 500® Index: A free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the
The S&P Global Infrastructure Index: Provides liquid and tradable exposure to 75 companies from around the world that represent the listed infrastructure universe. To create diversified exposure
S&P Global Natural Resources Index: The index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requireme
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Economic Indicators Dashboard definitions
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