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Athena Capital Advisors LLC
55 Old Bedford Road
Suite 302
Lincoln, MA 01773
781.274.9300
athenacapital.com
Athena Capital Advisors
Market Overview & Outlook
Third Quarter 2018
Executive Summary
The overwhelming consensus entering the year was that the double-digit returns and low volatility that prevailed in many asset classes in 2017
would not recur in 2018. Through September, the consensus appears well on its way to being right. Asset returns have ranged from strong (e.g.,
WTI Crude up 21%, S&P 500 up 11%) to stagnant (e.g., Real Estate sector up 2%, Hedge Fund of Funds Index up 1%, Barclay’s Aggregate Bond
Index down 2%) to subpar (e.g., MSCI All Country World Index ex US down 3%, MSCI Emerging Market Index down 8%, Gold down 9%). Volatility
has increased along with the dispersion of returns. The late January/early February equity correction generated elevated angst that proved short-
lived but resurfaced in October amid fears of rising interest rates and peaking earnings growth. Simply put, it has been an unsatisfying year-to-date
for most investment portfolios.
Our advice in July’s Executive Summary was to stay diversified and invested, but to exercise additional caution. We emphasized that worldwide
economic growth was showing signs of becoming less synchronous and global trade tensions were rising. A strong US dollar was placing pressure
on several emerging markets and the US yield curve was flattening. Additional potential geopolitical pressure points included Brexit and Italian
populism. The same fears are largely intact three months later. One could argue that trade-related uncertainty has dissipated as the US has
reached tentative agreements with Europe, Canada, Mexico and others—with a seemingly clear intent to isolate China as the key combatant.
Although the Chinese equity markets have continued to weaken, we do not expect China or the US to back down anytime soon. Meanwhile, robust
US growth, strong employment figures, and moderate inflation have emboldened the Federal Reserve to stay on a tightening course well into 2019
or beyond.
With that backdrop, Athena’s views include:
• Remain overweight cash and enhanced cash for dry powder as yields from enhanced cash have become more favorable with a flatter
yield curve.
• Tilt fixed income portfolios toward lower duration. At the other end of the risk spectrum, commensurate with equities, we see idiosyncratic
return opportunities for dedicated emerging market stressed/distressed debt managers.
• Rebalance equity portfolios to strategic weightings, particularly in emerging markets, given increasingly attractive relative valuations.
• Be selective within private equity where some degree of valuation-related froth is evident.
In our opinion, the Fed’s determination to normalize rates supports our overweight in cash and enhanced cash strategies. Long duration assets
have underperformed throughout 2018 while credit-based investments such as those favored by Athena have generally fared better. We are
comfortable with our actively managed and conservative funds, but caution is warranted as credit spreads are at or near all-time tights and the
debt issued by US nonfinancial companies is near its highest levels as a share of GDP since WWII.
2Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Executive Summary
We remain neutral in US equities. While the major US equity averages are little changed from three months ago, much has changed beneath
the surface. 2018 has been yet another year of growth stocks dramatically outperforming their value counterparts, leaving the valuation
disparity between the two groups at historically high levels. However, in October some of the strongest leadership groups from 2017 and
most of 2018 have rolled over, including small caps and semiconductors. We are reviewing strategies that veer away from the recent growth
darlings and toward traditional value, equal weight, and quality. As for earnings, the earnings growth outlook has dimmed somewhat due to
concerns of rising input costs, tariff fears, and slowing overseas growth, however valuation levels have become more supportive. At less than
16 times 2019 expected consensus earnings, the closely watched S&P 500 price-earnings ratio is back to its lowest level in two years—a fair
to modestly attractive level versus history. We do note that the US equities trade near historic highs on other measures such as the backward
looking Shiller PE and market cap to GNP (Warren Buffett’s professed favorite measure).
For all the cross-currents in the US, the overarching debate for international equities is well-defined: a near-term economic growth outlook
that is less robust than the US versus the longer term support from more attractive valuations. Investors have clearly embraced the former
over the latter this year as overseas stocks have lagged materially. That is particularly true of emerging markets that surged in 2017, but have
since been pressured by the stronger US dollar and weakening Chinese growth. Given the strong valuation backdrop indicated in our 2018
Strategic Asset Allocation analysis, Athena recommends clients rebalance their international equity portfolios at the end of the year.
Our view on commodities is that a significant acceleration in inflation would be a true game changer for most traditional asset classes and
thus a major risk for markets and client portfolios. While we view a sustained inflation breakout as questionable for secular reasons such as
demographics, an occasional uptick is inevitable and the recent combination of wage inflation and tariff-related uncertainty could begin to
influence the near-term data. We like MLP’s, gold and TIPs as inflation surprise hedges.
Although it still appears premature to call a longer-term peak in fundraising, private equity firms in North America and Europe appear to be on
pace to raise fewer funds and less capital overall than in 2017. That said, in the current GP-friendly fundraising environment, most newly
raised funds are larger than their predecessors. Fund size step-ups have hit the highest level since the Financial Crisis. We continue to
believe it is important to commit to funds year over year for vintage year diversification. However, we are not increasing our recommended
allocations in light of generally rich valuations.
Please contact your Portfolio Manager with any questions or feedback.
-The Athena Investment Team
3Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Table of Contents
4Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Global Macro Update Page 5
Cash & Enhanced Cash Page 12
Fixed Income Page 14
US Equities Page 21
Foreign Equities Page 28
Commodities Page 34
Hedge Funds Page 38
Private Equity & Real Estate Page 42
Appendix Page 51
Macro
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
5
▪ We believe October’s period of market turbulence was more about a rationalizing of the new
environment of higher interest rates, i.e. a Quantitative Easing to Quantitative Tightening adjustment.
While the volatility may continue, we do not believe it is the denouement for risk assets as the level of
rates does not yet appear restrictive, economic growth particularly in the US remains positive, and
equity valuations are reasonable versus history.
▪ However, the path to an overheating US economy, more Fed rate hikes, and higher long-term interest
rates is growing in potential as evidenced by the US labor market tightness and wage growth.
▪ Additional macro points of note:
– EU Challenges: Brexit, and Italian bond spreads
– US mid-term elections
– China/US Trump/Xi meeting is currently on schedule for the G20 meeting in November
US ECO: Signs of Durable Growth
US economic data continue to show signs of durable growth. In the chart below we show the leading economic index
(LEI) as well as the ISM’s manufacturing and non-manufacturing surveys. The current ISM data points are each near
60; a reading above 50 indicates expansion.
6Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: FactSet
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US LEI and ISMs
USA - ISM Manufacturing (LHS)
USA - ISM Non-Manufacturing (LHS)
USA - Leading Index, Change Over 6-Month Span (Ar, Pct., RHS)
Breaking Down the 2Q GDP Report
The headline 2Q18 US GDP number came in at +4.1%, making it the strongest quarter for US growth since 2014.
Dissecting the GDP growth number shows continued tailwinds from fiscal stimulus, in addition to a surge in soybean
exports to China. The latter is viewed as a one-off event which was intended to beat the imposition of the tariffs that
began in early July. Still, at 2.7%, the base economic growth compares favorable to recent history.
7Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: BEA.gov, WSJ Daily Shot, BEA, Pantheon
Macroeconomics, CRFB Calculations, Steven Rattner.
US Labor Market Tightness and Signs of Wage Growth
The US unemployment rate fell to 3.7% in September, its lowest level since 1969. As the US labor market has
tightened questions arose around the validity of the Phillips Curve, an economic idea which proposes there is an
inverse relationship between the unemployment rate and rises in wages. Wage growth has been conspicuously absent
since the financial crisis, but we may now be seeing its latent effects. In particular, we are seeing wage growth at the
lower end of the pay spectrum, and as these workers tend to have a higher propensity to consume their wage gains
could be supportive of economic growth.
8Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: BCA
Fed Funds Rate Hike Path
Despite the signs of stronger economic growth and incipient wage gains, market expectations are for a terminal Federal
Funds Rate just shy of 3.0% through 2021. The current Federal Funds Rate is 2.25%, implying three more hikes.
9Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: BCA
Approaching US Mid-term Elections
According to race ratings conducted by the Cook Political Report, a nonpartisan election handicapper, there are
currently 68 highly competitive House seats in the upcoming November mid-term elections. The political forecaster
Five Thirty Eight currently assigns a 78% probability that Democrats will flip the minimum 23 Republican-held seats
needed to retake a House majority (as of October 12th).
10Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: NY Times, FiveThirtyEight
Eurozone Structure Challenges: Brexit and Itaddio
The Eurozone continues to struggle with structural issues first uncovered in the 2011 crisis. Since then, Britain has
elected to leave the EU but has had trouble working with the remaining EU members on how to go about doing that.
Currently March 29, 2019 at 11pm UK time is when Britain will leave the EU regardless of whether an exit deal is
reached or not.
Recently Italy has caused a stir with its newly elected government that is more EU-skeptic and is committed to election
promises to spend more on public investments, provide a universal basic income, and reduce the retirement age. The
growing level of debt would be all well and good if there was confidence in the ability of Italy to show robust growth and
if Italy’s debt level wasn’t already 130% of GDP—which is double the EU treaty limit.
11Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: BCA
Cash and Enhanced Cash:
Overweight
▪ Athena remains overweight cash and enhanced cash as dry powder for potential future investment
opportunities. Market volatility in early 4Q18 may present opportunities for re-balancing into risk
assets in order for clients to remain at target allocations.
▪ Rising short-term bond yields and a historically flat yield curve also encourage the use of enhanced
cash holdings, which allow clients to earn yield with low interest rate sensitivity. Athena recommends
strategies with investment grade credit quality and duration under 1.5 years.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
12
Enhanced Cash Benefits From Rising Rates
In 3Q18, the yield on the 2 Year Treasury rose to 2.8%, which supports more attractive yields in short duration and
enhanced cash strategies. Given a historically flat yield curve, investors are not being compensated for adding duration
risk in most fixed income sectors.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Federal Reserve Bank of St. Louis 13
2 Year US Treasury Yield
Fixed Income:
Neutral
▪ Athena maintains a neutral tactical view on fixed income. While market conditions are sanguine, we
are seeking to batten down the hatches in the fixed income portfolio. Athena thinks the Federal
Reserve under Chairman Jerome Powell’s leadership is eager to normalize interest rates and may
surprise on the hawkish side, so we are seeking to increase our underweight to interest rate exposure
versus the benchmark.
▪ Municipal bonds are supported by strong market fundamentals and technicals, but pricing is rich.
▪ Floating rate loan valuations are allowing investors to move up in the capital structure with no yield
concession. We have concerns about weak documentation and higher leverage in the loan market
broadly, but feel comfortable with Shenkman, an active manager with high credit quality and a capital
preservation focus.
▪ Athena has avoided the downturn in EM debt and is recommending the Oaktree Emerging Markets
Opportunities Fund II, an EM distressed debt fund, as a way to access potentially attractive value
opportunities in non-discretionary companies facing macroeconomic headwinds.
▪ For tax-exempt investors, we are cautious on investment grade corporate credit due to the declining
average credit quality and rising interest rate sensitivity of the sector.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
14
Federal Reserve Accelerates Rate Hikes in 2018
The Federal Reserve raised interest rates for a third time this year in September and the market anticipates an additional
hike in December, though expectations heading into the year were for three hikes. Strong data and hawkish recent
commentary from FOMC Chairman Jerome Powell sent rates higher in early 4Q18. Looking ahead, Powell seems more
determined than his predecessor to normalize interest rates while also appearing unfazed by Presidential rebukes. Rising
Treasury issuance due to deficit spending is also a concern. Athena recommends increasing its underweight to interest
rate risk, i.e. duration, by tilting from fixed income to enhanced cash.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Federal Reserve 15
Federal Reserve Members’ Interest Rate Projections
ECB Unwind is Market Risk
The European Central Bank (ECB) has been a significant buyer of European sovereign and corporate debt, which
has inflated European market valuations and supported demand for relatively high-yielding US assets. US interest
rates and corporate spreads may feel pressure as the ECB seeks to taper its asset purchases. Athena does not
have exposure to foreign developed debt but is cautious of potential spillover to US markets.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Wall Street Journal 16
Central Bank Balance Sheet Assets (% GDP)
Municipal Debt Remains Attractive
Strong technicals and fundamentals are tailwinds for municipal debt. Net issuance in 2018 is expected to be negative and
state and local tax revenues saw their 32nd
quarter of growth. Tax reform effects and a relatively steep yield curve also
support munis, though muni to Treasury yield ratios indicate tight valuations.
Athena negotiated with muni manager IR&M to lower account minimums to $1 million and recommends clients consider
switching from Breckinridge to IR&M. An IR&M memo update is available for clients seeking additional information.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: JP Morgan, PIMCO
17
Constructive on Shenkman Floating Rate Manager
High yield and floating rate loans have outperformed other fixed income sub-sectors YTD as of 3Q18, returning 2.6% and
4.4%, respectively. Athena currently finds loans compelling as the typical yield concession to go higher in the capital
structure from high yield to loans has disappeared. Floating rate loans may also provide higher income than high yield in
the near future based on expected rate hikes. While Athena has a cautious outlook on the overall loan market, we have
conviction in the Shenkman Floating Rate High Income Fund, our preferred manager. Shenkman is an active manager
that performs rigorous credit analysis, holds fewer than 400 securities, and is positioned conservatively in terms of credit
quality versus the benchmark.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: JP Morgan 18
Potential Opportunity in EM Stress
Dollar-denominated and local currency emerging market (EM) debt returned -3.5% and -8.2%, respectively, YTD as of
3Q18 due to headwinds from a stronger dollar, rising US interest rates, trade tensions, undisciplined borrowing, and
political uncertainty. Athena does not have any direct exposure to EM debt at this time and has performed due diligence
on the Oaktree Emerging Markets Opportunities Fund II, a drawdown structure focused on stressed and distressed EM
corporate debt, to seek to take advantage of value opportunities in countries including Argentina and Turkey. The fund is
currently only approved for tax-exempt investors as Athena investigates the fund’s expected tax profile further.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: PIMCO 19
IG Corporate No Longer a Clear Safe Haven
Athena’s tax-exempt clients who own investment grade credit are recommended to tilt away from investment grade
corporate debt due to a growing portion of lower credit quality BBB-rated bonds, all-time high leverage, and low yields to
compensate for such risks. We are seeking to rotate into an exposure with lower interest rate risk, active credit
management, and a more diversified IG asset allocation that is leaning away from corporate credit.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Wall Street Journal, TCW, Athena Capital Advisors 20
US Equities:
Neutral
▪ Athena upholds our current neutral positioning in US equities. Although we are now in one of the longest bull
markets in history, a wide distribution of market outcomes leaves us inclined to stay invested at these
levels. This view is supported by the continuation of solid economic growth, double-digit forward EPS growth
rates, and a forward price-to-earnings (P/E) multiple that has contracted to what Athena considers as a range
of fair value.
▪ As a new point of caution, Athena notes a rise in earnings-related uncertainty as a contributor to the increased
volatility seen at the beginning of 4Q. While some of the concern reflects the natural cycling through of the tax
cuts into 2019, the combination of higher interest costs, wages and commodities (exacerbated in some
industries by tariffs and trade uncertainty) and slowing overseas growth has led to a slowdown in earnings
growth expectations.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
21
S&P 500 Price Level Implies Earnings-driven Upside
Assuming no P/E multiple expansion or compression, the index is showing a +12% cumulative upside if the current 2020
earnings projections are realized. On the converse, if the current 16x forward P/E were to compress below its historical average to
15x in 2018, the index would trade -5% lower.
22Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Bloomberg
10/17/2018 2787
2020 2019 2018Tra il ing
12 Mos.
-20%
Dec line
$195 $177 $160 $134 $107
$1,367 $1,238 $1,122 $936 $749 7
$1,562 $1,415 $1,282 $1,069 $856 8
$1,758 $1,592 $1,443 $1,203 $962 9
$1,953 $1,769 $1,603 $1,337 $1,069 10
$2,148 $1,946 $1,763 $1,470 $1,176 11
$2,344 $2,123 $1,924 $1,604 $1,283 12 Median trailing 12m P/E, 1970 - 1989
$2,539 $2,300 $2,084 $1,738 $1,390 13
$2,734 $2,476 $2,244 $1,871 $1,497 14
$2,930 $2,653 $2,404 $2,005 $1,604 15
$3,125 $2,830 $2,565 $2,139 $1,711 16 Cur rent Fo rwa rd P/E , Median CAPE, 1920 - Present
$3,320 $3,007 $2,725 $2,272 $1,818 17 Median trailing 12m P/E, 1955 - Present
$3,516 $3,184 $2,885 $2,406 $1,925 18 Median trailing 12m P/E, 1990 - Present
$3,711 $3,361 $3,046 $2,540 $2,032 19
$3,906 $3,538 $3,206 $2,673 $2,139 20 Cur rent T12M P/E
$4,102 $3,715 $3,366 $2,807 $2,246 21
$4,297 $3,892 $3,527 $2,941 $2,353 22
$4,492 $4,068 $3,687 $3,074 $2,460 23
$4,687 $4,245 $3,847 $3,208 $2,567 24
$4,883 $4,422 $4,007 $3,342 $2,673 25
$5,078 $4,599 $4,168 $3,476 $2,780 26 Median trailing 12m P/E, 1998 - 2001
$5,273 $4,776 $4,328 $3,609 $2,887 27
$5,469 $4,953 $4,488 $3,743 $2,994 28
$5,664 $5,130 $4,649 $3,877 $3,101 29
$5,859 $5,307 $4,809 $4,010 $3,208 30
$6,055 $5,483 $4,969 $4,144 $3,315 31 Cur rent CAPE
Bloomberg Bot tom-Up Earnings Est imates* S&P 500 Index Leve l:
P/E
Mult iples
Historica l Medians/Occurences o f P/E mult iples
Various occurences of single-digit trailing 12m P/E in the 1970s and
1980s
Low trailing 12m P/E during 2008 - 2009 crisis
S&P 500 Profit Margin at All-Time High
23Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
With projected S&P 500 3Q18 revenue growth of +7.3% and EPS growth of +19.2%, the index’s profit margin is expected to
remain near a record level of +11.6%. While strong fundamentals continue to support a favorable backdrop for equities on the
micro level, investors have developed increasing concerns over the potential margin pressures associated with higher interest
rates, wage inflation, and global trade anxiety on the macro level.
Source: Bloomberg
Headwinds for the Growth Factor?
2018 follows yet another year of Growth stocks dramatically outperforming their Value counterparts, leaving the valuation disparity
between the two groups at historically high levels. Since September 2008, the Russell 3000 Value Index has underperformed the
Russell 3000 Growth Index by -125% cumulative. In the big picture, it has made sense for investors to pay premium multiples for
Growth stocks in the post Financial Crisis era, an environment defined by lackluster GDP growth and a low cost of borrow.
However, Athena believes the transition to stronger economic growth (at least in the interim) and increasingly higher discount
rates could argue for this premium spread to dissipate.
24Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Bloomberg
A Primer on the GICS Reclassification
The end of September brought changes to the S&P and MSCI's commonly used Global Industry Classification (GICS)
framework. As outlined by Parametric, these changes included: (1) the Telecommunication Services sector expanding and being
renamed Communication Services, (2) media companies (e.g. Netflix, Comcast, Disney) moving from Consumer Discretionary
into Communication Services,(3) internet services companies (Facebook, Google, Tencent, etc.) moving from Information
Technology into Communication Services, and (4) e-commerce companies (primarily eBay and Alibaba) moving from Information
Technology to Consumer Discretionary. Ahead of these changes, Athena reached out to index and ETF providers to understand
any portfolio implications. We walked away with a similar takeaway as Parametric, who believes "these GICS sector changes were
long overdue, and they figure to inject greater clarity and accuracy into how companies are grouped".
25Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Goldman Sachs
Fidelity Launches Zero Fee Products
In August, Fidelity announced it was reducing fees on 21 mutual fund products and launching a pair of zero-fee index
mutual funds, the Total US Market Index and Total International Index. As seen in the chart below, the theme of fund
companies lowering fees is nothing new, but the “zero fee” headline has sparked an industry-wide discussion on the
potential implications for both passive and active managers.
26Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Morningstar
The Risk of Embedded Gains in Mutual Funds
27Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Per Morningstar, potential capital gains exposure (PCGE) is an estimate of the percent of a mutual fund’s assets that represent
gains. As a measure of how much the fund’s assets have appreciated, it can thus be an indicator of possible future capital gain
distributions. This is especially relevant for investors considering purchasing a new fund, as they may receive a taxable
distribution even though they didn’t participate in the actual appreciation. After a ten-year bull market, potential cap gains
exposure has grown in many 1940 Act mutual funds, particularly those that are US focused, tax efficient, and have largely seen
only inflows. Below is a table that shows the embedded gains of two of the largest passive mutual funds as well as some of
Athena’s active managers. Because the fund's asset base serves as the denominator in this calculation, a change in assets from
the sale or redemption of share as well as price action of the fund’s holdings can greatly influence a fund's potential capital gain
exposure. Thus, Athena has become increasingly cautious of funds with shareholder bases that tend to overreact to short term
equity market performance (e.g. passive funds) as opposed to those with a longer-term mindset.
Source: Morningstar
Fund TickerPotential Capital
Gains ExposureAUM ($B)
Fidelity Contra Fund FCNTX 65% 134.9$
Vanguard Institutional Index VINIX 50% 235.0$
Akre Focus AKRIX 45% 7.7$
Vanguard 500 Index VFIAX 41% 459.3$
DFA U.S. Small Cap DFSTX 32% 18.2$
T. Rowe Price International Discovery TIDDX 23% 8.1$
WCM Focused International Growth WCMIX 21% 6.3$
Matthews Pacific Tiger MIPTX 19% 8.4$
IVA International IVIQX 11% 3.7$
Baron EM BEXIX 10% 5.3$
Dodge & Cox International DODFX 9% 58.8$
Foreign Equities:
Neutral
▪ Athena maintains a neutral position in Foreign equities and chooses to express this view through high
conviction active managers. On a tactical basis, the tailwinds of a synchronous global growth recovery and a
weaker USD have reversed. Select growth indicators (albeit still robust) have come in lower than their early
2018 highs and the USD has strengthened given the rise in US interest rates.
▪ Athena is cognizant that the risk premium for international equities could widen due to a resurgence of weaker
global growth, a stronger USD, a Chinese hard economic landing, renewed political uncertainty in Europe,
and/or the possibility of monetary policy missteps as the Federal Reserve and European Central Bank wind
down their quantitative easing programs. However, contrasting 2018 price action against our 2018 Strategic
Asset Allocation (SAA) return forecasts, Athena believes international equities may represent a better longer-
term opportunity than domestic US equity markets. In August 2018, Athena recommended rebalancing back
to targets for clients with appropriately long-horizons and a commitment to the asset class
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
28
US Growth Decouples from the World
Global growth has become less synchronized in 2018 following broad-based strength last year. As seen below, most of the
world’s Purchasing Manager Index (PMI) surveys are lower than they were in January 2018, with the US being one of the few
exceptions to the upside. While the theme of slower global growth remains a prominent headline, it is important to highlight that
all countries (with the sole exception of Russia) remain in expansion territory with PMIs > 50.
29Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.Source: Bloomberg
Foreign Equity Weakness Brings Neutral Valuations
30Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Foreign equities continue to exhibit weakness on a YTD basis, with the MSCI ACWI-ex US –9.5%, MSCI EAFE –8.3%, MSCI EAFE
Small Cap –9.0%, and the MSCI EM –14.3% through October 17th
. Given this selloff, foreign equities have fallen closer to their
own 10-year averages and the relative spread versus their US counterparts has grown. Given this spread, Athena continues to
uphold our recommendation to rebalance on weakness.
Source: Eaton Vance
EM Selloff in Perspective
Given the weakness seen across emerging markets since their January highs, Athena continues to recommend rebalancing for
clients with appropriately long-horizons and a commitment to the asset class. While geopolitical, trade, and monetary headwinds
lessen the probability of a straight line recovery, our current EM manager lineup continues to offer exposure to compelling long-
term growth opportunities tied to EM consumer themes, which is exhibited by mid-teens ROE and forward earnings growth rates.
31Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: Pension Partners, FactSet
Name TickerTotal Return
(2018)
Total Return
(Since Jan 26)ROE
2019 EPS
Growth
2020 EPS
Growth
Russia ERUS 4.4 -6.9 14.1 1.1 4.9
Mexico EWW 2.2 -6.9 11.1 15.0 13.6
Thailand THD -0.3 -8.2 13.5 3.1 6.8
Brazil EWZ -1.2 -15.5 11.2 19.0 8.4
Malaysia EWM -3.0 -11.3 10.4 7.2 7.5
Taiwan EWT -5.4 -12.5 13.6 2.8 8.8
China FXI -11.5 -24.4 12.9 12.5 11.2
India INDA -12.9 -17.4 13.8 20.4 17.5
Chile ECH -14.4 -20.5 10.3 15.9 8.2
South Korea EWY -16.4 -20.7 10.9 7.4 6.6
Indonesia EIDO -20.7 -26.2 15.0 12.7 12.0
South Africa EZA -24.4 -30.4 13.1 17.1 13.0
Argentina ARGT -27.7 -33.5 7.5 33.2 29.8
Turkey TUR -40.0 -44.1 17.3 19.3 19.1
MSCI EM EEM -12.7 -21.0 12.7 11.4 10.8
Baron EM BEXIX -15.9 -21.9 13.2 15.2 13.5
Matthews Pacific MIPTX -12.5 -18.0 14.4 12.5 13.7
The Chinese A-Share Opportunity
Athena believes the China A-Share market, (defined as stocks that trade on either the Shanghai or Shenzhen Stock exchanges),
merits increased consideration in client portfolios based on its sheer size and potential for further index inclusion. While China’s
twenty-year contribution to global GDP growth and total PPP-based GDP has surpassed the U.S., its weight in global indices is still
a mere fraction of the US weight. Following MSCI’s 5% inclusion factor of China A-shares in August 2018, the A-share market now
represents just 0.7% of the MSCI Emerging Market (EM) Index and just 0.1% of the MSCI All Country World Index (ACWI). With
this inclusion occurring seamlessly, MSCI just recently announced that they were launching a new round of consultation to
potentially increase the inclusion of China A securities in 2019. With over $12 Trillion in assets benchmarked to MSCI indices as
of November 2017, we believe further inclusion should provide a strong tailwind for inflows.
32Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: MSCI
Improved ROE for Japanese Equities
Although Athena believes Japanese equity valuation levels do not represent a resoundingly obvious “buy opportunity”, continued
observations of Abenomics successes (specifically the Third Arrow) could result in strong equity market performance given
further fundamental support and/or additional multiple expansion. The ROE for the Nikkei 225 has risen materially since
Abenomics was announced as the current rate of 11.1% is almost double the average of 6.7% since 2000. Deconstructing ROE
number via a DuPont analysis shows higher profit margins as the primary driver of this increase. After meeting with multiple
dedicated Japanese managers in 3Q18, Athena plans to further explore the Japan equity opportunity over the coming quarters.
33Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: Bloomberg
Commodities:
Neutral
▪ Athena continues to recommend an allocation to TIPS and gold as our preferred manner of hedging a portfolio
against unexpected increases in inflation. While Athena’s base case scenario predicts a continuation of a
benign inflationary environment, we are aware that an acceleration in inflation remains one of the biggest risks
for markets and client portfolios. Should a period of rising inflation materialize, Athena would consider
increasing clients’ underlying exposure to direct commodities, as they tend to outperform during higher
inflationary environments.
▪ On a tactical basis, Athena continues to believe Master Limited Partnerships (MLPs) provide an attractive
capital appreciation opportunity in a low return world. As stated in previous correspondence, we believe
contrasting improved fundamentals against current price levels presents a favorable skew to the upside, which
is enhanced by a margin of safety via an attractive yield (~8%). Two major risks to this view include: (1)
another energy downturn which would most likely be driven by overproduction since energy prices have
recovered, and/or (2) the duration sensitivity of MLP equities in a world of higher interest rates
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
34
Inflation Update
The September Core CPI YoY came in at 2.3%, and the Core PCE is expected to come in at 2.0% later this month. According to
BCA Research, fiscal stimulus, faster credit growth, higher asset prices, and a rising labor share of total income have probably
pushed up the Federal Reserve’s neutral rate quite a bit over the past few years. In our opinion, this lifts the odds that the Fed
will find itself behind the curve, causing inflation to rise more than the market is anticipating, thus benefiting assets that have
traditionally done well in periods of unexpected inflation (e.g. commodities, hard assets).
35Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: Bloomberg,
BCA Research
Gold Selloff on Stronger USD
2018 has been a lackluster year for gold, which is -6% YTD and now trades at $1,230 an ounce, down more than -35% from its
high of $1,900 in 2011. Athena believes the primary catalyst for the selloff is gold’s negative correlation with the USD (historically
-0.85), which has strengthened materially since April on the expectation of tighter monetary policy from the Federal Reserve.
36Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: Bloomberg
The Return of $100 Oil?
While nearly 3 years removed since Brent crude traded in the $20s, some oil bull traders are predicting the return of $100/oil for
the first time since the commodity’s precipitous decline in 2014. This bullish sentiment is driven by: (1) OPEC grappling with US
sanctions on Iran, (2) Venezuela's ongoing economic crisis, (3) continued pipeline bottlenecks hampering the growth of US Shale,
(4) uncertainty on the response functions of the US and Saudi Arabia around the death of journalist Jamal Khashoggi.
37Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Source: Bloomberg, PineBridge
Hedge Funds:
Neutral
▪ Year to date, hedge funds, as measured by the HFRI Fund of Funds Composite Index, have returned +1% with
performance led by the distressed strategy (HFRI ED: Distressed Restructuring +4%). Macro is the lone detractor
for the year at -1.8%. This underperformance is attributed to the systematic/quant strategies; the HFRI Macro
Systematic Diversified Index is -4% for the year.
▪ With bonds down -2% for the year, as measured by the Bloomberg Barclays Aggregate Bond Index, Hedge funds’
positive year to date performance has proved a benefit to diversified portfolios. In this environment of rising rates
and elevated equity levels, Athena continues to emphasize absolute return hedge fund strategies with minimal
correlation and sensitivity to the traditional asset classes.
▪ Equity Long/Short funds came under pressure in the early weeks of October. Goldman Sachs estimates that equity
long/short funds were -5% month to date through October 10th
. The FANG stocks (Facebook, Amazon, Netflix,
Google), which are popular hedge fund holdings, were a major cause of the underperformance.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.38
Hedge Fund Performance
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Year to date, hedge funds, as measured by the HFRI Fund of Funds Composite Index, have returned +1% with
performance led by the distressed strategy (HFRI ED: Distressed Restructuring +4%). Macro is the lone
detractor for the year at -1.8%. This underperformance is attributed to the systematic/quant strategies; the
HFRI Macro Systematic Diversified Index is -4% for the year.
Source: HFRI39
-4%
-2%
0%
2%
4%
6%
8%
2018 YTD 36 Months (Annualized) 60 Months (Annualized)
Hedge Fund Returns through Sept 2018
HFRI Fund of Funds Composite Index HFRI ED- Distressed-Restructuring Index
HFRI Equity Hedge (Total) Index HFRI Event-Driven (Total) Index
HFRI Macro (Total) Index
Hedge Funds Benefit Diversified Portfolios
With bonds down -1.6% for the year through 3Q18, as measured by the Bloomberg Barclays Aggregate Bond
Index, Hedge funds’ positive year to date performance has proved a benefit to diversified portfolios. In the
current environment of rising rates and elevated equity levels, Athena continues to emphasize absolute return
hedge fund strategies with minimal correlation and sensitivity to the traditional asset classes.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.40Source: FactSet, Athena Capital
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18
Cumulative Returns 2018
thru Sept. 2018
HFRI Fund of Funds Composite Bloomberg Barclays US Aggregate
Bloomberg Barclays US Treasury - Bills Athena Alpha Investors, LP (gross)
FANG Bites Equity Long/Short Funds in October
Equity Long/Short funds came under pressure in the early weeks of October. Goldman Sachs estimates that
equity long/short funds were -4.6% month to date through October 10th. The FANG stocks (Facebook, Amazon,
Netflix, Google), which are popular hedge fund holdings, were a major cause of the underperformance with
Facebook -7%, Google -10%, Amazon -14%, and Netflix -16%.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.41
Source: Goldman Sachs
▪ Private equity fundraising may have hit an inflection point as the number of funds and amount of capital has
slowed, though funds are closing more quickly than ever before, and fund size is on the rise.
▪ On the exit side, the market has witnessed a recent uptick in IPOs, particularly by unprofitable companies,
despite the longer-term trend of the declining number of public companies.
▪ We continue to seek to take advantage of various market trends including the rise of the Chinese consumer,
continued growth and consolidation within healthcare, and explosion within the so-called deep tech industry.
▪ Within real estate, late cycle fundamentals have made for a challenging investment environment, but we are
confident in our current value-added and opportunistic managers and continue to monitor the space for
interesting, niche opportunities.
42Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Private Equity and Real Estate:
Neutral
Fundraising May Have Hit An Inflection Point
43
Through the first eight months of 2018, private equity firms in North America and Europe have been raising fewer funds and less
capital overall, with 207 funds raising $192.7 billion. The softer fundraising trend began in 2017, which represented a post-
recession high, even though many data points show today’s fundraising environment is quite GP friendly. With that being said,
fundraising data tends to be lumpy, so while the four-quarter rolling average smooths out those one-off quarters, making the trend
easier to spot (as displayed below), it may be too early to call a longer-term peak in fundraising.
Source: Pitchbook, as of August 31, 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Fund Size Step-Up Hits Highest Level Since Financial Crisis
44
Despite the recent drop in fundraising, funds are closing more quickly than ever before, and fund size is on the rise. During
the current GP-friendly fundraising environment, most newly raised funds are larger than their predecessors. As of August
2018, 69.2% of funds were larger than their predecessor funds in 2018, a drop from the 2017 high of 75.9%, but still the
second highest figure on record.
Given that average and median fund sizes are at all-time highs, these numbers become more significant. For example, if
Blackstone’s new flagship fund hits its $20 billion target, it would represent a 6% increase over its $18.9 billion 2016 vintage
flagship fund. Additionally, Carlyle’s step-up of 42% exactly matches the median step-up size of 1.42x across PE fundraising,
which represents a post-recession high.
Source: Pitchbook, as of August 31, 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Add-Ons Now Account For More Than Half Of All Buyouts
45Source: Pitchbook, as of June 30, 2018
Add-ons continue to trend higher and now represent more than 50% of all buyouts. Add-ons can provide opportunities for PE
firms to acquire companies at lower multiples, which can allow the sponsor to “blend down” the aggregate acquisition multiple,
enhancing the potential to benefit from multiple expansion when the combined platform is sold or taken public. Add-ons also
provide managers the ability to be creative operationally and create unique business combinations.
From a performance standpoint, portfolio companies with add-ons are typically held longer than those without, providing more
time for the GP to increase the total investment multiple; however, add-on funds also historically outperform on an IRR basis.
36.3% of add-on funds beat the top-quartile hurdle rate, while just 10.0% of funds fell into the bottom-quartile, indicating that
funds that employ the buy-and-build strategy have shown the ability to generate superior returns.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Long-Term Drop in IPOs; Short-Term Uptick in Underperformers
46
Source: WSJ, Jay Ritter, Dealogic; The Carlyle Group, Mauboussin, Michael J., Dan Callahan, CFA, and Darius Majd. The Incredible Shrinking Universe of Stocks: The
Causes and Consequences of Fewer US Equities. Report. Global Financial Strategies, Credit Suisse. March 22, 2017; PitchBook 2016 Annual U.S. PE Breakdown
Despite the longer-term trend of a drop in IPOs, the market has witnessed a recent uptick, particularly by unprofitable companies.
Through the first three quarters of 2018, 80% of US-listed IPO’s involve companies that lost money in the 12 months leading up
to their debut. Furthermore, these company’s stock prices have risen 36% on average from their IPO price through the last week
of September. For more comparative purposes, IPO stocks with earnings have produced a 32% return and the S&P 500 is up
9% over the same period.
Helping explain investor appetite is that the number of public companies has been in historic decline. Over the past 20 years, the
number of public companies in the US has declined by half. In the late 1990s, roughly 500 IPOs occurred each year, on average.
Over the past five years, the average has been 130, a decline of nearly 75%. The 27% annualized growth in global private equity
assets under management over the past 20 years has allowed more companies to avail themselves of private capital. However,
the actual percentage of unprofitable tech issuers is a bit lower in 2018 than in 2000, with the difference largely made up by a
surge in biotech listings. Additionally, the average VC-backed company is much older at IPO in 2018 than it was in 2000,
suggesting more maturity and a greater likelihood of working its way out of troubles.
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
% of US-listed IPOs That Lost Money in the
12 Months Leading Up To Their Offering
Marketplace Trend: The Rise of the Chinese Consumer
47Source: China Ministry of CommerceAthena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Athena continues to believe there is a compelling investment opportunity in China. The highest growth sectors within China’s
still developing economy are the consumer-oriented sectors, aligning with the changing lifestyle and growing needs of its massive
middle class demographic, and the country’s rapid urbanization.
During 2017, while China’s GDP registered 6.9%, the service sector expanded by 8.2% year-over-year, and on the expenditure side,
consumption accounted for 58.8% of GDP, with retail sales rising 10.2%. Within retail sales, online sales increased 32.0% year
over year, pushing ecommerce retail sales past $1 trillion for the first time which is more than double that in the US, the next largest
ecommerce market. Furthermore, online retail sales in China reached over $701 billion during the 1H18, up by 29.3% year-on-
year.
0%
10%
20%
30%
40%
50%
60%
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
2014 2015 2016 2017
Online Retail Sales Growth in China
Sales in Trillion of Yuan Year-over-Year % Growth
Marketplace Trend: Robust Healthcare M&A Activity
48Source: Dealogic, AVCJ, Bain CapitalAthena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
The healthcare industry continues to transform post the great financial crisis, which, among others things, highlighted
unsustainable spending growth. Regulatory reform, specifically with the ACA, provided a new framework for nearly all sector
participants and various trends have emerged across every sector of the industry including investments in IT
infrastructure/innovation and data availability, the rise of consumerism, and a payment model transformation towards value-based
care. Consequently, the industry has witnessed a large influx of capital and an increase in company formation, resulting in
accelerated M&A activity, particularly up market.
Corporate M&A jumped across healthcare sectors in 2017, particularly in terms of the number of deals, and reached a total value
of $332 billion, approaching the record levels seen in 2014 and 2015. Even with valuations at or near all-time highs, it is
expected that companies continue to rely on M&A as a key catalyst of growth going forward.
Marketplace Trend: Deep Tech Dominating the Startup World
49Source: Global Startup Ecosystem Report 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Global venture capital investments in startups hit a decade high in 2017, with over $140 billion invested. Total value creation of
the global startup economy from 2015 to 2017 reached $2.3 trillion, a 25.6% increase from the 2014 to 2016 period. These
numbers have been driven by the rise of Deep Tech - companies founded on a scientific discovery or meaningful engineering
innovation, e.g. artificial intelligence, machine leaning, robotics, and distributed ledgers.
Underneath this continued growth, fundamental shifts are occurring. The types of companies that fueled the first and second
generation of global startup ecosystems, e.g. social media apps, digital media, and other pure internet companies, are declining.
Meanwhile, the subsectors that saw the most growth in early stage funding deals over the last five years include advanced
manufacturing and robotics (189.4%), agriculture tech and new food (171%), blockchain (162%), and artificial intelligence, big
data and analytics (77.5%).
In the chart below, there is a similar story in the performance of tech companies that went public from 2015-2017. New era
subsectors have outperformed more mature sub-sectors, as measured by revenue growth following their IPO.
Private Real Estate: Slowing Growth, Focus on Income
50Source: J.P. Morgan Commercial Real Estate Update, September 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Real estate fundamentals of rental rate growth and occupancy gains remain positive overall but have slowed over recent years
as occupancy reaches stabilized levels. Still, real estate valuations continue to climb and are well above the previous cycle’s
peak. But as shown in the bottom chart, income growth is now the primary driver of returns as appreciation has plateaued.
Pushing further income growth in properties will be key to mitigating the impact of rising interest rates.
Appendix:
Supporting Data
51
Asset Returns Table Lite
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Data Source: Bloomberg
Equity and bond indices are total returns; commodities and currencies are price return. All time periods >1 year are annualized
^Hedge Fund Indexes Source: HFRI Index (reported monthly). For intra-month periods, best fit HFRX Indexes are used as an
estimate (reported daily with 2-day lag).
*Case/Shiller returns through 07/31/2018 due to data lag.
**US Trade-Weighted Dollar returns as of 10/12/2018.
US Equities10/18/18
MTD
10/18/18
YTD3Q18 1-YR 3-YR 5-YR International Equities
10/18/18
MTD
10/18/18
YTD3Q18 1-YR 3-YR 5-YR
S&P 500 TR -4.9% 5.1% 7.7% 10.2% 13.1% 11.9% MSCI AC World TR (USD) -5.6% -1.6% 4.4% 2.2% 9.4% 7.2%
Nasdaq TR -7.0% 9.3% 7.4% 14.2% 16.7% 15.3% MSCI AC World ex US TR (USD) -6.3% -8.9% 0.8% -6.2% 5.5% 2.5%
Russell 3000 TR -5.3% 4.7% 7.1% 9.5% 12.8% 11.4% MSCI EAFE TR (USD) -6.1% -7.0% 1.4% -4.4% 5.1% 3.0%
Russell 3000 Growth TR -6.8% 9.0% 8.9% 14.7% 15.5% 13.8% MSCI Europe TR (USD) -6.6% -8.5% 0.8% -7.0% 3.6% 2.1%
Russell 3000 Value TR -3.8% 0.2% 5.4% 4.2% 10.0% 8.9% MSCI Japan TR (USD) -4.9% -3.2% 3.8% 2.0% 8.0% 5.8%
Russell 2000 TR -8.0% 2.6% 3.6% 5.0% 11.8% 8.4% MSCI AC Asia Ex Japan TR (USD) -9.3% -14.9% -1.5% -11.8% 6.7% 3.9%
Russell Microcap TR -7.6% 3.2% 0.8% 4.3% 11.2% 8.0% MSCI Emerging Markets TR (USD) -7.3% -14.2% -1.0% -11.5% 6.8% 1.3%
DJ Dividend Select TR -2.7% 1.3% 3.1% 6.1% 12.3% 11.1% MSCI Frontier Markets TR (USD) -3.8% -15.9% -1.9% -12.3% 3.5% 1.7%
S&P 500 Equity Sectors10/18/18
MTD
10/18/18
YTD3Q18 1-YR 3-YR 5-YR Real Assets & Currencies
10/18/18
MTD
10/18/18
YTD3Q18 1-YR 3-YR 5-YR
Consumer Staples Sector -0.8% -4.1% 5.7% 1.3% 5.5% 8.1% Bloomberg Commodity TR 0.8% -1.3% -2.0% 2.3% -0.6% -7.3%
Healthcare Sector -2.9% 13.3% 14.5% 12.8% 11.8% 13.8% Bloomberg Agriculture TR 5.6% -5.9% -5.4% -7.2% -6.2% -9.3%
Consumer Discretionary Sector -8.7% 10.1% 8.2% 19.5% 12.9% 13.4% WTI Crude Oil -6.3% 13.6% -1.2% 31.9% 13.3% -7.4%
Utilities Sector 2.0% 4.8% 2.4% 2.6% 10.1% 10.9% Gold 2.8% -5.9% -4.8% -4.3% 1.4% -1.4%
Technology Sector -7.0% 12.2% 8.8% 18.1% 22.1% 19.8% Copper -2.1% -16.8% -5.4% -13.6% 4.5% -3.6%
Industrial Sector -6.3% -1.7% 10.0% 2.9% 12.9% 10.7% US Trade-Weighted Dollar** 0.5% 6.2% 1.3% 5.7% 2.2% 4.8%
Materials Sector -7.7% -10.2% 0.4% -6.0% 8.8% 6.3% Japanese Yen (% chg vs. USD) 1.3% 0.5% -2.6% 0.7% 2.1% -2.7%
Energy Sector -4.7% 2.4% 0.6% 9.5% 4.6% -0.5% Euro (% chg vs. USD) -1.3% -4.6% -0.7% -2.8% 0.3% -3.5%
Financials Sector -3.6% -3.6% 4.4% 2.9% 13.8% 11.4% Chinese Yuan (% chg vs. USD) -1.0% -6.1% -3.6% -4.8% -2.9% -2.5%
Real Estate Sector -3.4% -1.8% 0.9% -0.4% 3.8% 5.8% Alerian MLP TR -1.4% 4.4% 6.6% 6.9% -0.4% -3.2%
Communications Sector -6.5% 21.3% 12.7% 36.5% 19.1% 13.9% FTSE EPRA/NAREIT Global TR -3.9% -4.6% -0.8% -2.8% 4.3% 4.5%
Bonds10/18/18
MTD
10/18/18
YTD3Q18 1-YR 3-YR 5-YR Hedge Fund Indices^ Sep-18
10/18/18
YTD3Q18 1-YR 3-YR 5-YR
Barclays Aggregate Bond TR -0.7% -2.3% 0.0% -2.0% 0.9% 1.9% Hedge Fund of Funds -0.2% 1.0% 0.3% 0.6% 2.7% 2.6%
3 Month LIBOR TR 0.1% 2.0% 0.7% 2.3% 1.5% 1.1% Equity Hedge -0.5% 1.7% 0.5% 1.8% 5.7% 4.2%
Barclays US T-Bills TR 0.1% 1.4% 0.5% 1.6% 0.9% 0.5% Event-Driven 0.4% 2.8% 0.8% 1.9% 5.5% 3.6%
Barclays TIPS TR -1.1% -1.9% -0.8% -0.7% 1.4% 1.1% Event Driven: Distressed/Restructuring 1.1% 4.3% 1.4% 5.5% 7.0% 3.4%
Barclays Muni Bond TR -0.7% -1.1% -0.2% -1.0% 1.9% 3.4% Global Macro -0.3% -1.8% 0.0% -4.1% -0.4% 0.6%
Barclays 1-10 Muni Blend TR -0.3% -0.3% -0.1% -0.8% 1.2% 2.1% Fixed Income Convertible Arbitrage 0.0% 1.5% 0.7% 1.7% 4.8% 3.8%
Barclays US Treasury TR -0.5% -2.1% -0.6% -2.1% 0.0% 1.2%
Barclays 1-3 US Treasury TR 0.0% 0.3% 0.2% 0.1% 0.3% 0.6%
Barclays 7-10 US Treasury TR -0.7% -3.4% -0.8% -3.6% -0.5% 1.6%
Barclays 25+ US Treasury TR -2.7% -8.6% -3.1% -6.4% -0.3% 4.0% 50% B. Agg / 50% 1-10Yr Muni (FI Taxable) -0.5% -1.3% 0.0% -1.4% 1.1% 2.0%
Barclays MBS TR -0.7% -1.8% -0.1% -1.6% 0.6% 1.8% 60% ACWI / 40% FI Blend (GBB) -3.6% -1.5% 2.6% 0.8% 6.1% 5.1%
Barclays GNMA TR -0.8% -1.7% -0.1% -1.6% 0.5% 1.6% 60% Russell 3000 / 40% FI Blend (DBB) -3.4% 2.3% 4.3% 5.1% 8.1% 7.6%
Barclays High Yield TR -0.9% 1.6% 2.4% 1.7% 7.0% 5.0% 60% ACWI / 40% B. Agg (GBB TE) -3.6% -1.9% 2.6% 0.6% 6.0% 5.1%
JPM EM USD Bond TR -1.3% -4.7% 1.9% -4.6% 4.1% 3.8% 60% Russell 3000 / 40% B. Agg (DBB TE) -3.5% 1.9% 4.3% 4.9% 8.0% 7.6%
3-YR 5-YRBlended Benchmarks10/18/18
MTD
10/18/18
YTD3Q18 1-YR
Asset Returns Table
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Data Source: Bloomberg
Equity and bond indices are total returns; commodities and currencies are price return. All time periods >1 year are annualized
^Hedge Fund Indexes Source: HFRI Index (reported monthly). For intra-month periods, best fit HFRX Indexes are used as an
estimate (reported daily with 2-day lag).
*Case/Shiller returns through 07/31/2018 due to data lag.
**US Trade-Weighted Dollar returns as of 10/12/2018.
US Equities10/18/18
MTD
10/18/18
YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR International Equities
10/18/18
MTD
10/18/18
YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR
S&P 500 TR -4.9% 5.1% 7.7% 3.4% -0.8% 6.6% 21.8% 10.2% 13.1% 11.9% MSCI AC World TR (USD) -5.6% -1.6% 4.4% 0.7% -0.8% 5.9% 24.7% 2.2% 9.4% 7.2%
S&P 500 Growth TR -6.1% 10.1% 9.3% 5.2% 1.9% 6.8% 27.4% 15.0% 15.1% 14.2% MSCI AC World ex US TR (USD) -6.3% -8.9% 0.8% -2.4% -1.1% 5.1% 27.8% -6.2% 5.5% 2.5%
S&P 500 Value TR -3.5% -0.1% 5.9% 1.4% -3.6% 6.3% 15.4% 5.1% 10.6% 9.2% MSCI EAFE TR (USD) -6.1% -7.0% 1.4% -1.0% -1.4% 4.3% 25.7% -4.4% 5.1% 3.0%
S&P 400 Mid-Cap TR -6.6% 0.3% 3.9% 4.3% -0.8% 6.2% 16.2% 5.1% 11.3% 9.5% MSCI EAFE Small Cap TR (USD) -6.5% -8.2% -0.8% -1.4% 0.4% 6.1% 33.5% -3.7% 8.5% 6.2%
Nasdaq TR -7.0% 9.3% 7.4% 6.6% 2.6% 6.6% 29.7% 14.2% 16.7% 15.3% MSCI Europe TR (USD) -6.6% -8.5% 0.8% -1.2% -1.7% 2.6% 26.3% -7.0% 3.6% 2.1%
Nasdaq 100 TR -6.7% 12.2% 8.6% 7.3% 3.2% 7.3% 33.0% 17.6% 18.4% 17.6% MSCI Japan TR (USD) -4.9% -3.2% 3.8% -3.0% 1.1% 8.6% 24.5% 2.0% 8.0% 5.8%
Russell 3000 TR -5.3% 4.7% 7.1% 3.9% -0.6% 6.3% 21.1% 9.5% 12.8% 11.4% MSCI Emerging Markets TR (USD) -7.3% -14.2% -1.0% -7.9% 1.4% 7.6% 37.8% -11.5% 6.8% 1.3%
Russell 3000 Growth TR -6.8% 9.0% 8.9% 5.9% 1.5% 7.6% 29.6% 14.7% 15.5% 13.8% MSCI India TR (USD) -6.2% -15.2% -2.4% -0.7% -6.8% 11.8% 38.9% -9.9% 3.4% 6.2%
Russell 3000 Value TR -3.8% 0.2% 5.4% 1.7% -2.8% 5.1% 13.2% 4.2% 10.0% 8.9% MSCI Russia TR (USD) -4.2% 5.2% 6.6% -5.8% 9.4% 4.5% 6.1% 8.3% 14.4% -1.5%
Russell 1000 TR -5.1% 4.8% 7.4% 3.6% -0.7% 6.6% 21.7% 9.9% 12.9% 11.6% MSCI China TR (USD) -11.0% -19.1% -7.4% -3.5% 1.7% 7.7% 54.4% -17.3% 5.8% 4.9%
Russell 2000 TR -8.0% 2.6% 3.6% 7.8% -0.1% 3.3% 14.6% 5.0% 11.8% 8.4% MSCI Frontier Markets TR (USD) -3.8% -15.9% -1.9% -15.3% 5.1% 5.6% 31.8% -12.3% 3.5% 1.7%
Russell Microcap TR -7.6% 3.2% 0.8% 10.0% 0.8% 1.8% 13.2% 4.3% 11.2% 8.0% MSCI Brazil TR (USD) 13.7% 0.0% 6.2% -26.4% 12.5% -1.9% 24.5% -4.6% 22.7% -1.4%
DJ Dividend Select TR -2.7% 1.3% 3.1% 3.7% -2.5% 6.2% 15.4% 6.1% 12.3% 11.1% 50% B. Agg / 50% 1-10Yr Muni (FI Taxable) -0.5% -1.3% 0.0% 0.3% -1.1% 0.1% 3.5% -1.4% 1.1% 2.0%
S&P 500 Equity Sectors10/18/18
MTD
10/18/18
YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR Hedge Fund Indexes^ Sep-18
10/18/18
YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR
Consumer Staples Sector -0.8% -4.1% 5.7% -1.5% -7.1% 6.5% 13.5% 1.3% 5.5% 8.1% Fund Weighted Composite -0.3% 1.4% 0.6% 0.9% 0.0% 2.6% 8.6% 1.1% 4.2% 3.4%
Healthcare Sector -2.9% 13.3% 14.5% 3.1% -1.2% 1.5% 22.1% 12.8% 11.8% 13.8% Equity Hedge -0.5% 1.7% 0.5% 0.9% 0.3% 3.4% 13.3% 1.8% 5.7% 4.2%
Consumer Discretionary Sector -8.7% 10.1% 8.2% 8.2% 3.1% 9.9% 23.0% 19.5% 12.9% 13.4% Equity Market Neutral 0.0% 1.5% 0.7% 0.1% 0.8% 2.0% 4.9% 2.0% 3.2% 3.4%
Utilities Sector 2.0% 4.8% 2.4% 3.7% -3.3% 0.2% 12.1% 2.6% 10.1% 10.9% Event-Driven 0.4% 2.8% 0.8% 1.9% 0.1% 1.9% 7.6% 1.9% 5.5% 3.6%
Technology Sector -7.0% 12.2% 8.8% 7.1% 3.5% 9.0% 38.8% 18.1% 22.1% 19.8% Event Driven: Distressed/Restructuring 1.1% 4.3% 1.4% 2.6% 0.3% 1.6% 6.3% 5.5% 7.0% 3.4%
Industrial Sector -6.3% -1.7% 10.0% -3.2% -1.6% 6.0% 21.0% 2.9% 12.9% 10.7% Global Macro -0.3% -1.8% 0.0% -0.2% -1.6% 2.4% 2.2% -4.1% -0.4% 0.6%
Materials Sector -7.7% -10.2% 0.4% 2.6% -5.5% 6.9% 23.8% -6.0% 8.8% 6.3% Fixed Income Convertible Arbitrage 0.0% 1.5% 0.7% 0.0% 0.8% 1.3% 5.9% 1.7% 4.8% 3.8%
Energy Sector -4.7% 2.4% 0.6% 13.5% -5.9% 6.0% -1.0% 9.5% 4.6% -0.5% Short Selling N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Financials Sector -3.6% -3.6% 4.4% -3.2% -1.0% 8.6% 22.1% 2.9% 13.8% 11.4% Hedge Fund of Funds -0.2% 1.0% 0.3% 0.4% 0.3% 2.1% 7.8% 0.6% 2.7% 2.6%
Real Estate Sector -3.4% -1.8% 0.9% 6.1% -5.0% 3.2% 10.8% -0.4% 3.8% 5.8%
Communications Sector -6.5% 21.3% 12.7% 2.9% 11.7% 13.2% 27.1% 36.5% 19.1% 13.9%
Bonds10/18/18
MTD
10/18/18
YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR Real Assets & Currencies
10/18/18
MTD
10/18/18
YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR
Barclays Aggregate Bond TR -0.7% -2.3% 0.0% -0.2% -1.5% 0.4% 3.5% -2.0% 0.9% 1.9% Case/Shiller Housing Index* 0.3% 4.6% N/A 2.2% 2.0% 0.6% 6.3% 5.9% 5.5% 5.7%
3 Month LIBOR TR 0.1% 2.0% 0.7% 0.8% 0.4% 0.3% 1.4% 2.3% 1.5% 1.1% Bloomberg Commodity TR 0.8% -1.3% -2.0% 1.2% -1.2% 4.7% 1.7% 2.3% -0.6% -7.3%
Barclays US T-Bills TR 0.1% 1.4% 0.5% 0.5% 0.3% 0.2% 0.8% 1.6% 0.9% 0.5% Bloomberg Agriculture TR 5.6% -5.9% -5.4% -6.7% 0.9% -2.0% -11.0% -7.2% -6.2% -9.3%
Barclays TIPS TR -1.1% -1.9% -0.8% 0.8% -0.8% 1.3% 3.0% -0.7% 1.4% 1.1% Gold 2.8% -5.9% -4.8% -5.4% 1.7% 1.8% 13.1% -4.3% 1.4% -1.4%
Barclays Muni Bond TR -0.7% -1.1% -0.2% 0.9% -1.1% 0.7% 5.4% -1.0% 1.9% 3.4% WTI Crude Oil -6.3% 13.6% -1.2% 15.2% 6.6% 16.9% 12.5% 31.9% 13.3% -7.4%
Barclays BAA Muni TR -0.9% -0.3% 0.2% 1.4% -1.0% 1.4% 8.7% 0.3% 3.5% 5.4% Copper -2.1% -16.8% -5.4% -1.2% -9.0% 11.7% 31.7% -13.6% 4.5% -3.6%
Barclays 1-10 Muni Blend TR -0.3% -0.3% -0.1% 0.8% -0.7% -0.2% 3.5% -0.8% 1.2% 2.1% US Trade-Weighted Dollar** 0.5% 6.2% 1.3% 5.6% -1.3% -0.2% -7.0% 5.7% 2.2% 4.8%
Barclays US Treasury TR -0.5% -2.1% -0.6% 0.1% -1.1% 0.0% 2.3% -2.1% 0.0% 1.2% Chinese Yuan (% chg vs. USD) -1.0% -6.1% -3.6% -5.0% 3.5% 1.9% 6.7% -4.8% -2.9% -2.5%
Barclays 1-3 US Treasury TR 0.0% 0.3% 0.2% 0.2% -0.2% -0.3% 0.4% 0.1% 0.3% 0.6% Japanese Yen (% chg vs. USD) 1.3% 0.5% -2.6% -4.0% 6.0% -0.1% 3.8% 0.7% 2.1% -2.7%
Barclays 7-10 US Treasury TR -0.7% -3.4% -0.8% -0.1% -1.9% -0.3% 2.6% -3.6% -0.5% 1.6% Euro (% chg vs. USD) -1.3% -4.6% -0.7% -5.2% 2.7% 1.6% 14.1% -2.8% 0.3% -3.5%
Barclays 25+ US Treasury TR -2.7% -8.6% -3.1% 0.5% -3.5% 2.7% 9.3% -6.4% -0.3% 4.0% British Pound (% chg vs. USD) -0.1% -3.7% -1.3% -5.8% 3.7% 0.9% 9.5% -1.4% -5.5% -4.2%
Barclays MBS TR -0.7% -1.8% -0.1% 0.2% -1.2% 0.2% 2.5% -1.6% 0.6% 1.8% Swiss Franc (% chg vs. USD) -1.4% -2.1% 0.9% -3.7% 2.2% -0.6% 4.5% -1.4% -1.4% -2.0%
Barclays GNMA TR -0.8% -1.7% -0.1% 0.4% -1.3% 0.0% 1.9% -1.6% 0.5% 1.6% Alerian MLP TR -1.4% 4.4% 6.6% 11.8% -11.1% -0.9% -6.5% 6.9% -0.4% -3.2%
Barclays High Yield TR -0.9% 1.6% 2.4% 1.0% -0.9% 0.5% 7.5% 1.7% 7.0% 5.0% FTSE EPRA/NAREIT Global TR -3.9% -4.6% -0.8% 3.5% -3.3% 3.8% 15.0% -2.8% 4.3% 4.5%
JPM EM USD Bond TR -1.3% -4.7% 1.9% -3.2% -2.1% 0.5% 9.3% -4.6% 4.1% 3.8% 50% Gold / 50% TIPS 0.8% -3.9% -2.8% -2.3% 0.4% 1.5% 8.0% -2.5% 1.4% -0.2%
Disclosures and Disclaimers
Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.
Please see important disclosures and disclaimers at the end of this presentation.
Athena Capital Advisors LLC (“Athena”) prepared this document solely for the person to whom it has been given for informational and discussion purposes only. This
document and the information contained herein are strictly confidential and may not be reproduced, distributed or communicated to any third party without the express
written approval of Athena. Athena reserves the right at any time to amend or change the contents of this document without notice. The information and opinions herein
reflect the views and opinions of Athena as of the date hereof and not as of any future date. All forecasts are speculative, subject to change at any time and may not come to
pass due to economic and market conditions.
This document and the information contained shall not constitute an offer, solicitation or recommendation to sell or an offer to purchase any securities, investment products or
investment advisory services. The material contained herein has not been based on a consideration of any individual client circumstances and is not investment advice, or
should it be construed in any way as tax, accounting, legal or regulatory advice. An investment with Athena involves substantial risks and there can be no assurance that the
investment objectives described herein will be achieved.
Athena believes that the research used in this presentation is based on accurate sources (including but not limited to economic and market data from various government and
private sources and reputable external databases), but we have not independently verified those sources, and we therefore do not guarantee their accuracy. The opinions,
projections and estimates contained herein reflect the views of Athena only and should not be construed as absolute statements and are subject to change without notice.
In considering the performance information contained herein, recipients should bear in mind that past and present performance is not necessarily indicative of future results,
nor does it ensure that investors will not incur a loss with respect to their investment. Current performance may be higher or lower than the performance data quoted. Certain
performance numbers in this presentation may be unaudited, preliminary and based on estimates. Final reported and audited performance numbers may vary considerably
from these estimates due to many factors. Estimated gross and net performance numbers could change materially as final performance figures and underlying investment
costs and fees are determined and allocated. Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of terms such
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thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or actual performance may differ materially from those reflected or
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Benchmarks are shown for illustrative purposes only and are provided for the purpose of making general market data available as a point of reference only. Such benchmarks
may not be available for direct investment, may be unmanaged, assume reinvestment of income, do not reflect the impact of any trading commissions and costs,
management or performance fees and have limitations when used for comparison or other purposes because they, among other reasons, may have different trading strategy,
volatility, credit, or other material characteristics (such as limitations on the number and types of securities or instruments). No representation is made that any benchmark or
index is an appropriate measure for comparison.
Historical index performance results for all historical benchmark indices do not reflect the deduction of transaction and custodial charges, or the deduction of an investment
manager fee, the incurrence of which would have the effect of decreasing indicated historical performance results. The historical performance results for all indices are
provided exclusively for comparison purposes only, so as to provide general comparative information to assist in determining whether Athena’s performance meets, or
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directly to any such comparative benchmark index.
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consequences with respect to any investment made with or through Athena.
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