Q4 2016 Market ChartBook€¦ · Markets at a Glance As of December 31, 2016 Source: Morningstar Direct; Russell, MSCI, Barclays, Citigroup, and Dow Jones benchmarks. Performance

rwbaird.com

Q4 2016 Market ChartBook

December 31, 2016

Baird Private Wealth Management

Wealth Management | Capital Markets – Investment Banking | Private Equity | Asset Management

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Table of Contents

03 19 26 35

Economy & Market Domestic Equity International Equity Fixed Income

Market Highlights

The Markets at a Glance

S&P 500 Index

Economic Growth

Inflation Watch

Jobs Market

Housing Market

Consumer Health

Corporate Profitability

Market Volatility

Commodity Markets

Energy Markets

Mutual Fund and ETF Flows

Fund Flow Heat Map

U.S Equity Snapshot

Asset Class Performance

U.S. Sector Performance

Investment Style Leadership

Historical Market Valuations

Historical Sector Valuations

Mutual Fund Performance

Global Market Performance

Intl. Equity Performance

Country Performance

Sector Performance


Global Market Valuations

Country Valuations Ranges

Bond Market Snapshot

Maturity/Credit Performance

Yield and Volatility

U.S. Treasury Bonds

Corporate Bond Yields

Bonds Spreads

Mutual Fund Performance

Economy and Markets


Robert W. Baird & Co. Member SIPC.

Q4 2016 Market Highlights

Economy and Market

Economic Growth: The US economy has continued

to steam ahead with final revisions for Q3 GDP

coming in at 3.5%, up from Q2’s 1.4% and Q1 at

0.8%. Growth has been supported by strong

consumer spending, business fixed investments and

a pick up in exports. This quarter’s GDP is the highest

growth since Q3 2014. With positive, pro-growth

sentiment put forth by President elect Trump,

economists have been optimistic about future growth

of the US economy.

Economic Health: The labor market continued to

tighten, adding an average of 165,000 jobs for the

previous three months through November. The gains

have helped to reduce the national unemployment

rate to 4.6%. Jobless claims extended the trend of

below 300,000, a streak the US has not seen since

1973.

Inflation. Under continued spotlight, core consumer

prices, which exclude the effects of food and energy,

climbed 2.1% y/o/y through November. When

including the effects of food and energy, headline

inflation experienced an increase during the quarter to

1.7%, a slight jump from the 1.6% rate recorded

through October.

Fed Speak. Given the strong sentiment and pace of

the US economy, the Fed elected to hike the federal

funds rate by 25bps. More attention, however, was

given to the pace of expected hikes in 2017. The

FOMC now thinks it will hike rates three times next

year, versus a previously estimated two. It will be

interesting to see how the Fed balances the value of

the USD and hawkish rhetoric given the divergence of

global monetary policy around the world.

Domestic Equity

At a Glance: The S&P 500 generated a strong 3.8%

return during the quarter. Investors have adopted the

pro-growth, reflationary mindset and equity markets

have benefited largely from this.

Market Cap and Style: Small and micro cap names

outperformed larger market cap stocks while value

has come back in favor relative to its growth style

counterpart.

Sector: Winning sectors for the quarter included

financials (21.1%), energy (7.3%), and industrials

(7.2%). Positive returns were largely supported by

stable oil prices, hopes of deregulation and future

fiscal spending on infrastructure. Losers for the

quarter included consumer staples (-2.0%) and

healthcare (-4.0%).

International Equity

At a Glance: International markets suffered losses of

-0.71% for the quarter relative to domestic equities.

Russian equities saw the strongest returns on the

international front, up 18.72% in Q4. Emerging

markets have followed suit with developed markets

down 4.08% for Q4. Weak performance in emerging

markets was led by Mexico (-7.8%), China (-7.1%),

and South Africa (-4.0%). Emerging markets have

felt some pressure on local currencies and the

increased support of populism/protectionism seen in

the US as well as Italy will have a negative effect on

global trade for these countries. Close attention will

be paid to the elections in France, Germany and the

Netherlands this year.

Fixed Income

At a Glance: Given the Fed’s decision to raise rates,

pro-growth sentiment and subsequent rotation into

equities, we have seen rates rise in a very rapid

fashion. The 10-year Treasury yield increased from

1.63% to start the quarter to 2.45% at the finish. In all,

the Barclays Aggregate Bond Index produced a loss

of -3.0%.

Sector: In the taxable bond market, investors again

preferred high yielding bonds over high quality. High

yield bonds and leveraged bank loans were among

the strongest areas of the fixed income market. US

Treasuries and government related securities lagged

primarily due to the negative price action from rates

rising.

Maturity and Credit Quality: Shorter maturity bonds

finished higher while longer maturity bonds were

largely negative. Among credit, high yield outpaced

high quality.

Yield Curve: Treasury yields increased this past

quarter, leading to a steeper yield curve. This

steepening, largely seen in the belly of the curve

resulted in a slope of 125 basis points, measured by

the 2s/10s spread.

Municipal Bonds: The broad municipal bond market

declined by 362 basis points this past quarter.

Concerns over an increase in supply if Trump’s

infrastructure plans come to fruition and a decrease in

demand if Trump’s tax policy proposals were to make

municipal bond’s after-tax returns less attractive has

weighed on the asset class.


Markets at a Glance

As of December 31, 2016

Source: Morningstar Direct; Russell, MSCI, Barclays, Citigroup, and Dow Jones benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.

Asset Class Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark

U.S. Stocks

Large Cap Value 6.7 17.3 17.3 8.6 14.8 5.7 (3.8) 13.5 32.5 Russell 1000® Value

Large Cap Grow th 1.0 7.1 7.1 8.6 14.5 8.3 5.7 13.0 33.5 Russell 1000® Growth

Mid Cap 3.2 13.8 13.8 7.9 14.7 7.9 (2.4) 13.2 34.8 Russell Midcap®

Small Cap 8.8 21.3 21.3 6.7 14.5 7.1 (4.4) 4.9 38.8 Russell 2000®

International Stocks

Developed Markets (0.7) 1.0 1.0 (1.6) 6.5 0.7 (0.8) (4.9) 22.8 MSCI EAFE (Net)

Bonds

Short-Term Taxable (0.4) 1.3 1.3 0.9 0.9 2.4 0.7 0.8 0.6 BBgBarc 1-3 Yr Govt/Credit

Intermediate-Term Taxable (2.1) 2.1 2.1 2.1 1.8 3.8 1.1 3.1 (0.9) BBgBarc Intermed. Govt/Credit

Short-Term Municipal (0.5) 0.2 0.2 0.6 0.8 2.1 0.8 0.7 1.0 BBgBarc 1-3 Yr Municipal

Intermediate-Term Municipal (3.7) (0.5) (0.5) 2.9 2.4 4.4 3.3 6.1 (1.0) BBgBarc 7 Yr Municipal

Cash

Cash/Cash Equivalents 0.1 0.3 0.3 0.1 0.1 0.7 0.1 0.0 0.1 Citi 3 Month T-bills

Satellite

High Yield 1.9 17.5 17.5 4.7 7.4 7.3 (4.6) 2.5 7.4 BofA/ML High Yield Master II

Real Estate (3.1) 7.6 7.6 11.8 11.1 3.9 2.1 27.2 1.8 DJ US REIT

Commodities 2.7 11.8 11.8 (11.3) (9.0) (5.6) (24.7) (17.0) (9.5) Bloomberg Commodity

Emerging Markets (4.2) 11.2 11.2 (2.6) 1.3 1.8 (14.9) (2.2) (2.6) MSCI Emerging Mkts (Net)

Trailing Returns (%) Annual Returns (%)


1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Ad

just

ed

Clo

sin

g L

eve

lS&P 500 Index


Source: Standard and Poor’s. The S&P 500 Index, computed by the Standard & Poor's Corporation, is a well known gauge of stock market movements determined by the weighted capitalization of the 500 leading U.S. common stocks. Indices are unmanaged and it is not possible to invest directly in an index.

Year-to-Date Performance of the S&P 500 Index

Q1: +1.4% Q2: +2.5% Q3: +3.9% Q4: +3.8%


Economic Growth

As of September 30, 2016

Source: US Department of Commerce: Bureau of Economic Analysis (GDP Growth)

Gross Domestic

Product (GDP)

GDP is a basic measure of

U.S. economic output.

Alternatively, it can be

thought of as the final value

of all goods and services

produced within the U.S.

Positive GDP growth signals

an expanding economy.

GDP is comprised of four

major categories: personal

consumption, private

investment, government

spending and net exports.

US GDP Growth

Contribution to U.S. GDP Growth

-10

-8

-6

-4

-2

0

2

4

6

8

10

Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16

GD

P G

row

th (%

)

-10

-8

-6

-4

-2

0

2

4

6

8


Co

ntr

ibuti

on

to

GD

P G

row

th (%

)

Personal Consumption Private Investment

Govt. Spending Next Exports


Inflation Watch

As of November 30, 2016

Source: Bureau of Labor Statistics; Baird Analysis. CPI figures lag one month.

Consumer Price Index

(CPI)

A common measure of

inflation, Headline CPI tracks

a broad basket of goods and

services relatable to most

consumers. Core CPI

excludes Food and Energy

due to the volatile nature of

those categories and the

distortive effect it can have

on the broader inflation

measure.

Historic CPI Level

-2

0

2

4

6

Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16

Ye

ar-

Ove

r-Y

ear C

hang

e in

CP

I Headline CPI

Core CPI

Components Weight (%) 12-mo Change (%) Components Weight (%) 12-mo Change (%)

Headline CPI 100 1.7 Core CPI 79 2.1

Housing 42 2.9 Food 14 (0.4)

Energy/Transportation 15 0.5 Energy 7 1.1

Food & Beverage 15 (0.4)

Medical Care 8 4.9

Education 7 (0.3)

Recreation 6 0.8

Apparel/Clothing 3 0.1

Other 3 1.8

Headline CPI Core CPI: Headline less Food and Energy


4.6

9.3

0

3

6

9

12

15

18

Nov-06 Nov-08 Nov-10 Nov-12 Nov-14 Nov-16

Un

em

plo

ym

en

t R

ate

(%

)

U-3 Unemployment Rate

U-6 Underemployment Rate

-1,000

-800

-600

-400

-200

0

200

400

600


Ch

an

ge i

n P

ay

roll

(0

00s

)

2.6

0

1

2

3

4


Wa

ge

Grr

ow

th (%

)

62.7

60

63

66

69


Pa

rtic

ipa

tio

n R

ate

(%

)

Jobs Market


Source: US Department of Labor: Bureau of Labor Statistics. Data will lag one month and is subject to revision. Wage growth is calculated quarterly and will lag one quarter.


(CPI)

A common measure of




consumers. Core CPI






measure.

Jobs Gained/Lost Unemployment and Underemployment Rates

Labor Force Participation Wage Growth (y/o/y%)


Housing Market


Source: Standard & Poor’s, US Department of Commerce: Bureau of Economic Analysis.


(CPI)

A common measure of




consumers. Core CPI






measure.

S&P/Case Shiller Home Price Index (20 City) Average Selling Price of New and Existing Homes

Housing Affordability Index Home Starts/Sales

100

120

140

160

180

200

220

240


Ind

ex

Le

ve

l

$125,000

$175,000

$225,000

$275,000

$325,000


Median Price (Exist ing)

Median Price (New Homes)

80

100

120

140

160

180

200

220

240


Ind

ex

Le

ve

l

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Un

its (000s)

New Housing Starts

Existing Home Sales


Consumer Health


Source: Thomas Reuters/University of Michigan, US Department of Commerce: Bureau of Economic Analysis.


(CPI)

A common measure of




consumers. Core CPI






measure.

University of Michigan Consumer Sentiment Survey Consumer Spending Growth (y/o/y%)

Personal Savings Rate Personal Income Per Capita

50

55

60

65

70

75

80

85

90

95

100


Ind

ex L

evel

-4

-2

0

2

4

6

8


Co

ns

um

er

Sp

en

din

g G

row

th (%

)

$32,000

$34,000

$36,000

$38,000

$40,000


0

2

4

6

8

10

12


Pe

rso

na

l S

av

ing

s R

ate

(%

)



Source: BEA, Bloomberg, Standard & Poors, Baird analysis. Past performance is not a guarantee of future results.


Earnings power ultimately

drives long-term changes to

stock prices. These two

charts display how profitable

US corporations are. The

top chart measures earnings

(top line growth) and

revenue (bottom line growth)

of the companies within the

S&P 500 Index. The bottom

chart displays corporate

profitability (after taxes) in

terms of total US GDP

growth.

S&P 500 Earnings Per Share (EPS)

$0

$20

$40

$60

$80

$100

$120

$0

$200

$400

$600

$800

$1,000

$1,200

Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

Earnings Per Sh (right axis)

Revenues Per Sh (left axis)

Corporate Profits (% of GDP)

3%

6%

9%

12%

Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16

Co

rpo

rate

Pro

fits

/G

DP

As of September 30, 2016


Market Volatility

Source: Standard & Poor’s; CBOE; Baird Analysis.

VIX (CBOE

Volatility Index)

The VIX measures the

implied volatility of S&P 500

future options. Simply put, it

measures the expected

volatility of the S&P 500

Index over the next 30 days.

The higher the index, the

higher the expected volatility.

It is also commonly referred

to as the “fear index.”

Historic VIX Level

Quarterly S&P 500 Trading Volatility

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

VIX

Le

ve

l

0%

20%

40%

60%

80%

Q4

20

06

Q1

20

07

Q2

20

07

Q3 2

00

7

Q4

20

07

Q1

20

08

Q2

20

08

Q3 2

00

8

Q4

20

08

Q1

20

09

Q2

20

09

Q3 2

00

9

Q4

20

09

Q1

20

10

Q2

20

10

Q3 2

01

0

Q4 2

01

0

Q1

20

11

Q2

20

11

Q3

20

11

Q4 2

01

1

Q1

20

12

Q2

20

12

Q3

20

12

Q4 2

01

2

Q1

20

13

Q2

20

13

Q3

20

13

Q4 2

01

3

Q1

20

14

Q2

20

14

Q3

20

14

Q4 2

01

4

Q1 2

01

5

Q2

20

15

Q3

20

15

Q4

20

15

Q1 2

01

6

Q2

20

16

Q3

20

16

Q4

20

16

Pe

rce

nt

of T

rad

ing

Da

ys

% of days up/down 2% or more

% of days up/down 1-2%



Commodity Markets


Source: U.S. Dept of Energy; London PM Gold Fix Index; Baird Analysis. “Broad Market” is represented by the Bloomberg Commodity Index, specific commodity types are reported segments of that index. See important disclosures and definitions included with this publication.

Year-to-Date Returns of Various Commodity Types (%)

Oil Prices

$53.72

$0

$20

$40

$60

$80

$100

$120

$140

$160


WTI

Oil

Pri

ce ($/b

)

Gold Prices

11.8

16.3

7.1 6.5

10.3

19.9

15.7

9.7 9.57.8

14.0

2.1

-9.8

-24.1

14.8

-5.6

-30

-20

-10

0

10

20

30

$1,146

$-

$500

$1,000

$1,500

$2,000


Lo

nd

on

PM

Go

ld ($

/oz)


Energy Markets


Source: U.S. Energy Information Administration; Bloomberg; Baird Analysis.

Total U.S. Oil Production (LH) and Rig Count Index (RH) Global Oil Supply and Demand (LH) and Supply Imbalance (RH)

$53.72

$0

$20

$40

$60

$80

$100

$120

$140

$160


WTI

Oil

Pri

ce ($/b

)

0

500

1,000

1,500

2,000

2,500

3,500

4,500

5,500

6,500

7,500

8,500

9,500

10,500


Ba

ke

r H

ug

he

s O

il &

Ga

s R

ig C

ou

nt

To

tal

U.S

. O

il P

rod

uc

tio

n (m

mb

b/d

)

Total Oil Production

Total Active Rig Count

Oil Prices (West Texas Intermediate)

-4

-3

-2

-1

0

1

2

3

4

75

80

85

90

95

100


Su

pp

ly / D

em

an

d Im

bala

nces (

MM

bb

/d)

Glo

bal

Oil

Su

pp

ly a

nd

Dem

an

d (

MM

bb

/d)

Global Over/Under Supply

Global Oil Supply

Global Oil Demand

Un

ders

up

ply

O

vers

up

ply

Natural Gas Prices (Henry Hub)

$3.72

$0

$2

$4

$6

$8

$10

$12

$14

$16


Hen

ry H

ub

Natu

ral G

as P

rice

($/m

mb

tu)


Mutual Fund and ETF Flows

Source: Morningstar Direct; Baird Analysis. Asset classes with less than $25 billion invested were excluded from the analysis.

Annual Fund Flows

The examination of annual

mutual fund and ETF flows

shows the investment

pattern of the average

investor by broad asset

class. For example, in 2008

investors exited stocks when

the markets fell. In 2009,

large amounts of capital

went to fixed income, but

little flowed back to stocks.

Annual Mutual Fund and ETF Flows ($ millions)


2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

Money Market 223,830 340,833 613,001 (290,490) (431,604) (60,745) 23,827 40,622 24,080 52,648 74,458

Municipal Bond 18,502 14,353 12,758 75,969 16,043 (8,574) 54,251 (56,361) 32,748 21,822 47,605

Taxable Bond 55,311 112,649 61,001 333,826 246,664 190,178 329,181 34,920 110,193 29,820 183,970

Allocation 28,899 45,974 (21,999) 6,453 18,527 19,307 29,553 61,961 51,267 (20,669) (43,465)

US Equity 48,344 37,163 709 (33,563) (21,054) (45,395) (41,163) 175,444 127,309 (60,053) (37,718)

International Equity 162,568 174,946 (41,542) 63,246 91,729 19,051 61,056 200,740 153,487 209,444 6,264

Alternative 10,147 11,561 19,820 28,434 24,006 23,172 17,902 49,512 20,076 20,516 3,601

Commodities 8,648 6,542 12,370 36,636 24,972 8,171 11,928 (32,890) (3,317) (1,526) 17,576

Calendar Year Net Flows ($M)

Top 10 In-Flows Trailing 1-Year Top 10 Out-Flows Trailing 1-Year

(as a % of assets) Growth Rate (as a % of assets) Growth Rate

Money Market - Taxable 71.0% Prime Money Market -60.5%

Equity Precious Metals 43.9% Money Market - Tax-Free -32.3%

Managed Futures 40.5% Europe Stock -29.3%

Commodities Precious Metals 34.3% Japan Stock -24.9%

Preferred Stock 29.0% Nontraditional Bond -19.7%

Corporate Bond 21.1% Long-Short Equity -16.1%

Muni California Intermediate 15.4% World Allocation -11.6%

Muni National Interm 15.3% Health -10.2%

Emerging Markets Bond 15.0% Miscellaneous Region -8.8%

Energy Limited Partnership 14.1% Mid-Cap Grow th -7.8%

Biggest % Gainers/Losers by Asset Class


Fund Flow Heat Map

Source: Morningstar Direct; Baird Analysis.


Asset Class 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

US Equity

Large Cap Grow th -1.0% 0.0% -1.2% -2.3% -4.2% -3.1% -3.9% -1.6% -1.8% -1.1% -6.9%

Large Cap Blend 1.2% 2.6% 4.9% -0.9% -0.3% 0.7% 1.8% 6.5% 6.9% -0.5% 2.9%

Large Cap Value 3.9% -0.3% -2.9% -5.2% -0.1% 0.0% 0.5% 5.4% 2.8% -2.6% 1.1%

Mid Cap Grow th 0.4% 5.7% -5.6% -0.5% 0.5% -4.8% -4.3% 2.2% -3.6% -2.2% -7.9%

Mid Cap Blend 4.3% 2.1% -3.7% 4.9% 3.6% -1.4% 2.5% 15.0% 6.2% 5.5% 0.1%

Mid Cap Value 1.8% 1.2% -4.9% -1.4% 0.8% -1.0% -4.8% 8.6% 0.5% -3.8% -2.1%

Small Cap Grow th -1.4% -2.0% -2.1% 4.4% 0.0% -1.0% -3.8% 4.4% -7.4% -3.1% -6.2%

Small Cap Blend 8.6% -2.8% 1.9% 4.6% 3.4% -3.6% -3.0% 10.0% 2.1% 0.5% 4.0%

Small Cap Value 6.2% -2.3% 7.2% 4.2% 7.6% -3.4% -4.6% 4.4% -0.5% -0.1% 4.5%


Internationl Grow th 16.3% 9.3% -2.9% 3.3% 0.3% -2.7% -2.1% 4.4% -0.7% 3.7% -1.9%

International Blend 24.7% 19.9% 0.4% 6.9% 10.5% 5.2% 4.1% 17.8% 15.3% 21.1% 7.0%

International Value 11.8% 10.0% -7.0% -5.2% 4.4% 5.6% 7.5% 10.2% 9.5% 1.0% 0.5%

Emerging Markets 18.1% 19.5% 3.6% 32.6% 27.5% 7.4% 19.2% 9.4% 3.5% -0.3% 5.7%

Global Equity 12.3% 8.8% -4.8% -5.3% -4.2% -5.4% -6.2% 5.2% 2.5% -0.3% -3.8%

Fixed Income

Short-Term Bond -4.9% 2.4% 0.3% 70.3% 28.7% 7.8% 19.2% 12.5% 6.5% -0.8% 4.9%

Intermediate-Term Bond 11.6% 16.1% 2.3% 26.7% 9.8% 5.2% 12.8% -7.5% 4.8% 4.4% 10.0%

High Yield Bond 3.3% 2.7% 3.5% 28.3% 11.3% 12.0% 15.7% 2.0% -5.4% -3.6% 3.6%

Bank Loan 29.5% -7.9% -26.9% 38.3% 78.0% 32.6% 24.0% 93.4% -14.3% -16.5% 2.1%

TIPS -3.1% 6.7% 39.0% 55.5% 10.9% 11.6% 6.1% -23.9% -2.2% 3.8% 11.2%

Short-Term Muni -5.6% 4.6% 27.4% 105.5% 10.2% 4.0% 11.7% 2.2% 7.4% -2.0% 5.5%

Intermediate-Term Muni 7.4% 8.8% 9.7% 22.9% 7.1% 2.0% 14.4% -9.5% 13.4% 12.2% 12.6%

High Yield Muni 25.5% 1.3% -5.7% 27.6% 5.0% -1.5% 22.6% -15.0% 17.1% 5.2% 7.9%

>10% 5% to 10% 3% to 5% 3% to 0% 0% to -3% -3% to -5% -5% to -10% <-10%

Mutual Fund and ETF Net Flow (YoY % Growth)

Domestic Equity



U.S. Stock Market Snapshot

Source: Morningstar Direct. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.


Representative

Last Qtr YTD 1-Year 3-Year 5-Year 10-Year Std. Dev. Max. Loss P/E EPS Gr. Div. Yld. Benchmark

2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 16.0 12.0

Bellwethers

S&P 500 3.8 12.0 12.0 8.9 14.7 7.0 11.1 (8.4) 19.4 5.6 2.3 S&P 500

DJIA 8.7 16.5 16.5 8.7 12.9 7.5 11.0 (9.0) 18.7 (3.7) 2.6 Dow Jones Industrial Avg.

Market Cap

Mega 3.5 10.4 10.4 8.8 14.0 6.3 11.2 (8.5) 18.2 2.7 2.2 Russell Top 50

Large 4.1 11.3 11.3 8.9 14.7 6.8 11.1 (8.6) 19.0 5.3 2.1 Russell Top 200

Mid 3.2 13.8 13.8 7.9 14.7 7.9 12.2 (12.8) 20.7 5.9 1.9 Russell Midcap

Small 8.8 21.3 21.3 6.7 14.5 7.1 15.0 (16.8) 21.7 4.4 1.5 Russell 2000

Micro 10.1 20.4 20.4 5.8 15.6 5.5 15.8 (21.0) 19.1 (2.1) 1.2 Russell Micro Cap

Style

Value 7.2 18.4 18.4 8.6 14.8 5.8 11.5 (10.4) 18.0 2.8 2.5 Russell 3000 Value

Core 4.2 12.7 12.7 8.4 14.7 7.1 11.4 (8.8) 19.6 5.4 2.0 Russell 3000

Grow th 1.2 7.4 7.4 8.3 14.4 8.3 11.8 (8.8) 21.5 9.7 1.5 Russell 3000 Growth

S&P 500 Sectors

Consumer Discretionary 2.3 6.0 6.0 8.6 17.8 9.6 12.9 (8.0) 19.0 11.8 1.6 S&P 500/Cons. Disc.

Consumer Staples (2.0) 5.4 5.4 9.2 12.7 10.1 10.0 (7.5) 20.1 4.6 2.9 S&P 500/Cons. Staples

Energy 7.3 27.4 27.4 (2.5) 3.9 4.3 17.9 (38.7) 29.7 (11.3) 3.5 S&P 500/Energy

Financials 21.1 22.8 22.8 11.7 19.5 (0.4) 14.9 (15.2) 14.2 12.1 1.9 S&P 500/Financials

Health Care (4.0) (2.7) (2.7) 9.2 16.8 9.6 11.6 (13.1) 17.6 8.2 1.8 S&P 500/Health Care

Industrials 7.2 18.9 18.9 8.4 15.6 7.8 12.7 (11.3) 18.5 3.5 2.3 S&P 500/Industrials

Information Technology 1.2 13.9 13.9 13.2 16.4 9.9 14.6 (9.4) 19.5 9.4 1.7 S&P 500/Info. Tech.

Materials 4.7 16.7 16.7 4.6 10.5 6.1 17.2 (22.7) 17.3 5.2 2.4 S&P 500/Materials

Telecomm 4.8 23.5 23.5 9.6 11.6 6.4 13.3 (12.6) 15.4 45.0 4.8 S&P 500/Telecomm

Utilities 0.1 16.3 16.3 12.6 10.4 7.0 13.2 (12.8) 16.7 5.9 4.4 S&P 500/Utilities

Trailing Returns (%) 5-Year Risk Stats Other Metrics


Domestic Asset Class Performance

Source: Morningstar Direct. Asset classes are represented by the following benchmarks: S&P 500 (Large Cap), Russell Midcap® (Mid Cap), Russell 2000® (Small Cap), Russell 1000 Value® (Large Value), Russell 1000 Growth® (Large Growth), Russell Midcap Value® (Mid Value), Russell Midcap Growth® (Mid Growth), Russell 2000 Value® (Small Value), and Russell 2000 Growth® (Small Growth). See important disclosures and definitions included with this publication.


Performance by Market Cap and Style

3.83.2

8.8

6.7

1.0

5.5

0.5

14.1

3.6

12.0

13.8

21.3

17.3

7.1

20.0

7.3

31.7

11.3

0

4

8

12

16

20

24

28

32

36

Large Cap Mid Cap Small Cap LargeValue

LargeGrowth

MidValue

MidGrowth

SmallValue

SmallGrowth

Re

turn

(%

)

Last Quarter Year-to-Date


-2.7

5.4

6.0

12.0

13.9

16.3

16.7

18.9

22.8

23.5

27.4

-5 0 5 10 15 20 25 30

Health Care

Cons. Staples

Cons. Disc.

S&P 500

Info. Tech.

Utilities

Materials

Industrials

Financials

Telecomm

Energy

Return (%)

-4.0

-2.0

0.1

1.2

2.3

3.8

4.7

4.8

7.2

7.3

21.1

-10 -5 0 5 10 15 20 25

Health Care

Cons. Staples

Utilities

Info. Tech.

Cons. Disc.

S&P 500

Materials

Telecomm

Industrials

Energy

Financials

Return (%)

Domestic Asset Class Performance



S&P 500 Index: Performance by Sector (Latest Quarter)

S&P 500 Index: Performance by Sector (YTD)

P/E Ratio

(TTM)

P/E Ratio

(NTM)

Dividend

Yield (%)

EPS Growth

(%)

S&P 500 Index 19.9 19.4 2.3 8.6

Consumer Discretionary 19.7 20.0 1.6 11.9

Consumer Staples 22.6 20.6 2.9 8.1

Energy 0.0 42.4 3.5 8.1

Financials 15.6 15.2 1.9 7.0

Health Care 21.1 19.3 1.8 9.7

Industrials 20.9 19.5 2.3 9.2

Info. Tech. 20.7 19.9 1.7 9.8

Materials 20.8 20.4 2.4 7.0

Telecomm 14.5 17.2 4.8 3.6

Utilities 20.3 16.5 4.4 5.1

S&P 500 Sector Statistics





Large Cap vs. Small Cap (Rolling 12-Month Periods)

-20

-15

-10

-5

0

5

10

15

20


12-M

o P

erf

orm

an

ce

Dif

fere

nti

al

(%)

Large Cap Outperforms

Small Cap Outperforms

Value vs. Growth (Rolling 12-Month Periods)

-20

-15

-10

-5

0

5

10

15

20


12

-Mo

Pe

rfo

rma

nc

e D

iffe

ren

tia

l (%

)

Defensive vs. Cyclical (Rolling 12-Month Periods)

-40

-30

-20

-10

0

10

20

30

40


12

-Mo

Perf

orm

an

ce D

iffe

ren

tial (%

)

Value Outperforms

Growth Outperforms

Defensive Outperforms

Cyclical Outperforms


19.9

5

10

15

20

25


P/E

Rati

o (TT

M)

S&P 500 P/E 10-Year Average P/E

Average +1 Std. Dev. Average -1 Std. Dev.

21.2

5

10

15

20

25


P/E

Ra

tio

(T

TM

)

Mid Cap 10-Year Average P/E


20.2

5

10

15

20

25


P/E

Rati

o (

TT

M)

Small Cap 10-Year Average P/E


Historical Market Cap Valuations



S&P 500 Valuation History

Mid Cap Valuations History Small Cap Valuation History


Historical Sector Valuation and Growth Ranges



S&P 500 Sectors: 10-Year P/E Valuation Range

S&P 500 Sectors: 10-Year Earnings Growth Range

20.0 20.6

42.4

15.2

19.3 19.4 19.9 20.4

17.2 16.5

0

5

10

15

20

25

30

35

40

45

50

Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities

P/E

Ra

tio

10-Year Low

10-Year High

Current

Average

LEGEND

11.9

8.1 8.1

7.0

9.79.2

9.8

7.0

3.6

5.1

0

2

4

6

8

10

12

14

16

18

Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materia ls Telecomm Utilities

LT

Ea

rnin

gs

Gro

wth


Mutual Fund Over/Under Performance (Equity Funds)

Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of November 2016: 338 for Large Growth, 259 for Large Value, 177 for Mid Growth, 91 for Mid Value, 182 for Small Growth, 82 for Small Value, and 124 for International. Source: Morningstar Direct; S&P 500 and Russell benchmarks; Baird Analysis. See important disclosures and definitions included with this publication.

Mutual Fund

Performance

Active investment managers

often have a primary

objective of outperforming a

relevant market benchmark

based on the fund’s

investment style. In certain

periods, active managers

can find it easier or more

difficult to outperform.

This chart examines seven

main assets classes,

detailing what percentage of

mutual fund managers over-

or under-performed in a

given period. This provides

useful context when

assessing mutual funds that

you may own.

Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year)


20% 25%38%

45% 50%

12%

48%

0%

25%

50%

75%

100%

Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l

Pe

rce

nt o

f T

ota

l

% Underperform

% Outperform

Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)

20% 16%23%

13%

43% 38% 37%

0%

25%

50%

75%

100%

Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l

Pe

rce

nt o

f T

ota

l

% Underperform

% Outperform




Global Market Performance

Source: Standards & Poor’s (S&P 500); MSCI benchmarks (country returns). All performance is measured in USD. See important disclosures and definitions included with this publication.


Year-to-Date Performance

S&P 500

12.0%

Canada

25.5%

Mexico

--9.0%

UK

-0.0%

France

6.0%

Spain

-0.5%

Germany

3.5%

Brazil

66.8%

Japan

2.7%

Hong Kong

2.3%

China

1.1%

India

-1.4%

Australia

11.7%

South Africa

18.4%

Europe

0.2% Russia

55.9%


International Equity Snapshot

Source: Morningstar Direct; MSCI benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.


Asset Class/Region Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark

Broad Developed Markets

Developed Markets (USD) (0.7) 1.0 1.0 (1.6) 6.5 0.8 1.0 (0.8) (4.9) MSCI EAFE (Net) USD

Developed Markets (Local Currency) 7.1 5.3 5.3 5.5 11.8 2.2 5.3 5.3 5.9 MSCI EAFE (Net) Local

Currency Effect (USD - Local Returns) (7.8) (4.3) (4.3) (7.1) (5.3) (1.5) (4.3) (6.1) (10.8)

Broad Emerging Markets

Emerging Markets (4.2) 11.2 11.2 (2.6) 1.3 1.8 11.2 (14.9) (2.2) MSCI Emerging Markets (Net)

BRIC (3.8) 12.4 12.4 (1.7) 1.1 1.2 12.4 (13.3) (2.6) MSCI BRIC

Returns by Style

Value 4.2 5.0 5.0 (2.1) 6.3 (0.2) 5.0 (5.7) (5.4) MSCI EAFE Value

Grow th (5.5) (3.0) (3.0) (1.2) 6.7 1.6 (3.0) 4.1 (4.4) MSCI EAFE Growth

Large Cap (0.2) 1.1 1.1 (2.2) 6.1 0.6 1.1 (2.1) (5.5) MSCI EAFE Large Cap

Mid Cap (2.5) 0.7 0.7 1.0 8.6 1.4 0.7 4.4 (2.1) MSCI EAFE Mid Cap

Small Cap (2.9) 2.2 2.2 2.1 10.6 3.0 2.2 9.6 (5.0) MSCI EAFE Small Cap

Returns by Region

Europe (0.4) 0.2 0.2 (2.6) 6.9 1.0 0.2 (2.3) (5.7) MSCI Europe

Japan (0.1) 2.7 2.7 2.8 8.5 0.7 2.7 9.9 (3.7) MSCI Japan

Pacif ic (ex Japan) (2.7) 8.0 8.0 (0.5) 5.4 4.2 8.0 (8.4) (0.3) MSCI Pacific ex Japan

Trailing Returns (%) Annual Returns (%)


International Country Performance

Source: Morningstar Direct.; MSCI Indices; Baird Analysis. All returns are reported in USD. MSCI EAFE (Developed markets) and MSCI EM (Emerging markets) are broad benchmarks representing many countries. Includes the 10 largest countries by weighting in the benchmark. See important disclosures and definitions included with this publication.


Selected Country Performance (Latest Quarter) Selected Country Performance (Year to Date)

-8.4

-8.0

-7.8

-7.7

-7.1

-5.3

-4.2

-4.0

-2.2

2.2

18.7

-3.9

-2.1

-0.9

-0.8

-0.7

-0.1

0.8

1.5

2.3

3.1

10.8

-15 -10 -5 0 5 10 15 20

Malaysia

India

Mexico

Indonesia

China

South Korea

MSCI Em. Mkts

South Africa

Taiwan

Brazil

Russia

Switzerland

Netherlands

U.K.

Sweden

MSCI EAFE

Japan

Australia

Germany

Spain

France

Italy

Return (%)

Em

erg

ing

Mark

ets

D

ev

elo

ped

Mark

ets

-9.0

-3.9

-1.4

1.1

9.3

11.2

17.5

18.4

19.6

55.9

66.8

-9.5

-4.0

-0.5

0.0

1.0

1.9

2.7

3.5

5.3

6.0

11.7

-20 0 20 40 60 80

Mexico

Malaysia

India

China

South Korea

MSCI Em. Mkts

Indonesia

South Africa

Taiwan

Russia

Brazil

Italy

Switzerland

Spain

U.K.

MSCI EAFE

Sweden

Japan

Germany

Netherlands

France

Australia

Return (%)


Financials25.8

Cons. Disc.11.7

Industrials11.5Cons. Staples

11.3

Health Care9.1

Info. Tech.8.4

Materials7.0

Energy6.5

Telecomm5.3

Utilities3.5

-10.1

-8.1

-7.2

-6.7

-5.0

-2.2

-1.3

-0.9

2.6

6.8

8.3

-15 -10 -5 0 5 10

Cons. Staples

Health Care

Utilities

Telecomm

Info. Tech.

Industrials

MSCI ACWI ex US

Cons. Disc.

Materials

Financials

Energy

Return (%)

-13.1

-4.1

-3.3

-1.9

-0.6

4.5

6.2

6.3

10.7

27.6

31.3

-20 -15 -10 -5 0 5 10 15 20 25 30 35

Health Care

Telecomm

Utilities

Cons. Staples

Cons. Disc.

MSCI ACWI Ex US

Financials

Industrials

Info. Tech.

Materials

Energy

Return (%)

International Economic Sector Performance

Source: Morningstar Direct; Baird Analysis. Sectors based on global industry classification standards (GICS). The MSCI ACWI Ex US Index is a benchmark designed to measure developed market and emerging market performance excluding the U.S. See important disclosures in appendix.


MSCWI ACWI Ex U.S. Performance by Sector (Latest Quarter)

Sector Weighting (%) of the MSCI ACWI Ex U.S. Index

MSCWI ACWI Ex U.S. Performance by Sector (Year to Date)


-15

-10

-5

0

5

10

15


12

-Mo

Perf

orm

an

ce D

iffe

ren

tia

l (%

)

-50

-40

-30

-20

-10

0

10

20

30

40

50


12-M

o P

erf

orm

an

ce

Dif

fere

nti

al

(%)

-30

-20

-10

0

10

20

30

Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

12-M

o P

erf

orm

an

ce

Dif

fere

nti

al

(%)


Source: Morningstar Direct. Returns based on 12-month performance, calculated monthly over the most recent 10-year period. Benchmark proxies are as follows: S&P 500 (U.S.), MSCI EAFE (Int’l), MSCI EAFE Value (Value) and MSCI EAFE Growth (Growth), MSCI EAFE (Developed markets), and MSCI EM (Emerging markets). See important disclosures and definitions included with this publication.


U.S. vs. International (Rolling 12-Month Periods)

U.S. Outperforms

Int’l Outperforms

Developed vs. Emerging Markets (Rolling 12-Month Periods) Value vs. Growth (Rolling 12-Month Periods)

Developed Outperforms

Emg. Markets Outperforms

Value Outperforms

Growth Outperforms


19.9

16.3

14.0

4

6

8

10

12

14

16

18

20

22


P/E

Ra

tio

(T

TM

)

S&P 500 MSCI EAFE MSCI EM

Global Stock Market Valuations

Source: Standards & Poor’s (S&P 500); MSCI benchmarks (country returns). All performance is measured in USD. US is measured by the S&P 500 Index, Developed International is measured by the MSCI EAFE Index, Emerging International is measured by the MSCI EM Index. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication.


Historical P/E Ratio

Current P/E Ratio of Selected Countries

17.1

15.0

19.9

14.313.1

15.416.3

15.7

13.7

11.1 10.8

15.614.5

18.919.9

7.7

0

2

4

6

8

10

12

14

16

18

20

22

24

UK France Switzerland Germany Spain Japan Australia Hong Kong Singapore China S. Korea Brazil S. Africa India Mexico Russia

P/E

Ra

tio

(T

TM

)

Europe Asia-Pacific Emerging-Markets


19.4

14.3

17.1

19.9

15.0 14.3

17.3

13.1

18.5

11.5

17.5

27.4

15.416.3 15.7

13.7

0

5

10

15

20

25

30

35

P/E

Ra

tio

Country Valuation Ranges

Source: Morningstar Direct. USA is represented by the S&P 500. All other countries are represented by the respective MSCI country benchmark. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication.


Developed Markets: 7-Year P/E Valuation Ranges

Emerging Markets: 7-Year P/E Valuation Ranges

7-Year Low

7-Year High

Current

Average

LEGEND

11.1 10.8

14.0

18.9

7.7

16.4 17.1

14.615.6

19.9

17.4

11.9

14.5

0

5

10

15

20

25

30

35

P/E

Ra

tio

Fixed Income



Bond Market Snapshot

Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Duration, measured in years, is a relative term that expresses the price sensitivity of an investment/benchmark to changes in interest rates. All else equal, the lower the duration, the less price sensitivity to interest rate changes. See important disclosures and definitions included with this publication.


Bond Types Yield (%) Duration Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark

Broad Developed Markets

U.S. Taxable Bonds 2.6 5.9 (3.0) 2.7 2.7 3.0 2.2 4.3 2.7 0.6 6.0 BBgBarc US Aggregate Bond

U.S. Municipal Bonds 2.7 6.2 (3.6) 0.3 0.3 4.1 3.3 4.3 0.3 3.3 9.1 BBgBarc Municipal Bond

International Bonds 1.6 6.9 (10.3) 1.5 1.5 (2.6) (1.4) 2.4 1.5 (6.0) (3.1) BBgBarc Glbl Agg. Bond ex US

Broad Emerging Markets

Emerging Market Bonds 5.0 5.6 (2.6) 9.9 9.9 5.3 5.7 6.7 9.9 1.3 4.8 BBgBarc Emerging Markets

Taxable Bond Categories

Treasuries 1.9 6.1 (3.8) 1.0 1.0 2.3 1.2 4.0 1.0 0.8 5.1 BBgBarc US Treasury

Agencies 1.8 3.8 (3.7) 1.1 1.1 2.3 1.2 3.9 1.1 0.9 4.9 BBgBarc US Government

Mortgage-Backed 2.9 4.6 (2.0) 1.7 1.7 3.1 2.1 4.3 1.7 1.5 6.1 BBgBarc US MBS

Inv-Grade Corporate 3.4 7.3 (2.8) 6.1 6.1 4.2 4.1 5.5 6.1 (0.7) 7.5 BBgBarc US Corporate IG

High Yield Corporate 6.1 4.1 1.9 17.5 17.5 4.7 7.4 7.3 17.5 (4.6) 2.5 BofA/ML High Yield Master II

Municipal Bond Categories

Insured 2.7 5.8 (2.4) 0.7 0.7 4.6 3.7 4.4 0.7 2.9 10.3 BBgBarc Municipal Insured

State GO 2.4 5.6 (3.4) (0.4) (0.4) 3.3 2.5 4.1 (0.4) 3.0 7.3 BBgBarc Municipal State GO

Local GO 2.7 6.7 (4.1) (0.1) (0.1) 3.8 3.0 4.4 (0.1) 3.2 8.5 BBgBarc Municipal Local GO

Revenue 2.9 6.8 (3.9) 0.4 0.4 4.6 3.7 4.3 0.4 3.6 10.1 BBgBarc Municipal Revenue

High Yield 6.4 10.2 (5.8) 3.0 3.0 6.1 5.9 4.0 3.0 1.8 13.8 BBgBarc High Yield Muni

Annual Returns (%)Trailing Returns (%)Characteristics


-0.4

-2.6

-7.8

-4.7-3.0 -3.1 -2.6

1.91.3 1.9

6.7

3.2 3.8 4.4

8.1

17.5

-12

-8

-4

0

4

8

12

16

20

Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)

Re

turn

(%

)

QTR YTD

-0.5

-3.7-4.3

-3.1 -3.3-3.8

-4.6

-5.8

0.2

-0.5-0.1

0.0 0.2

1.10.7

3.0

-8

-6

-4

-2

0

2

4

Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)

Re

turn

(%

)

QTR YTD

Performance by Maturity and Credit Quality

Source: Bloomberg; Baird Analysis. Ratings are as defined by Bloomberg and represent bonds in the Barclays Aggregate Bond index (taxable bonds) and Barclays Municipal Index (municipal bonds). Short-term maturity is defined as 1-3 years, intermediate is 5-7 years for taxable and 6-8 for municipal, long-term is 10+ years for taxable and 8-12 years for municipal. See important disclosures and definitions included with this publication.


Taxable Bonds

Municipal Bonds


Yield and Volatility Characteristics of Various Bond Types

Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Bond types are represented by the following indices: Barclays Aggregate Bond (Broad Bond Market), Barclays US MBS (Mortgage-Backed), Merrill Lynch High Yield Master II (High Yield), Barclays IG Corporate (Corporate), Barclays Municipal (Municipal), Barclays US Treasury (U.S. Treasury), Barclays Global Aggregate ex USD (International), and S&P/LSTA Leveraged Loan (Bank Loans). Indices are unmanaged and are used to measure and report performance of various sectors of the market. Past performance is no guarantee of future results and diversification does not ensure against loss. Direct investment in indices is not available. See important disclosures and definitions included with this publication.


The Relationship Between Yield and Volatility

International

Bank Loans

Emerging Mkts

Broad Bond Market

High Yield

Treasury

Mortgage-BackedCorporate

Municipal

HY Municipal

0

2

4

6

8

0 2 4 6 8 10 12

Yie

ld (%

)

10-Year Historical Volatility (Standard Deviation)


U.S. Treasury Bonds


Source: U.S. Department of Treasury; Baird Analysis. See important disclosures and definitions included with this publication.

U.S. Treasury Yield Curve Historical U.S. Treasury Rates

1

2

3

4

5

6

7

8

9

10

10-Y

ear

U.S

. T

reas

ury

Rate

(%

)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Yie

ld (

%)

Maturity

12/31/16 Current Qtr

12/31/15 Last Year

10yr

20yr

6m

o

2yr

3yr

5yr

30 y

rCurrent U.S. Treasury Yields by Maturity

0.510.62

1.20

1.47

1.93

2.45

3.06

0

1

2

3

4

3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr

Yie

ld (

%)


0.30.5

0.60.8

0.9

1.1

1.41.6

2.0

2.3

0.7 0.7 0.7 0.8 0.91.1

1.2

1.5

2.12.3

1.1 1.1 1.21.3

1.5

1.7

2.0

2.5

3.5

3.8

0

1

2

3

4

5

3mo 6mo 1yr 2yr 3yr 5yr 7yr 10yr 20yr 30yr

Yie

ld (

%)

Treasury

Municipal

Tax-Equivalent Yield

U.S. Treasury Bonds


Source: U.S. Department of Treasury; Bloomberg. Municipal yields are based on the Barclays AAA GO Bond Index. The Tax-Equivalent Yields assumes a 39.6% federal tax rate and full exemption of those taxes. See important disclosures and definitions included with this publication.

U.S. Municipal and Treasury Yield Curve

Yield Comparisons of Treasury and Municipal Bonds

0.0

0.5

1.0

1.5

2.0

2.5

Yie

ld (%

)

Maturity

Treasury Municipal

20yr

3m

o6m

o

10yr

30yr

5 y

r


0

3

6

9

12

15

18

21

24

27

Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16

Eff

ec

tiv

e Y

ield

(%

)

4.7

6.1

11.5

12.8

34.435.7

0

10

20

30

40

50

60

70

80

90

100

0

2

4

6

8

10

12

14

16

18

20

BB B CCC

Av

era

ge

De

fau

lt R

ate

(%

)

Eff

ec

tiv

e Y

ield

(%

)

3.12.8

3.1

3.8

0.0 0.62.7

6.0

0

10

20

30

40

50

60

70

80

90

100

0

1

2

3

4

5

6

7

8

9

10

AAA AA A BBB

Av

era

ge

De

fau

lt R

ate

(%

)

Eff

ec

tiv

e Y

ield

(%

)

Corporate Bond Yields


Source: BofA/Merrill Lynch, Standard & Poor’s. Investment Grade Bonds are represented by the BofA/ML US Corporate Bond Index; High Yield Bonds are represented by the BofA/ML High Yield Master II Index. Historic default rates provided by Standard & Poor’s and encompass the period from 1/1/81 to 12/31/15. See important disclosures and definitions included with this publication.

Investment Grade Bonds: Historical Yields Investment Grade Bonds: Current Yield and Historic Default Rate

High Yield Bonds: Historical Yields High Yield Bonds: Current Yield & Historic Default Rate

0

2

4

6

8

10

12

Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16

Eff

ec

tiv

e Y

ield

(%

)


Bond Spreads


Source: Barclays, Bloomberg. The length of each bar represents the range of a particular spread relative to an appropriate Treasury benchmark over the past 10 years. The maximum and minimum spreads are capped at the 95th and 5th percentiles to account for outliers. The data point marked ‘current’ represents the most recent quarter. Past performance is not a guarantee of future results and this chart is not intended to be a valuation tool.

Average Option-Adjusted Spread: Max/Min/Avg

1314

474

130 12481

287

97

6 29

11 (100)

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

High Yield Corporate MBS Global Agencies

Sp

read

over

Tre

asu

ry B

on

d (b

ps)

High Yield Corporate MBS Global Agencies

High 1314 474 130 124 81

Average 606 187 50 63 30

Low 287 97 6 29 11

Current 409 123 15 44 21

Current/Historical Spreads (%)

Current Average


Bond Sector Yields and Returns


Source: Barclays, Baird Analysis. Sector yields reflect yield to worst. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates)) + (0.5 * Price * Convexity * (Change in Interest Rates)^2). Chart is for illustrative purposes only. Past performance is not indicative of future results.

Bond Sector Avg. Maturity Avg. Yield Credit Quality YTD 1-Year Benchmark

Short-Term 2.9 yrs. 1.4% AA+ 1.0% 1.0% BBgBarc US Treasury 1-5 Yr

Intermediate-Term 7.1 2.2% AA+ 1.2% 1.2% BBgBarc US Treasury 5-10 Yr

Long-Term 13.5 2.6% AA+ 1.0% 1.0% BBgBarc US Treasury 10-20 Yr

TIPS 8.3 2.2% AA+ 4.7% 4.7% BBgBarc US Treasury US TIPS

Aggregate Bond 8.2 yrs. 2.6% AA 2.6% 2.6% BBgBarc U.S. Aggregate Bond

IG Corporates 10.7 3.4% AA+ 6.1% 6.1% BBgBarc U.S. Corporate IG

HY Corporates 6.3 6.1% B 17.1% 17.1% BBgBarc U.S. High Yield - 2% Issuer Cap

Floating Rates 2.2 1.4% A+ 1.8% 1.8% BBgBarc U.S. Floating Rate Notes

MBS 7.1 2.8% AAA 1.7% 1.7% BBgBarc U.S. Mortgage Backed Securities

ABS 2.4 1.9% AA+ 2.0% 2.0% BBgBarc Asset-Backed Securities

Municipal 12.8 2.7% AA- 0.2% 0.2% BBgBarc Municipal Bond

U.S. Treasuries

Returns

Broad Market

Sector Statistics

-2.8%

-6.3%-7.4%

-9.4%

-0.1%

-2.2%

-4.2%

-6.2% -5.7% -6.0% -6.8%

2.9%

6.8%7.9%

10.8%

0.1%

2.3%4.0% 4.5% 4.6%

6.1%7.8%

-15%

-10%

-5%

0%

5%

10%

15%

1-5 Yr Treasury 5-10 Yr

Treasury

TIPS 10-20 Yr.

Treasury

Floating Rate ABS HY Corporates MBS Municipals Total Bond

Market

IG Corporates

-1% +1%

Price Impact of a 1% Rise/Fall in Interest Rates


Mutual Fund Over/Under Performance (Bond Funds)

Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of November 2016: 103 for Short-Term Taxable, 214 Intermediate Term, 46 for Short-Term Municipal, and 70 for Intermediate Municipal. Source: Morningstar Direct; Barclays benchmarks; Baird Analysis. See important disclosures and definitions included with this publication.

Mutual Fund

Performance

Active investment managers

often have a primary

objective of outperforming a

relevant market benchmark

based on the fund’s

investment style. In certain

periods, active managers

can find it easier or more

difficult to outperform.

This chart examines four

main assets classes,

detailing what percentage of

mutual fund managers over-

or under-performed in a

given period. This provides

useful context when

assessing mutual funds that

you may own.

Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year)


Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)

82% 85%

36%

80%

0%

25%

50%

75%

100%

Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal

Pe

rce

nt o

f T

ota

l

% Underperform

% Outperform

83% 88%

27%

75%

0%

25%

50%

75%

100%

Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal

Pe

rce

nt o

f T

ota

l

% Underperform

% Outperform

Appendix and Important Disclosures

Disclosures

Disclaimers

This is not a complete analysis of every material fact regarding any company, industry or security. The

information has been obtained from sources we consider to be reliable, but we cannot guarantee the

accuracy. Past performance is not a guarantee of future results.

Style Definitions

Large Growth: equity securities of large capitalization companies having growth stock characteristics (high

price to earnings, high return on equity and low dividend yield. Based upon the Russell 1000® Growth Index.

Large Value: equity securities of large capitalization companies having value stock characteristics (low

forecasted price-to-earnings ratio, low price-to-book ratio, high dividend yield). Based upon the Russell 1000®

Value Index. Mid Growth: equity securities of middle capitalization companies having growth stock

characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the Russell

Midcap® Growth Index. Mid Value: equity securities of middle capitalization companies having growth stock

characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the Russell

Midcap® Value Index. Small Growth: equity securities of small capitalization companies having growth stock

characteristics (high price to earnings, high return on equity and low dividend yield). Small capitalization stock

may be subject to additional risks including illiquidity. Based upon the Russell 2000® Growth Index. Small

Value: equity securities of small capitalization companies having value stock characteristics (low price-to-

earnings ratio, low price-to-book ratio, high dividend yield). Small capitalization stocks may be subject to

additional risks including illiquidity. Based upon the Russell 2000® Value Index. International: a free float-

adjusted market capitalization index that is designed to measure developed market equity performance,

excluding the US & Canada, consisting of 21 developed market country indices. Based upon the MSCI EAFE

Index. Satellite: these asset classes, as defined by Baird, include commodities, real estate, high yield bonds

and emerging markets. Representative benchmarks are as follows: Dow Jones UBS Commodity

(commodities), Dow Jones US REIT (real estate), BofA High Yield Master II (high yield), and MSCI Emerging

Markets (emerging markets). Short Term Taxable: Short-term bond portfolios invest primarily in corporate

and other investment-grade U.S. fixed-income issues and have durations of one to 3.5 years. Based upon the

Barclays 1-3 Year Govt/Credit Index. Intermediate Taxable: Intermediate-term bond portfolios invest

primarily in corporate and other investment-grade U.S. fixed-income issues and have durations of 3.5 to six

years. Based upon the Barclays Intermediate Gov’t/Credit Index. Short Term Municipal: Muni national short

portfolios invest in bonds issued by various state and local governments to fund public projects. These

portfolios have durations of less than 4.5 years. Based upon the Barclays 3 Year Municipal Index.

Intermediate Term Municipal: Muni national short portfolios invest in bonds issued by various state and

local governments to fund public projects. These portfolios have durations of 4.5 to 7 years. Based upon the

Barclays 7 Year Municipal Index.

GICS

The Global Industry Classification Standard ("GICS") is the exclusive property of Morgan Stanley Capital

International Inc. ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and

is licensed for use by Robert W. Baird & Co. Inc. MSCI and S&P hereby provided all information "as is" and

expressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have

any liability.

Domestic Equity Benchmarks

S&P 500® Index: A representative sample of 500 leading companies in leading industries of the U.S.

economy. Considered a large-cap index.

Russell 3000® Growth Index: Measures the performance of those Russell 3000® Index companies with

higher price-to-book ratios and higher forecasted growth values. An all-cap index.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. This

and other information is found in the prospectus or summary prospectus. For a prospectus or summary prospectus, contact

your Baird Financial Advisor. Please read the prospectus carefully before investing.

Russell 3000® Value Index: Measures the performance of those Russell 3000® Index companies with lower

price to- book ratios and lower forecasted growth values. An all-cap index.

Russell Top 50® Index: Measures the performance of the 50 largest companies in the Russell 1000® Index,

which represents approximately 40% of the total market capitalization of the Russell 1000® Index. A mega-cap

index.

Russell Top 200® Index: Measures the performance of the 200 largest companies in the Russell 1000®

Index, which represents approximately 68% of the total market capitalization of the Russell 1000® Index. A

large-cap index.


higher price-to-book ratios and higher forecasted growth values. A large-cap index.


price to- book ratios and lower forecasted growth values. A large-cap index.

Russell 1000® Defensive/Dynamic Index: Measures the performance of those Russell 1000® Index

companies based in terms of volatility of price and earnings, leverage and return on assets. The Russell 1000®

Defensive Index includes those with relative stability and less sensitivity to economic cycles. The Russell

1000® Dynamics Index includes those with less stability and greater sensitivity to economic cycles.

Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000®

Index, which represents approximately 36% of the total capitalization of the Russell 1000® Index. A mid-cap

index.

Russell Midcap® Growth Index: Measures the performance of those Russell Midcap® Index companies with

higher price-to-book and higher forecasted growth values. A midcap index.

Russell Midcap® Value Index: Measures the performance of those Russell Midcap companies with lower

price-to book and lower forecasted growth values. A mid-cap index.

Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000®

Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index. A

small-cap index.


higher price-to-book ratios and higher forecasted growth values. A small-cap index.


price-to- book ratios and lower forecasted growth values. A small-cap index.

Russell Microcap Index: Measures the performance of smallest 1000 companies in the Russell 2000® Index,

which represents less than 3% of the total market capitalization. A micro-cap index.

Dow Jones U.S. Real Estate: Measures the performance of Real Estate Investment Trusts (REIT) and other

companies that invest directly or indirectly through development, management or ownership, including

properties.

Dow Jones Industrial Average: A price-weighted index composed of 30 actively-traded large cap stocks.

Bloomberg Commodity: Aims to provide broadly diversified representation of commodity markets and

represents 20 commodities, weighted based on economic significance and market liquidity.

S&P 500® High/Low Quality Index: The S&P Quality Rankings System measures growth and stability of

earnings and dividends within the S&P 500 Index. The S&P 500 High Quality Index tracks stocks identified by

Standard & Poor’s as high quality (ranked A and above); The S&P 500 Low Quality Index tracks stocks

identified by Standard & Poor’s as low quality (ranked B and below).

The Russell Indices are a trademark of the Frank Russell Company. Russell® is a trademark of the Frank

Russell Company.

Disclosures

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. This

and other information is found in the prospectus or summary prospectus. For a prospectus or summary prospectus, contact

your Baird Financial Advisor. Please read the prospectus carefully before investing.

MSCI International Equity Benchmarks

MSCI EAFE Index: A free float-adjusted market capitalization index that is designed to measure developed

market equity performance, excluding the US & Canada. The MSCI EAFE Index consists of 21 developed

market country indices in Europe, Australasia, and the Far East. An international index.

MSCI EAFE Large Cap: The MSCI EAFE Large Cap Index is an unmanaged, market-weighted index of large

companies in developed markets, excluding the U.S and Canada. An international large cap index.

MSCI EAFE Mid Cap: The MSCI EAFE Mid Cap Index is a free float-adjusted market capitalization index

that is designed to measure the performance of mid capitalization equities in the developed markets excluding

the US & Canada. An international mid cap index.

MSCI EAFE Small Cap: The MSCI EAFE Small Cap Index represents the small cap segment in 21

developed equity markets outside of North America. It targets 40% of the eligible small cap universe in each

country. An international small cap index.

MSCI EAFE Growth: A sub-set of the MSCI EAFE Index, this benchmark is generally considered to be

representative of the international growth stock market activity and often used as a benchmark for

international growth equity portfolios. An international growth index.

MSCI EAFE Value: A sub-set of the MSCI EAFE Index, this benchmark is generally considered to be

representative of international value stock market activity and often used as a benchmark for international

value equity portfolios. An international value index.

MSCI Europe Index: A free float-adjusted market capitalization index that is designed to measure developed

market equity performance in Europe. As of June 2006, the MSCI Europe Index consisted of the following 16

developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,

Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK. An international index.

MSCI Pacific ex Japan Index: A free float-adjusted market capitalization index designed to measure equity

market performance in the Pacific region, minus Japan. As of June 2006, the MSCI Pacific ex Japan Index

consisted of the following 5 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore.

An international index.

MSCI BRIC: A free float-adjusted market capitalization weighted index that is designed to measure the equity

market performance of the following four emerging market country indices: Brazil, Russia, India and China.

MSCI Emerging Markets Index: A free float-adjusted market capitalization index that is designed to measure

equity market performance in the global emerging markets. As of December 2003 the MSCI Emerging

Markets Index consisted of 26 emerging market country indices. An emerging markets index.

MSCI Country Indices: To construct an MSCI Country Index, every listed security in the market is identified.

Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard

(GICS®), and screened by size and liquidity. MSCI then constructs its indices by targeting for index inclusion

85% of the free float adjusted market capitalization in each industry group, within each country. By targeting

85% of each industry group, the MSCI Country Index captures 85% of the total country market capitalization

while it accurately reflects the economic diversity of the market. International indices.

Fixed Income Benchmarks

Barclays Aggregate Bond Index: is an unmanaged index that tracks domestic investment-grade

bonds, including corporate, government, and mortgage-backed securities.

Barclays 1-3 Yr Government/Credit Bond Index: Includes bonds covered by the Barclays

Government/Credit Index, with maturities from 1 up to (but not including) 3 years.

Barclays Intermediate Government/Credit Bond Index: Composed of approximately 3,500 publicly

issued corporate and U.S. government debt issues rated Baa or better, with at least one year to

maturity and at least $1 million par outstanding. The index is weighted by the market value of the

issues included in the index. The Index has duration of a little over 3 years and a maturity equal to

slightly more than 4 years.

Barclays Muni Bond Index: Bonds must have a minimum credit rating of at least Baa, an

outstanding par value of at least $3 million, part of a transaction of at least $50 million, issued after

December 31, 1990 and have a year or longer remaining maturity.

Barclays 3 Year Muni Bond Index: Includes bonds that have a minimum credit rating of BAA3, are

issued as part of a deal of at least $50 million, have a minimum maturity of 2 years and a maximum

maturity of 4 years, and have been issued after December 31, 1990.

Barclays 7 Year Muni Bond Index: This index is a subset of the BC Municipal Bond Index. It

includes maturities of six to eight years.

Barclays Global Aggregate ex USD Index: Tracks investment-grade government, corporate,

agency, and mortgage-related bonds in markets outside the U.S. An international bond index.

BofA/ML US High Yield Master II Index: The US High Yield Master II Index tracks the performance

of below investment grade US dollar-denominated corporate bonds publicly issued in the US domestic

market, subject to various qualifications. A high yield taxable bond index.

Barclays US Treasury Bond Index: Measures the performance of public obligations of the US

Treasury with a remaining maturity of one year or more.

Barclays US MBS Index: Measures the performance of investment grade mortgage-backed pass-

through securities of GNMA, FNMA and FHLMC.

Barclays IG Corporate: Measures the performance of investment grade corporate bonds with a

remaining maturity of one year or more.

Citigroup Treasury Bill 3 Month: An unmanaged index of three-month Treasury bills.

Representative of short-term money market deposits, or “cash”.

S&P/LTSA Leveraged Loan: A broad index designed to reflect the performance of U.S. dollar

facilities in the leverage loan market.

Other Benchmarks

Dow Jones CSFB Managed Futures: Designed to provide transparent representation of managed

futures hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards,

rebalanced semi-annually and performance is calculated quarterly.

Dow Jones CSFB Multi-Strategy: Designed to provide transparent representation of fund of hedge

fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced

semi-annually and performance is calculated quarterly.

Dow Jones CSFB Long/Short: Designed to provide transparent representation of long/short equity

hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards,

rebalanced semi-annually and performance is calculated quarterly.

Documents

Q4 2016 Market ChartBook€¦ · Markets at a Glance As of December 31, 2016 Source: Morningstar Direct; Russell, MSCI, Barclays, Citigroup, and Dow Jones benchmarks. Performance