RBC Global Asset Management - CFA Institute...RBC Global Asset Management November 2012 . 2 ... ISM Mfg. PMI China Mfg. PMI Euro Area Mfg. PMI Source: Haver Analytics, RBC GAM ISM

RBC Global Asset Management

Daniel E. Chornous, CFA Chief Investment Officer

RBC Global Asset Management

November 2012

2

Global Investment Outlook PMIs swing upward…

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013

Global Purchasing Manager's Indices

JPMorgan Global Mfg. PMIISM Mfg. PMIChina Mfg. PMIEuro Area Mfg. PMI

Source: Haver Analytics, RBC GAM

ISM Peak Jan 2011: 59.9

0

2

4

6

8

10

12

14

16

1980 1985 1990 1995 2000 2005 2010 2015

%

U.S. 10-Year T-Bond YieldEquilibrium Range

Last Plot: 1.69%

Current Range: 2.31% - 4.14% (Mid: 3.22%)

Source: RBC GAM, RBC CM

40

65

106

174

284

464

759

1240

2026

3311

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

S&P 500 EquilibriumNormalized Earnings & Valuations

Source: RBC GAM

Nov. '12 Range: 1215 - 2045 (Mid: 1630)

Nov. '13 Range: 1303 - 2192 (Mid: 1747)

Current (23-November-12): 1409

3

Critical factors Housing sector begins to heal

-15

-10

-5

0

5

10

15

20

25

30

35

1990 1995 2000 2005 2010 2015

YoY

% C

hange

U.S. Housing PricesCore Logic National HPI ex-Distressed Properties*

*Distressed Properties include short sales and real estate owned (REO)

Source: Core Logic

20% Below peak housing price



2.0

2.5

3.0

3.5

4.0

4.5

1990 1995 2000 2005 2010 2015

X

Home Prices as a Multiple of Median Household IncomeExisting House Price Divided by Median Income

Source: National Association of Realtors

Peak of Housing MarketMedian Price $230,900

Average Ratio 1986-2001: 2.85Last Plot: 2.59

22% Correction required to achieve average ratio

4

Critical factors Housing sector begins to heal

0.4

0.8

1.2

1.6

2.0

2.4

1980 1985 1990 1995 2000 2005 2010 2015

Mill

ion

Un

its

U.S. Housing – New Private Housing Units StartedTotal Starts Including Farm Housing

Source: Census, Housing Starts

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

2000 2003 2006 2009 2012 2015

YoY

% C

hange

Un

its S

old

United States Housing StatisticsExisting Home Sales


2

4

6

8

10

12

1990 1995 2000 2005 2010 2015

Month

s

U.S. Housing – Month's Supply of Homes on the MarketExisting Single Family Homes


Last Plot: 5.4

5

Critical factors Credit conditions continue to ease

-45

-25

-5

15

35

55

75

95

1990 1995 2000 2005 2010 2015

QoQ

% C

hange

Senior Loan Officer Survey on Bank Lending Practices

Loan Officers Reporting Tightening Standards

Mortgage Loans to Individuals (Inverted)

Commercial & Industrial Loans (Inverted)

Source: Federal Reserve, Haver Analytics

Tightening

Easing

-80

-60

-40

-20

0

20

40

60

80

1990 1995 2000 2005 2010 2015

QoQ

% C

hange

Senior Loan Officer Survey on Bank Lending Practices

Banks Reporting Stronger Demand for C & I Loans

Large and Medium Firms

Small Firms

Source: Federal Reserve, Haver Analytics

More Demand

Less Demand

6

Critical factors Credit conditions continue to ease

-40

-20

0

20

40

60

80

100

2003 2006 2009 2012

QoQ

% C

hang

e

ECB Euro Area Bank Lending Survey

Banks Reporting Tightening Credit Standards

Loans to Individuals for House Purchases(Inverted)

Loans to Enterprises (Inverted)

Source: European Central Bank, Haver Analytics

Tightening

Easing

-80

-60

-40

-20

0

20

40

60

80

2003 2006 2009 2012

QoQ

% C

hange

ECB Euro Area Bank Lending Survey

Change in Business Loan Demand

Large Enterprises

Small and Medium Enterprises


More Demand

Less Demand

-60

-40

-20

0

20

40

60

2003 2006 2009 2012

QoQ

% C

hang

e

ECB Euro Area Bank Lending SurveyChange in Demand for Consumer Credit


-80

-60

-40

-20

0

20

40

60

80

2003 2006 2009 2012

Qo

Q %

Ch

an

ge

ECB Euro Area Bank Lending SurveyChange in Demand for Housing Loans


7

Critical factors Corporate and household deleveraging largely behind

14

15

16

17

18

19

20

1980 1985 1990 1995 2000 2005 2010 2015

%

U.S. Financial Obligations RatioTotal Obligations as a % of Personal Disposable Income

Source: Federal Reserve

Last Plot: (Q2'12): 15.8%Average 1980-Present: 17.2%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1980 1985 1990 1995 2000 2005 2010 2015

$ B

illio

ns

U.S. Consumer Debt Outstanding(Total, SAAR)

Source: Federal Reserve

Last Plot: Q2 '12 $12.9 Tr

Peak: Q1 '08 $13.9 Tr

8


20

40

60

80

100

120

140

160

1990 1995 2000 2005 2010 2015

Ind

ex L

eve

l

United StatesConsumer Confidence by Income Level

Confidence: Income Over $50,000

Confidence: Income Under $50,000

Source: The Conference Board, RBC GAM

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

2006 2007 2008 2009 2010 2011 2012 2013In

de

x L

eve

l

Luxury StocksS&P Global Luxury Index Relative to S&P 500

Source: Standard & Poor's, Bloomberg, RBC GAM

9


9

10

11

12

13

14

1994 1997 2000 2003 2006 2009 2012

Tie

r 1

Ris

k-B

ase

d C

apita

l R

atio

(%

)

U.S. Banks Capital Ratios

Note: Tier 1 risk-based capital ratio of all FDIC insured institutions.Source: FDIC, Haver Analytics, RBC GAM

5

10

15

20

25

30

35

40

45

50

1980 1984 1988 1992 1996 2000 2004 2008 2012

Co

rpo

rate

De

bt-

to-I

nco

me

Ra

tio

(%

)

U.S. Corporate Leverage

Source: Federal Reserve Board, Haver Analytics, RBC GAM

10

Critical factors – …but threats remain Fiscal cliff is nearing

Bush Tax Cuts

Payroll Tax Cut

Budget Control Act

UI Extension

Other

2012 2013

If nothing is done,

expiring fiscal policy

chops a huge 3% off

2013 GDP growth….

Politicians

will hopefully

soften the

blow….

…or a 2013

recession could

loom

FISCAL CLIFF

Source: RBC GAM, CBO

11

Critical factors – …but threats remain Fiscal cliff is nearing

2.2 2.5

0.3

-0.6-1.3

-1.4

-4.6

-6

-4

-2

0

2

4

2008 2009 2010 2011 2012 2013Ch

ange

in B

udge

t B

ala

nce

as a

% o

f G

DP

U.S. Fiscal Drag Mounts

Note: A negative number indicates smaller deficit / bigger surplus versus prior year.Source: International Monetary Fund, Haver Analytics, RBC GAM

RBC GAM base case scenario

"Thelma & Louise" scenario

Fiscal boost

Fiscal drag

12

Critical factors – …but threats remain European debt crisis chronic, but not terminal

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2010 2011 2012 2013

Basis

Poin

ts

European Banks – Ireland, Spain & PortugalCDS 5-Year Spreads

Santander BBVA

Banco Espirito Santo Banco Comercial Portugues

Allied Irish Bank of Ireland

Société Générale

Source: Bloomberg

13

Critical factors – …but threats remain China growth nearing a bottom?

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

30

35

40

45

50

55

60

65

70

75

80

2005 2006 2007 2008 2009 2010 2011 2012 2013

Le

ve

l

China Purchasing Managers Index and GDP

Real GDP (RHS)

Purchasing Manager's Index (LHS)

Source: China National Bureau of Statistics, Markit

-4

-2

0

2

4

6

8

10

12

14

2000 2005 2010 2015

YoY

% C

hange

ChinaConsumer Price Index

Overall CPI

CPI Excluding Food

Source: China National Bureau of Statistics

14

Stress Indicators

0

10

20

30

40

50

60

70-2

-1

0

1

2

3

1990 1995 2000 2005 2010 2015

%%

U.S. Yield Curve vs. VIX Volatility

Recession Periods

U.S. 10yr-2yr Spread (LHS, Inv, Adv 30 Months)

VIX (RHS)

Source: RBC GAM

VIX Nov. 23: 15.1

0.0

5.0

10.0

15.0

20.0

25.0

0

500

1000

1500

2000

2500

1986 1990 1994 1998 2002 2006 2010 2014

%

Basis

Poin

ts

High Yield Bond Spread

Credit Suisse HY Index Spread-to-Worst LastPlot: 603 (LHS)

Spread-to-Worst Threshold

HY Default Loss Rate (7 Months Later) LastPlot: 0.98% (RHS)

Source: Credit Suisse, RBC GAM

588 bps588 bps

15

Employment A critical concern, though signs of healing are beginning to show

-8

-6

-4

-2

0

2

4

6

8

10

30

35

40

45

50

55

60

65

70

75

80

1990 1995 2000 2005 2010 2015

Yo

Y %

Ch

an

ge

Ind

ex L

eve

l

United States ISM Manufacturing Index and Non-Farm Employment

ISM Manufacturing Index (Adv. 12 Months, LHS)

Non-Farm Employment (RHS)

Source: Institute for Supply Management, BLS

-5

-4

-3

-2

-1

0

1

2

3

4

50

2

4

6

8

10

12

14

16

1990 1995 2000 2005 2010 2015

Yo

Y %

Ch

an

ge

%

United StatesNon-Farm Employment and the Fed Funds Rate

Fed Funds Rate (Inverted, Adv 18 Mos, LHS)

Non-Farm Employment (RHS)

Source: ISI Portfolio Strategy

-6

-4

-2

0

2

4

6

8

1990 1995 2000 2005 2010 2015

YoY

% C

hange

United StatesReal Consumer Spending and Non-Farm Employment

Non-Farm Employment

Real Personal Consumption

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Citigroup

16

Economic indicators Move past a period of negative surprise

-5

-4

-3

-2

-1

0

1

2

3

1980 1985 1990 1995 2000 2005 2010 2015

Index L

evel

Chicago Fed National Activity IndexThree Month Moving Average

Source: Federal Reserve Bank of Chicago, RBC GAM

+0.7

-0.7

Risk of Inflation

Risk of Recession

20

30

40

50

60

70

80

2002 2004 2006 2008 2010 2012

% o

f Rep

orts

Westpac United States Data Surprise IndexPositive Surprise

Source: Westpac Strategy Group

17

30

35

40

45

50

55

60

65

1998 2000 2002 2004 2006 2008 2010 2012

Global Leading IndicatorsJP Morgan Global Purchasing Managers Index

Source : Haver Analytics

Current Recent Trough Cycle Peak

Canada 58.3 46.8 (Jul-11) 73.2 (Mar-11)

Russia 52.9 49.8 (Jul-11) 55.6 (Mar-11)

India 52.9 50.4 (Sep-11) 59.0 (May-10)

United States 51.7 49.6 (Aug-12) 59.9 (Jan-11)

Brazil 50.2 45.5 (Sep-11) 57.8 (Jan-10)

China 49.5 47.6 (Aug-12) 57.4 (Jan-10)

United Kingdom 47.5 45.2 (Jul-12) 59.5 (Nov-10)

Japan 46.9 45.7 (Apr-11) 54.7 (May-10)

Germany 46.0 43.0 (Jul-12) 62.7 (Feb-11)

Italy 45.5 43.3 (Oct-11) 59.0 (Feb-11)

France 43.7 42.7 (Sep-12) 57.9 (Nov-10)Source: Markit, Haver Analytics

Global Purchasing Managers Indices

Manufacturing - as of October 2012

Economic indicators PMIs turn higher

18

Fixed Income Short rates near crisis levels as central banks continue to ease

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

1980 1985 1990 1995 2000 2005 2010 2015

%

U.S. Fed FundsEquilibrium Range

Last Plot: 0.16%


Source: Federal Reserve, RBC GAM

-100

-80

-60

-40

-20

0

20

40

60

80

100

1980 1985 1990 1995 2000 2005 2010 2015

% A

bove/B

elo

w E

quili

brium

Global (ex-Japan) Short-Term Interest Rate CompositeShort-Term Interest Rates Relative to Equilibrium

Source: RBC GAM

Last Plot: -71.0%

19

Fixed Income Long term bond yields held down by risk aversion and unorthodox policy

-4

-2

0

2

4

6

8

10

12

14

16

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

%

United StatesCPI Inflation

36-month Centred CPI Inflation

Actual Monthly CPI Inflation


Last Plot : 2.3%

12-month Forecast: 1.8%

36-month Centred CPI

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

%

United StatesReal 10 Year T-Bond Yield

Real T-Bond Yield

Real 10-Year Time Weighted Yield


+1 SD

-1 SDAverage: 2.5%

Last Plot: -0.6%

12-month Forecast: 1.14%

0

2

4

6

8

10

12

14

16

1980 1985 1990 1995 2000 2005 2010 2015

%

U.S. 10-Year T-Bond YieldEquilibrium Range

Last Plot: 1.69%



20

Fixed Income Ultra-low yields not just a domestic issue

1

3

5

7

9

11

13

15

17

1980 1985 1990 1995 2000 2005 2010 2015

%

Canada 10-Year Bond YieldEquilibrium Range

Last Plot: 1.79%



2

4

6

8

10

12

14

16

18

1980 1985 1990 1995 2000 2005 2010 2015

%

Eurozone 10-Year Bond YieldEquilibrium Range

Last Plot: 2.58%



0

2

4

6

8

10

12

14

1980 1985 1990 1995 2000 2005 2010 2015

%

Japan 10-Year Bond YieldEquilibrium Range

Last Plot: 0.74%


Source: RBC GAM, RBC CMSource: RBC GAM, RBC CM

0

2

4

6

8

10

12

14

16

18

1980 1985 1990 1995 2000 2005 2010 2015

%

United Kingdom 10-Year GiltEquilibrium Range

Last Plot: 1.84%



21

Fixed Income Long term bond yields held down by risk aversion and unorthodox policy

-60

-40

-20

0

20

40

60

1980 1984 1988 1992 1996 2000 2004 2008 2012

% A

bo

ve

/Be

low

Eq

uili

briu

m

Global Bond Market Composite10-Year Government Bond Yields Relative to Equilibrium

Last Plot: -41.50%

Source: RBC GAM

22

Fixed Income Technical indicators suggest elevated risk in fixed income markets

Source: RBC CM

Long-term Price Momentum

-60

-40

-20

0

20

40

60

80

1980 1985 1990 1995 2000 2005 2010 2015

YoY

% C

hange

U.S. 10-Year T-bond YieldsRate of Change

Source: RBC GAM

Oversold

Overbought

Last Plot: -18.3%

Sell bonds as yield moves above 1.65%

Current Yield: 1.69%

0

20

40

60

80

100

1995 2000 2005 2010 2015

% B

ulli

sh

U.S 10-Year T-Bond Bullish Consensus

Source: Market Vane, RBC GAM

Too Many Bulls

Too Many Bears

Last Plot: 74% Bulls

US TSY 10YR BOND YLD U10Y.ZZ.U

100 MONTHS AUG04 - 23NOV12

TREND:

TURN

(TU-CL)%:

SMO TPL:

1.5234

1.1608

-31.31

10326

HI-JUN06

HI/LO DIFF

5.1364

-71.42%

LO-JUL12 1.4679

CLOSE 1.6899

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2004 2005 2006 2007 2008 2009 2010 2011 2012

23

Equity Markets Global markets far below “fair value”

40

65

106

174

284

464

759

1240

2026

3311

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

S&P 500 EquilibriumNormalized Earnings & Valuations

Source: RBC GAM

Nov. '12 Range: 1215 - 2045 (Mid: 1630)

Nov. '13 Range: 1303 - 2192 (Mid: 1747)


141

217

334

514

792

1221

1881

2899

1980 1985 1990 1995 2000 2005 2010 2015

Eurozone Datastream IndexNormalized Earnings & Valuations

Source: Datastream, Consensus Economics, RBC

Nov. '12 Range: 1217 - 2288 (Mid: 1752)

Nov. '13 Range: 1405 - 2643 (Mid: 2024)


48

62

81

106

137

179

233

303

394

1995 2000 2005 2010 2015

Emerging Market Datastream IndexNormalized Earnings & Valuations

Source: Datastream, RBC GAM

Nov. '12 Range: 210 - 370 (Mid: 290)

Nov. '13 Range: 227 - 400 (Mid: 314)


24

Equity Markets Global markets far below “fair value”

-60

-40

-20

0

20

40

60

80

100

1980 1985 1990 1995 2000 2005 2010 2015

% A

bove/B

elo

w F

air V

alu

e

Global Stock Market CompositeEquity Market Indexes Relative to Equilibrium

Source: RBC GAM

Last Plot: -15.7%

25

70

80

90

100

110

120

130

140

150

2006 2007 2008 2009 2010 2011 2012 2013

Con

sen

sus E

arn

ings E

stim

ate

s (

$U

S)

S&P 500 Composite IndexConsensus Earnings Estimates

2011 2012

2013 2014

Source: ThomsonReuters

$90

$95

$100

$105

$110

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

U.S. Analyst Overoptimism in S&P 500 EPS Estimates(Monthly Pattern, Averages for 1985-2010)

Average Forecast Error Rebased to Feb. 2012 Forecast

2012 Mean Earnings Estimate

Source: Chopra, ThomsonReuters, RBC GAM

Earnings

Sluggish economy/rising expectations are a growing challenge

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Above C

onsensus R

eport

s

Companies Reporting Results Above Consensus Forecasts

% Greater Than Expectations

Long-Term Average: 62%

Source: ThomsonReuters

97% Companies Reporting

Last Plot: 64%

26

Equity Markets Valuations still depressed

0

5

10

15

20

25

30

35

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

X

S&P 500 IndexNormalized (Equilibrium) Price/Earnings Ratio

P/E on Trailing 12 Months Earnings

+/- 1 Standard Deviation from Equilibrium P/E

+/- 2 Standard Deviations from Equilibrium P/E

Source: RBC GAM

Nov. '12 Range: 1 Std. Dev.: 12.9x - 20.9x (Mid: 16.9x)

Nov. '12 Range: 2 Std. Dev.: 8.9x - 24.8x (Mid: 16.9x)

Current: 14.4x

27

Equity Markets Valuations still depressed

2012 Top Down 2012 Bottom Up Trailing 12 Months Recessionary*

P/E $101.4 $102.6 $97.8 $73.4

Equilibrium 16.9 1712.4 1731.6 1651.0 1238.2

1 Standard Deviation 12.9 1309.5 1324.1 1262.5 946.9

2 Standard Deviation 8.9 906.5 916.6 874.0 655.5

2013 Top Down 2013 Bottom Up

P/E $106.3 $113.7

Equilibrium 16.9 1794.6 1918.9

1 Standard Deviation 12.9 1372.3 1467.4

2 Standard Deviation 8.9 950.0 1015.8

*Trailing 12-Month Earnings to November 2012 less 25%

Source: Bloomberg, Thomson Reuters, RBC GAM

Earnings Estimates & Alternative Scenarios for Valuation and Outcomes for the S&P 500

Consensus

Consensus

28

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2009 2010 2011 2012 2013

U.S. Factor Returns Relative to the S&P 1500Cumulative Returns to Small Cap

Source: RBC GAM

*Returns to small cap vs. S&P 1500 starting 03/2009

0.0%

2.5%

5.0%

7.5%

10.0%

2009 2010 2011 2012 2013

U.S. Factor Returns Relative to the S&P 1500Cumulative Returns to Value

Source: RBC GAM

*Returns to value vs. S&P 1500 starting 03/2009

Styles What’s working

29

Styles What’s not working

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

2009 2010 2011 2012 2013

U.S. Factor Returns Relative to the S&P 1500Cumulative Returns to Momentum (Technical)

Source: RBC GAM

*Returns to momentum vs. S&P 1500 starting 03/2009

-5.0%

-2.5%

0.0%

2.5%

5.0%

2009 2010 2011 2012 2013

U.S. Factor Returns Relative to the S&P 1500Cumulative Returns to Growth

Source: RBC GAM

*Returns to growth vs. S&P 1500 starting 03/2009

30

20%

30%

40%

50%

60%

70%

80%

90%

1986 1990 1994 1998 2002 2006 2010 2014

Quart

erly R

etu

rns

S&P 500 - Returns to Perfect ForesightDifference Between Median Performance of Top and Bottom Deciles

Low Spreads

High Spreads

Source: Bank of America Merrill Lynch

Average: 47.8%

Foresight = 1 quarter in advance

Styles Macro/beta trade continues to dominate

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

S&P 500 Stock CorrelationsMedian Correlations of S&P 500 Stocks

to the S&P 500 Index

Source: Ned Davis Research

Last Plot: 0.57

Long-term Average: 0.46

31

Equity Markets Technical indicators

0

10

20

30

40

50

60

70

80

2001 2003 2005 2007 2009 2011 2013

%

AAII Sentiment SurveyPercent Bearish

Source: American Association of Individual Investors (AAII)

Last Plot: 40.8

Too Many Bears

Not Enough Bears

0

10

20

30

40

50

60

70

80

2001 2003 2005 2007 2009 2011 2013

%

AAII Sentiment SurveyPercent Bullish

Source: American Association of Individual Investors (AAII)

Last Plot: 35.8

Too Many Bulls

Not Enough Bulls

32

Equity Markets Technical indicators

-8500

-6500

-4500

-2500

-500

1500

3500

500

700

900

1100

1300

1500

1700

2007 2008 2009 2010 2011 2012 2013

S&P 500 & Equity Mutual Fund Flows

Domestic Equity Flows (13-Week Moving Average, RHS)

S&P 500 (LHS)

Source: ICI, Ned Davis Research, RBC GAM

?

400

600

800

1000

1200

1400

1600

1800

2000

2200

40%

45%

50%

55%

60%

65%

70%

75%

2000 2003 2006 2009 2012

S&P 500 & Strategists' Recommended Allocation for Stocks

Allocation to Equities (LHS)

S&P 500 (RHS)

Source: Bloomberg, RBC GAM, Bank of America Merrill Lynch

33

Source: RBC CM

Absolute Price with Price Momentum Relative Price with Price Momentum

Source: RBC CM

Equity Markets Technical indicators – Emerging markets turn a corner

MSCI EMERGING MARKET GLOBAL EMGL.ZZ.I


TREND:

TURN

(TU-CL)%:

SMO TPL:

931.439

810.868

-18.58

10311

HI-OCT07

LO/HI DIFF

1337.63

204.18%

LO-AUG04 439.75

CLOSE 995.94

600

800

1000

1200

2004 2005 2006 2007 2008 2009 2010 2011 2012

MSCI EMERGING MARKET GLOBAL

Rel. S&P 500EMGL.ZZ.I


TREND:

TURN

(TU-CL)%:

SMO TPL:

0.67524

0.63184

-10.60

10215

HI-SEP10

LO/HI DIFF

0.94245

136.66%

LO-AUG04 0.39823

CLOSE 0.70677

0.40

0.50

0.60

0.70

0.80

0.90

2004 2005 2006 2007 2008 2009 2010 2011 2012

34

Asset Mix Trailing 10-year Stock vs. Bond Market Performance

-200

-100

0

100

200

300

400

500

600

700

1935 1945 1955 1965 1975 1985 1995 2005 2015

Sto

ck M

ark

et

Outp

erf

orm

ance %

10-Year U.S. Stock and Bond PerformanceStock Market 10-Year Total Return minus Long Bond Total

Return

S&P 500 10-Year Total Return minus Barclays Capital Long-Term T-Bond 10-Year Total Return

Source: Ned Davis Research

Mean: 120.5%

+1 Std Dev

-1 Std Dev

-2 Std Dev

+2 Std Dev

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