Market Outlook and Key Themes
January 2013
7711 Bonhomme, Ste, #400
St. Louis, Missouri 63105 WWW.FMPARTNERS.COM
• What are current market/ economic conditions?
• What are current investment themes?
• What is the market outlook for 2013?
• What are drivers of growth?
• Are equities fairly valued?
• What are the risk in fixed income?
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Topics
Current Economic Conditions
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Current Economic Conditions
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Current Economic Conditions
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Investment Themes (3 to 5 years)
Implementation Strategy Rationale Theme
Global Fiscal Concerns
Divergent Growth Expectations (Developed vs. Emerging)
Credit Dislocation (Rate Environment)
Inflationary Environment
Risk Premium (Equity Valuations)
Maintain diversified exposure across global markets
Include hedging strategies to manage overall portfolio volatility
Ensure exposure to countries with stronger balance sheets and improving economic conditions
Maintain and/or enhance exposure to faster growing regions such as emerging markets across asset classes
Maintain allocations to specialist managers in emerging markets
Maintain diversified global fixed income exposure with focus on real yields
Complement core fixed income with opportunistic fixed income strategies
Ensure adequate inflation protection by allocating to real assets (commodities, real estate)
Consider increasing exposure to equity markets via higher beta strategies
Add higher net exposure approaches in long/short and equity oriented strategies across asset classes
Continued Government Intervention
Global Deficits/Increasing Sovereign Debt
Political Uncertainty/Election Pressures
US Regulatory Environment
Chinese Economic Policy
GDP Growth in Developed Markets to Remain Below Long-term Averages
High US Unemployment
Weak Housing Markets
Austerity Measures Around the Globe
Constrained Credit Environment
Global Deleveraging
Lagging Effects of Government Stimulus
Tax Policy
Volatile Commodity Prices
Focus on macro factors – rising correlations
Disconnect between pricing and fundamental values
Increasing risk premiums
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2013 Market Outlook Summary
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S&P 2013 10 YearYear End GDP Growth Treasury Yield
Barclays 1660 1.40% 2.00%
Putnam 1490 2.25% 2.20%
BlackRock 1545 2.00% 2.25%
Goldman 1575 1.80% 2.20%
JP Morgan 1580 2.00% 2.00%
Morgan Stanley 1434 1.40% 2.24%
Prudential 1600 2.50% 2.30%
BAC / Merrill 1600 1.50% 2.00%
Average 1561 1.86% 2.15%
High 1660 2.50% 2.30%
Low 1434 1.40% 2.00%
Investment Outlook – Goldman Sachs
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• Continued US Housing Recovery
• Employment
• US Manufacturing
• US Domestic Energy
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Drivers of Growth
Housing
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Housing
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Employment
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U.S. Manufacturing
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U.S. Manufacturing
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Domestic Energy
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Domestic Energy
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Equity Market - Valuation
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Equity Market - Valuation
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Equity Market - Valuation
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Source: J.P. Morgan Asset Management; Bloomberg. The securities highlighted above have been selected based on their significance and are shown for illustrative purposes only. Data as of July 4, 2012.
2.38%
3.16%
1.87%
2.16%
2.84%
2.71%
2.61%
4.05%
7.20%
7.00%
10.50%
9.90%
0% 2% 4% 6% 8% 10% 12%
United Technologies
Time Warner
Microsoft
Merck
2012 Estimated FreeCashflow YieldCurrent Dividend Yield10 Year Debt Yield to Maturity
(Pharm/medtech)
(Software & Services)
(Media)
(Industrial Cyclical)
Equity Market Update - Valuation
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Fixed Income
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Fixed Income
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Fixed Income Market Update – Muni Bonds
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Fixed Income
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Where Do We Go From Here?
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