FOR INSTITUTIONAL INVESTORS ONLY. NOT TO BE DISTRIBUTED TO RETAIL CLIENTS. This strategy is offered by Insight North America LLC (INA) in the United States. INA is part of Insight Investment. Performance presented is that of Insight Investment and should not specifically be viewed as the performance of INA. Please refer to the important disclosures at the back of this document.

GLOB

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GLOBAL MACRO RESEARCH THE FUTURE OF OIL IN A WORLD OF ENERGY TRANSITIONAN INTERVIEW WITH PROFESSOR PAUL STEVENS

MARCH 2020

PAUL STEVENSPaul Stevens is a distinguished fellow at Chatham House, having first joined the

institute in 2008. He was educated as an economist and as a specialist on the Middle

East at Cambridge and the School of Oriental and African Studies.

From 1973-79 he taught at the American University of Beirut in Lebanon,

interspersed with two years as an oil consultant. Between 1979-93 he was a

lecturer/senior lecturer in economics at the University of Surrey. Between 1993 and

2007 he was professor of Petroleum Policy and Economics at the Centre for Energy,

Petroleum and Mineral Law and Policy at the University of Dundee. He is now

professor emeritus at the University of Dundee and until recently, a visiting

professor at University College London (Australia). He is also a distinguished fellow

at the Institute of Energy Economics Japan (IEEJ) in Tokyo.

He has published extensively on energy economics, the international petroleum industry, economic

development issues and the political economy of the Gulf. He also works as a consultant for many companies

and governments. In March 2009 he was presented with the OPEC Award in recognition of his outstanding

work in the field of oil and energy research.

SECTION 1: Setting the scene – the backdrop to oil markets 3• OPEC+ cuts have been less important for prices than lost production elsewhere

• Iran is becoming increasingly desperate, and potentially less predictable

• If oil markets are no longer controlled, China, as a large importer, gains influence

SECTION 2: Investing in oil – the corporate balancing act 6• Environmental pressures are intense in Europe

• With renewables, supernormal profits will fade away

• Only the lowest-cost producers will survive in the long term

SECTION 3: Demand and supply in a transitioning world 8• Demand is likely to peak before supply

• Progress on oil alternatives is likely to be more rapid than currently believed

• Taxation is increasingly being used to stem demand, even in some emerging markets

SECTION 4: The politics of energy transition 10• The era of energy geopolitics is drawing to a close

• This will be an extremely disruptive process for some

• There is a real risk that some oil producing nations will become failed states

SECTION 5: Reflecting on recent events 12• In the short term, the oil market now appears to be facing a perfect storm

• A price war could prove devastating for both Russia and Saudi Arabia

• Most US shale oil production is hedged, and production should continue for now

3

CATHY: Over the last decade we’ve seen some extreme price

volatility in global oil markets. The price of Brent Crude

averaged US$110 per barrel between 2011 to 2014, then

crashed to just US$30 per barrel in early 2016, before

rebounding to close to US$60 per barrel after the first round of

supply cuts from the OPEC+ group1. We are now four years

into the OPEC+ group supporting prices – what do you see as

the logical endgame to the Saudi strategy?

PROFESSOR STEVENS: I’m actually quite skeptical about the

impact that the OPEC+ group has had on markets. Far more

important, in my view, were the involuntary cuts coming from

Venezuela, Iran and Libya which in aggregate amounted to nearly

four million barrels of oil a day. Then if you look at the numbers,

there has been very little Russian adherence to agreed supply

cuts, with both OPEC and Russia generally producing above

target. The government in Russia is under pressure from its own

companies, so they have made a lot of noise, but ultimately relied

on the Saudis to reduce production – a situation which has

become increasingly unsustainable for Saudi over time. So I don’t

think the OPEC+ group will survive.

SECTION 1 SETTING THE SCENE – THE BACKDROP TO OIL MARKETS • OPEC+ cuts have been less important for prices than lost production elsewhere

• Iran is becoming increasingly desperate, and potentially less predictable

• If oil markets are no longer controlled, China, as a large importer, gains influence

1 OPEC+ is a group of oil producing nations made up of OPEC plus 10 non-OPEC members including Russia, Mexico and Kazakhstan. 2 http://data.imf.org/regular.aspx?key=60214246. 3 Source: Insight, Bloomberg and the US Department of Energy. Data as of October 31, 2019.

NAVIGATING GLOBAL OIL MARKETS HAS BECOME INCREASINGLY COMPLEX AS THE WORLD MOVES TO

DECARBONIZE, AND THE FOCUS ON CLIMATE CHANGE INTENSIFIES. WE PONDER WHAT THIS MEANS FOR

INVESTORS, IN TERMS OF BOTH CORPORATE INVESTMENT AND THE WIDER GEOPOLITICAL BACKDROP.

TWO OF INSIGHTS ENERGY MARKET EXPERTS, CATHY BRAGANZA AND TIM DOHERTY, SPEAK TO PROFESSOR

PAUL STEVENS, A DISTINGUISHED FELLOW AT CHATHAM HOUSE AND INTERNATIONAL OIL EXPERT.

NOTE: THIS INTERVIEW TOOK PLACE BEFORE THE BREAKDOWN OF THE OPEC+ GROUP, PROFESSOR

STEVENS PROVIDES SOME REFLECTIONS ON RECENT EVENTS AT THE END OF THE DOCUMENT.

Chart 1: Saudi has been behind the majority of OPEC+ production cuts3

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There has been very little Russian

adherence to agreed supply cuts

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4 http://data.imf.org/regular.aspx?key=60214246. 5 The Permian basin is a large sedimentary basin in the Southwest United States, important for US shale oil production. 6 Source: Bloomberg and Insight. Data as of March 31, 2020.

Chart 2: US shale oil production just keeps on growing6

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Saudi Arabia desperately needs higher oil prices. For 2019, the International Monetary Fund

(IMF) estimated that Saudi needed an oil price of US$86.54 per barrel to balance its budget,

and prices were nowhere near that. Then the Saudi Aramco IPO has added additional

complications, as in order to ensure that the IPO was a success, the Saudi authorities

relaxed bank-lending restrictions for the purchase of Saudi Aramco shares. So if the oil price

declines, the Saudi Aramco share price would be expected to decline and that would then

ripple through the whole banking system as speculators with leveraged exposures incurred

losses. The risk is that the Saudi banking system could face the equivalent of the US

subprime mortgage crisis in a worst-case scenario. The wider vulnerability of the Saudi

economic system is an issue which should really be more of a focus for investors.

CATHY: How does Saudi balance this complex backdrop over the coming years? Do we

ultimately see things break down and oil markets become a free market, not controlled

by a large producer?

PROFESSOR STEVENS: I think Saudi is in a situation where the only thing it can do is try to

support the oil price, which will mean a severe cut in production. But the problem is that in

the US, production is not subject to any sort of control by the US government. In January

2020, US production was 1.2 million barrels a day higher than in the previous January.

Technological advances have meant that the fall in US rig count has had virtually no impact

on US production. People are starting to write obituaries for US production from the

Permian Basin5, as they’ve tried to do at various points in the past, but in reality there is no

reason to believe that US production won’t continue to rise and it is very difficult to prevent

it from rising.

Unless you get better OPEC discipline, and non-OPEC producers coming to the table and

actually making cuts, the risk is that the oil price will decline and it is difficult to see how this

doesn’t lead to a free market in oil prices over time. A consequence of that is likely to be

increasing geopolitical unrest, and it’s quite possible that we could see a number of

oil-producing governments facing severe fiscal problems which could then lead to domestic

unrest.

CATHY: Which countries do you regard as being most at risk in that scenario?

PROFESSOR STEVENS: It’s a long list. Iraq and Iran are two obvious candidates. Then

Nigeria and Algeria are both already facing problems in their domestic economies which are

worth watching. Venezuela is also a country which is going to face significant long-term

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Chart 3: China is now a major source of global oil demand7

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Bilateral trading would give China,

as a major importer, significantly more

influence

4 http://data.imf.org/regular.aspx?key=60214246. 5 The Permian basin is a large sedimentary basin in the Southwest United States, important for US shale oil production. 6 Source: Bloomberg and Insight. Data as of March 31, 2020.

problems. The majority of its reserves are heavy grades of crude,

the extraction and refining of which have the severest

environmental impact. This leaves Venezuela significantly

disadvantaged in a world worried about climate change. The

country also has peculiar oil fields, which need a lot of care and

specialist field engineers to maintain them. Unfortunately, a lot of

these specialist field engineers were dismissed by Chavez,

meaning they now face a variety of technical problems.

TIM: You raised Iran as a country you are especially concerned

about, could you elaborate on this? Do you anticipate further

responses to the assassination of General Soleimani in

January?

PROFESSOR STEVENS: My sense on Iran is that the desperation of

the regime in Tehran is increasing dramatically. That is partially a

result of the coronavirus, which is hitting the country hard, but

also a result of the effectiveness of Trump's strategy on Iran. The

strategy has been a very simple one: make the life of ordinary

Iranians so miserable that they will rise up and overthrow the

government. Sanctions have created extraordinary problems for

the country's domestic economy.

So the regime’s primary objective is likely to do anything they can

to prevent Trump gaining a second term in office. They have

limited options when it comes to achieving that goal, and the most

realistic one is to engineer a dramatic increase in international oil

prices. That would both solve their own problems and cause

Trump problems, as many of the states that support Trump are

those that are most vulnerable to rising energy prices. The best

way to do that would be to close the Strait of Hormuz. It would

produce a military response, but the regime may well be reaching

a point where they are desperate enough to want a military

conflict. There are also less dramatic options: for example, the use

of proxies in Iraq and Lebanon, designed to stop Trump from

fulfilling his pledge to stop intervening in the Middle East. As it

stands though, the whole country is potentially reaching a tipping

point, and there is a risk that things could get very nasty.

TIM: Could one outcome be that China starts to work more

with Iran on a bilateral basis? My impression is that China is

quite comfortable dealing with Iran, and there is a lot of history

given they represent two of the longest-standing civilizations

on earth.

PROFESSOR STEVENS: I certainly think that is possible, but

generally speaking there is the perception that China likes to have

political influence in the countries that supply them with strategic

resources like oil. There is also, obviously, the question of whether

the Chinese would want to upset the Americans, which is likely to

be depend on how trade talks progress. It is certainly possible

though that oil goes back to trading bilaterally rather than

multilaterally. Bilateral trading would give China, as a major

importer, significantly more influence with oil-producing countries,

particularly in the Middle East.

CATHY: Do you have any thoughts on the possible impacts of

the coronavirus outbreak on demand for oil?

PROFESSOR STEVENS: On a very short-term basis, oil prices are a

function of sentiment rather than demand and supply. So of

course, as concerns grow that the world may experience a

pandemic – which would have significant consequences for global

growth – it has led to lower prices. But it is still too early to have

any clear assessment of the impact on demand.

7 Source: Bloomberg and Insight. Data as of December 31, 2019. Monthly crude oil imports in million metric tonnes.

5

6

CATHY: Bond investors such as Insight are increasingly incorporating environmental,

social and governance (ESG) factors into their investment decisions. How does the oil

industry decarbonize quickly enough to satisfy investors? How do we choose between

companies when they are all presenting different models on how they will approach

decarbonization?

PROFESSOR STEVENS: I think it’s important to make a distinction here between European

and American integrated oil companies (IOCs)8. European IOCs have faced considerable

pressure from investors to become greener for quite a while, and not just to decarbonize

but also to diversify, despite the fact that the history of diversification in IOCs is not good at

all. Most European IOCs are now trying to diversify into renewables, but there is little

economic rent9 in renewables. The market is extremely competitive, smaller in scale and

often a decentralized solution. The reason many IOCs became so large is that they were

excellent at creating and capturing economic rent. This economic rent came from being

able to gain access to low-cost production and, when the market is effectively manipulated

at the same time, this can lead to what economists call supernormal profits.

At some stage, shareholders are going to realize that the current ability to generate cash

and use that for dividends and share buybacks is not sustainable. These companies are just

not going to be able to generate the same amounts of cash in renewables that investors

have become used to and the result will likely be a stampede of investors away from the

IOCs, certainly in Europe.

Markets have already started to reflect some skepticism I think, which is likely why the share

prices of IOCs have underperformed broader equity markets for some time now.

SECTION 2 INVESTING IN OIL – THE CORPORATE BALANCING ACT • Environmental pressures are intense in Europe

• With renewables, supernormal profits will fade away

• Only the lowest-cost producers will survive in the long-term

8 Integrated oil companies are oil companies that participate in all parts of the oil and gas industry, including exploration, production, refining and distribution. 9 Economic rent is the additional value earned by a resource above the amount needed by the resource owner to justify production. 10 Source: Insight and Bloomberg. Data as of February 28, 2020. Data is total return in US dollars.

Chart 4: The oil sector has underperformed broader equity markets for some time10

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MSCI World Integrated Oil & Gas

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MSCI World Integrated Oil and GasMSCI World

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CATHY: So is there a scenario where investors, both equity and debt, particularly in

Europe, effectively force the IOCs to stop exploration and run down their assets,

effectively becoming an annuity?

PROFESSOR STEVENS: That pressure is definitely growing. Most large oil companies

have reserve-to-production ratios of around 10 to 12 years. With the political

groundswell around climate change, there is already a question mark about stranded

assets – assets that will become obsolete because of energy transition. So there is

already a question mark around exploration if there is a perception that some existing

assets will never be produced.

In addition to climate change, we also have another issue rapidly moving up the policy

agenda – urban air quality. Critically, this is moving into focus not just in Europe, but also

in Asia, especially in India and China. Perceptions are changing rapidly, carrying the

political agenda with it, and we shouldn’t underestimate the current momentum in that

process.

CATHY: Given the clear difference between the backdrop in Europe and the US, with

US IOCs under less pressure from environmental lobbying, does this ultimately lead

to a scenario where European IOCs become acquisition targets for their US

counterparts?

PROFESSOR STEVENS: The problem there is that historically, mergers have run into

significant problems with regulators, particularly on downstream activities, such as

refining, which most IOCs have. So I think that actually we have seen the last of the major

takeovers for that reason.

CATHY: What happens to the small independents? Do smaller producers that are

either mixed production and exploration or just outright exploration have a future?

PROFESSOR STEVENS: No, I don’t think they do. Some smaller companies are likely to

get snapped up and, in my view, American firms are most likely to be the buyers. But I

don’t see the scenario where oil demand peaks and then is followed by a plateau or

gentle decline; I think it’s far more likely that demand peaks and then experiences a rapid

decline. As the energy transition speeds up, the small independents are likely to face the

full force of that. Only the lowest-cost producers are likely to be able to survive in the

longer term and they will be the national oil companies in the Middle East and other

parts of the world.8 Integrated oil companies are oil companies that participate in all parts of the oil and gas industry, including exploration, production, refining and distribution. 9 Economic rent is the additional value earned by a resource above the amount needed by the resource owner to justify production. 10 Source: Insight and Bloomberg. Data as of February 28, 2020. Data is total return in US dollars.

Perceptions are changing rapidly, carrying the political agenda with it, and we shouldn't underestimate the current momentum in that process

7

8

TIM: Turning to the longer-term outlook for oil markets, global

oil demand has grown from around 85 million barrels a day

coming out of the global financial crisis to around 100 million

barrels a day.11 Almost all of that demand growth has come

from the transport sector, primarily led by China and South

East Asia. Can this continue, or are we already nearing an

inflection point as the OECD demand degradation and electric

vehicle/hybrid penetration in emerging markets overwhelms

demand?

PROFESSOR STEVENS: I am definitely of the opinion that demand

peaks before supply, and that peak demand will happen before

2030, not after. The question though is what happens after that

peak occurs. Aviation will be the last bastion of demand, as there

is no obvious alternative. You will get electric airplanes, but they

are unlikely to have sufficient range for quite some time. Long-

distance trucking is more interesting because there are

increasingly viable alternatives to that. Liquefied natural gas (LNG)

is a shorter-term risk to demand, with various experiments going

on in the US. Longer term, electric trucks will also become a

threat. I think people are underestimating the development of

electric vehicles.

In my experience once people start to become interested in

something from a technical point of view and get reinforcing

factors coming into play, progress can be rapid and then change

relative pricing. Climate change and urban air quality are both

significant triggers for change. A number of high-profile

universities are now working on battery technology. This is

focused on the light-vehicle market but it’s only a matter of time

before that shifts to heavy transportation. There are also now

question marks about where goods are made and the

environmental consequences of the location of manufacturing.

I can see a scenario where oil demand for long-distance transport

diminishes more rapidly than currently expected.

Then we have petrochemicals. When you think that around 40% of

plastic is used for packaging and you consider the growing

antipathy towards the use of plastics, it’s difficult to understand

how this is not vulnerable from a demand perspective.

To be clear, I’m not suggesting that oil demand is just going to

disappear, but I do think it could erode far more quickly than the

current consensus believes.

To be clear, I’m not suggesting that oil demand is just going to disappear, but I do think it could erode far more quickly than the

current consensus believes

SECTION 3 THE LONG-TERM OUTLOOK – DEMAND AND SUPPLY IN A TRANSITIONING WORLD• Demand is likely to peak before supply

• Progress on oil alternatives is likely to be more rapid than currently believed

• Taxation is increasingly being used to stem demand, even in some emerging markets

11 Source: Bloomberg. Data as of February 28, 2020.

TIM: One of the issues that I find divides opinion, especially

between US and European colleagues, is the belief that we will

see the implementation of a global carbon tax at some point in

the future. In the US there is a lot more skepticism that this will

be possible to implement in reality. For example, we’ve already

seen the yellow jacket protests in France, and the protests in

Chile when the government tried to raise the cost of Metro

prices. What are your thoughts?

PROFESSOR STEVENS: I take your point about the popular

reaction to governments increasing the price of energy, but to

what extent will that be offset by growing concerns about climate

change and urban air pollution? I would also be skeptical about a

global solution, where the international community comes

together to implement a tax globally, but individual governments

may be able to persuade their electorates that this is in their

interests.

If tax systems start to develop that penalize people supplying

goods from carbon-intensive countries or industries for example,

that will have a similar effect.

In the 1980s you had what was christened ‘OECD disease’.

The G7 agreed that they needed to take action to reduce their

vulnerability to global oil shocks, and the simplest way to do that

was via sales taxes. That, combined with the growth of energy

sources that are not dependent on the price of oil, led to changing

demand patterns, especially in Europe. We’re now seeing

countries such as India and China offsetting lower crude oil prices

by increasing sales taxes, which is going to change the relationship

between market prices and demand over time.

9

10

TIM: One consequence of the global energy transition is

that power is shifting towards consumers of energy and

away from the historical producers of energy such as oil.

What are the broader geopolitical consequences of this?

PROFESSOR STEVENS: Ultimately we are coming to the end

of the era of energy geopolitics that has dominated much of

the last 100 years. In 1912, the British Royal Navy switched

from using coal to oil on its ships, partly in reaction to

improvements in navel artillery. When you can be hit by a

shell from 25 miles away, burning smoky coal is no longer

such a great idea, plus it meant that ships could be refueled

without having to return to port. Since that point, efforts to

control the supply and price of oil have been key elements of

foreign policy in countries such as the UK and US. Only a few

countries controlled the hydrocarbons, and getting access to

them was critical. In a world of renewable energy sources

that is all over. It won’t disappear overnight, but we are in the

final years of that era.

But that doesn’t mean everyone is going to be living happily

ever after. This is going to be an extremely disruptive

process, especially for the Middle East, whose governments

have done an abysmal job of diversifying their economies

away from oil. There are moves to try and diversify, so in

Saudi they have launched Saudi Vision 203011, for example.

These are highly unlikely to succeed unless there is deeper

fundamental reform to remove barriers that prevent real

diversification. Property rights and the rule of law are very

weak for private investors, as the ruling elite are not subject

to the law. A good example of this was in October 2017 when

over 100 senior Saudis were arrested and held in the Ritz

Carlton hotel in Riyadh, forced to pay ‘fines’ before they were

released. Unsurprisingly, since that episode, private-sector

investment in the Kingdom has been very limited, and the

country experienced huge capital outflows afterwards. It’s

impossible to pursue an investment-driven economic

diversification strategy with that backdrop.

High levels of state interference and poor education

standards compound the problem. As the demand for oil

diminishes, and their revenues diminish as a result, they are

going to face serious problems.

There is a real risk that some of these countries become

failed states.

TIM: Some of these countries appear to be very similar to

European IOCs, trying but failing to diversify into

renewables, with unsustainable long-term models. Do you

see similarities?

PROFESSOR STEVENS: I can see that there are. In the same

way that the IOCs have used cashflows to pay dividends and

buyback shares in order to placate shareholders, places like

Saudi Arabia have been able to use their cashflows to placate

their effective shareholders – their population. One reason I

think we saw little impact in Saudi from the Arab uprisings in

2011 was that the population was relatively content or

manageable. But if Saudi cashflows start to fail and they are

unable to maintain that standard of living – their effective

dividends – then you have a potential powder keg.

SECTION 4 THE POLITICS OF ENERGY TRANSITION• The era of energy geopolitics is drawing to a close

• This will be an extremely disruptive process for some

• There is a real risk that some oil producing nations will become failed states

11 For more information, please see: https://vision2030.gov.sa/en.

11

TIM: Thinking of other potential areas of disruption from the

energy transition, a lot of southern European countries, for

example, have the potential to be very strong in solar. If the

ability to store solar energy advances, could you perhaps see

manufacturing shift from places like southeast Asia towards

solar-rich countries so as to tap into those resources?

PROFESSOR STEVENS: I think we are looking at significant

structural changes in the global economy, but it won’t be all about

access to energy. Energy efficiency is going to improve, with

people using a lot less energy to do a variety of tasks. There will be

continued advancements in technology, and in the long term the

winners on questions such as where to locate industry are likely to

be the countries that have people with the necessary skill-sets

rather than just access to energy.

TIM: So Professor Stevens, to conclude, how do you see this

energy transition and the corresponding geopolitical events

playing out in terms of prices over the next five years?

PROFESSOR STEVENS: It’s going to be a bumpy road, but that

ultimately the trend is downwards, with reducing demand

weighing on prices and technology advances beating depletion.

Upheaval in the Middle East along the way has the potential to

lead to an oil price shock, but I don’t see this lasting for long, and if

that does occur I would see it as reinforcing the long-term trend,

accelerating the speed of the transition. Saudi will continue to try

and control markets, but I believe they will be unsuccessful and

eventually things will fall apart. In 1986, when the oil price

collapsed and things fell apart they were able to pull them back

together again. It will be very difficult for anyone to put things

back together again.

Ultimately we are coming to the end of the era of

energy geopolitics that has dominated much of the

last 100 years

12

Shortly after this interview took place, the OPEC+ meeting

in Vienna broke up in disarray. OPEC had asked Russia and

the other non-OPEC members to cut their production by 0.5

million barrels per day to match OPEC’s cut of 1 million

barrels per day. Russia refused and walked out of the meeting.

This has provoked a price war with Saudi Arabia threatening

to dramatically increase production. The result has been a

price collapse with prices falling as low as US$31 per barrel.

We asked Professor Stevens to provide his thoughts on

recent events.

PROFESSOR STEVENS: The problem is that this is a price war

neither side can win nor can either side afford it if it goes on for

any length of time. The only viable solution is for Russia to come

back to the table and negotiate a revival of a version of the OPEC+

agreement, although this will have to be done in a way that does

not cause Russia or Saudi Arabia to lose too much face. It was

strange that Russia walked away at this point. Although I don't

expect the OPEC+ group to survive in the long term, it is surprising

that Russia has been the one to walk away when it could have just

done what it has done in the past, namely agree to the cut and

then simply ignore any agreement.

In the short term, the oil market now appears to face a perfect

storm, with excessive supply coupled with demand collapsing as

the coronavirus eats into demand. Back-tracking could be

embarrassing for Russia, but a continuation of a price war would

be devastating to both sides. Also, lower prices are unlikely to

have much of a negative effect on US shale oil production, which

some see as the target of the price war. Most US shale oil

production is already hedged at much higher than current prices,

the larger players more recently involved have deep pockets and

the industry has a strong record of lowering costs faced with

lower oil prices. This makes the price war an expensive indulgence

that neither Russia or Saudi Arabia can afford.

SECTION 5 REFLECTING ON RECENT EVENTS• In the short term, the oil market now appears to be facing a perfect storm

• A price war could prove devastating for Russia and Saudi Arabia

• Most US shale oil production is hedged, and production should continue for now

THE INSIGHT VIEWWe share many of the concerns highlighted by Professor Stevens,

especially regarding the long-term sustainability of IOC business

models. We have been favoring lowest cost producers with

diversified businesses throughout the hydrocarbon value chain that

extends through the midstream and downstream areas. ESG factors

also play a key role in our analysis, as we believe they can have a

material impact on investment risk. With the risk that investors start

to penalize those companies that are unable to decarbonize quickly

enough, the use of careful analysis and credit selection is more

important than ever.

14

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CONTRIBUTORS

Cathy Braganza, Portfolio Manager, High Yield and Loans, Fixed Income, Insight Investment

Simon Down, Senior Content Specialist, Insight Investment

Tim Doherty, Senior Credit Analyst, Fixed Income, Insight Investment

14915-03-20

IMPORTANT DISCLOSURESThis document has been prepared by Insight North America LLC (INA), a registered investment adviser under the Investment Advisers Act of 1940 and regulated by the US Securities and Exchange Commission. INA is part of ‘Insight’ or ‘Insight Investment’, the corporate brand for certain asset management companies operated by Insight Investment Management Limited including, among others, Insight Investment Management (Global) Limited and Insight Investment International Limited.

Opinions expressed herein are current opinions of Insight, and are subject to change without notice. Insight assumes no responsibility to update such information or to notify a client of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice. Insight disclaims any responsibility to update such views. No forecasts can be guaranteed.

Nothing in this document is intended to constitute an offer or solid action to sell or a solid action of an offer to buy any product or service (nor shall any product or service be offered or sold to any person) in any jurisdiction in which either (a) INA is not licensed to conduct business, and/or (b) an offer, solicitation, purchase or sale would be unavailable or unlawful.

This document should not be duplicated, amended, or forwarded to a third party without consent from INA. This is a marketing document intended for institutional investors only and should not be made available to or relied upon by retail investors. This material is provided for general information only and should not be construed as investment advice or a recommendation. You should consult with your adviser to determine whether any particular investment strategy is appropriate.

Assets under management include exposures and cash, and are calculated on a gross notional basis. Regulatory assets under management without exposures shown can be provided upon request.

Past performance is not a guide to future performance, which will vary. The value of investments and any income from them will fluctuate and is not guaranteed (this may partly be due to exchange rate changes). Future returns are not guaranteed and a loss of principal may occur.

Targeted returns intend to demonstrate that the strategy is managed in such a manner as to seek to achieve the target return over a normal market cycle based on what Insight has observed in the market, generally, over the course of an investment cycle. In no circumstances should the targeted returns be regarded as a representation, warranty or prediction that the specific deal will reflect any particular performance or that it will achieve or is likely to achieve any particular result or that investors will be able to avoid losses, including total losses of their investment.

The information shown is derived from a representative account deemed to appropriately represent the management styles herein. Each investor’s portfolio is individually managed and may vary from the information shown. The mention of a specific security is not a recommendation to buy or sell such security. The specific securities identified are not representative of all the securities purchased, sold or recommended for advisory clients. It should not be assumed that an investment in the securities identified will be profitable. Actual holdings will vary for each client and there is no guarantee that a particular client’s account will hold any or all of the securities listed.

The quoted benchmarks within this document do not reflect deductions for fees, expenses or taxes. These benchmarks are unmanaged and cannot be purchased directly by investors. Benchmark performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison such as differences in volatility, and regulatory and legal restrictions between the indices shown and the strategy.

Transactions in foreign securities may be executed and settled in local markets. Performance comparisons will be affected by changes in interest rates. Investment returns fluctuate due to changes in market conditions. Investment involves risk, including the possible loss of principal. No assurance can be given that the performance objectives of a given strategy will be achieved.

Insight does not provide tax or legal advice to its clients and all investors are strongly urged to consult their tax and legal advisors regarding any potential strategy or investment.

Information herein may contain, include or is based upon forward-looking statements within the meaning of the federal securities laws, specifically Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include all statements, other than statements of historical fact, that address future activities, events or developments, including without limitation, business or investment strategy or measures to implement strategy, competitive strengths, goals expansion and growth of our business, plans, prospects and references to future or success. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘project’, ‘intend’, ‘plan’, ‘believe’, and other similar words are intended to identify these forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining our actual future results or outcomes. Consequently, no forward-looking statement can be guaranteed. Our actual results or outcomes may vary materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Insight and BNY Mellon Securities Corporation are subsidiaries of BNY Mellon. BNYMSC is a registered broker and FINRA member. BNY Mellon is the corporate brand of the Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. Products and services may be provided under various brand names and in various countries by subsidiaries, affiliates and joint ventures of the Bank of New York Mellon Corporation where authorized and regulated as required within each jurisdiction. Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any government entity) and are not guaranteed by or obligations of the Bank of New York Mellon Corporation or any of its affiliates. The Bank of New York Mellon Corporation assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection there with. Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of BNY Mellon Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds and (iii) associated persons of BNY Mellon Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms.

Disclaimer for Non-US Clients: Prospective clients should inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the purchase and ongoing provision of advisory services. No regulator or government authority has reviewed this document or the merits of the products and services referenced herein.

This document is directed and intended for ‘institutional investors’ (as such term is defined in various jurisdictions). By accepting this document, you agree (a) to keep all information contained herein (the ‘Information’) confidential, (b) not use the Information for any purpose other than to evaluate a potential investment in any product described herein, and (c) not to distribute the Information to any person other than persons within your organization or to your client that has engaged you to evaluate an investment in such product.

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