q4 2017 market chartbook · u.s. economic output. alternatively, it can be thought of as the final...
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Q4 2017 Market ChartBook
December 31, 2017
Baird Private Wealth Management
Wealth Management | Capital Markets – Investment Banking | Private Equity | Asset Management Charlotte Chicago Frankfurt London Milwaukee Shanghai
Table of Contents
03 19 26 35 Economy & Market Domestic Equity International Equity Fixed Income
Market Highlights The Markets at a Glance Returns by Asset Class 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 Investment Style Leadership 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 Q4 2017 Market ChartBook
4 Robert W. Baird & Co. Member SIPC.
Q4 2017 Market Highlights
Economy and Market At a Glance: Equity prices continued to push higher this past quarter driven by a strong economic backdrop, new tax reform legislation signed into law and the digestion of mania-engulfed cryptocurrencies. Final revisions for Q3 GDP came in at an annualized rate of 3.2%, registering the fastest growth rate since 2014. While financial conditions remain loose, the Fed and its next Chairman, Jerome Powell, will look to stand firm with its hawkish rhetoric expecting to raise rates three times in 2018. Speculation on the directional moves of the yield curve in 2018 has been the topic du jour in recent weeks within fixed income.
Economy: November’s inflation readings were absorbed with mixed emotions. Headline CPI rose to 2.2% YoY largely impacted by higher gasoline prices whereas Core CPI, which excludes food and energy, slowed to 1.7% YoY. A modest decline in apparel along with a slight pullback in housing prices put some downward pressure on inflation during the month. On a positive note, momentum is picking up through producer prices, rising 3.1% YoY in November. The US labor market has continued to show strength as well, adding an average of 152,000 jobs for the previous three months through November. The unemployment rate finished the quarter at 4.1% while the participation rate fell 0.2% to 62.7%.
Fed Speak: The FOMC received a lot of attention this past quarter with President Trump’s announcement and subsequent confirmation hearings of the next Fed Chair, Jerome Powell, and the much anticipated rate hike in mid-December. The FOMC will go through a big shift next quarter with Chairwomen Yellen’s term coming to an end in February along with President Trump filling current vacancies within the Fed.
Domestic Equity At a Glance: The S&P 500 generated a solid 6.6% return during the quarter. Strong Q3 earnings growth and continued optimism among equity investors has led to attractive returns. Market Cap and Style: Among market cap segments, large cap equities outperformed mid and small-cap stocks while growth remained in favor relative to its value-style counterpart during the quarter.
Sector: Leading sectors in Q4 include Consumer Discretionary (9.9%), Information Technology (9.0%), and Financials (8.6%). Consumer discretionary’ s outperformance was driven in part by a heavy weighting of e-commerce behemoth Amazon.com. Favorable economic drivers for discretionary spending also improved throughout the quarter. Losers in Q4 include Healthcare (1.5%) and Utilities (0.2%). In recent months, Utilities underperformed given a jump in interest rates and a rotation away from the highly-regulated, highly-leveraged sector which likely won’t benefit as much from tax reform kept performance suppressed during the quarter.
International Equity At a Glance: International equities have slowed relative to previous quarters this year but still produced strong returns in Q4 up 4.2% and emerging markets outpacing developed rising 7.5%. Global central banks have largely followed the Fed as the ECB announced rates will stay unchanged while in October announced their QE was halved from €60B to €30B per month. Global growth has stabilized in Asia leading to healthy results from Singapore (10.1%) and Japan (8.5%). Emerging markets continued to produce robust returns, led by South Africa (21.5%), India (11.8%), and Korea (11.6%).
Fixed Income At a Glance: The broad US bond market, as measured by the Bloomberg Barclays US Aggregate Index, returned 0.4%. The US Treasury curve ended the quarter significantly flatter with the 2s/10s spread tightening to 52bps. This flattening is the result of shorter yields rising more than long yields, driven by the expectation of continued tightening while inflation remains subdued. On the international front, global fixed income investors benefited from continued demand due to quantitative easing, a supportive economic backdrop and a weaker US dollar. Taxable Bonds: Risk assets produced solid returns for investors this past quarter and exposure to non-US fixed income boosted outperformance in Q4. In the US, investors were more averse to credit risk during the quarter as several idiosyncratic and sector specific concerns led to short term spread volatility, but both investment grade and high yield spreads ended the quarter tighter by 8bps and 1bps respectively. High yield and investment grade debt delivered 0.4% and 1.2% respectively while laggards for the quarter include Asset Backed Securities and US Agency debt returning -0.01% and -0.02%. A bias towards higher quality issues helped investors this past quarter with BBB-rated debt underperforming other investment grade issues.
Municipal Bonds: Municipal bonds outperformed their taxable peers advancing 0.8% this past quarter. In Q4, investors were impacted by new tax reform legislation signed into law. Muni bond prices experienced some downward pressure given record issuance and supply surging to almost $60B. Issuers rushed to compensate for the possible elimination of some types of tax-exempt bonds as a part of the tax overhaul. Leaders in Q4 included taxable and high yield munis delivering 1.5% and 1.8% respectively.
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Markets at a Glance As of December 31, 2017
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 2016 2015 2014 Benchmark
U.S. Stocks
Large Cap Value 5.3 13.7 13.7 8.7 14.0 7.1 17.3 (3.8) 13.5 Russell 1000® Value
Large Cap Growth 7.9 30.2 30.2 13.8 17.3 10.0 7.1 5.7 13.0 Russell 1000® Growth
Mid Cap 6.1 18.5 18.5 9.6 15.0 9.1 13.8 (2.4) 13.2 Russell Midcap®
Small Cap 3.3 14.6 14.6 10.0 14.1 8.7 21.3 (4.4) 4.9 Russell 2000®
International Stocks
Developed Markets 4.2 25.0 25.0 7.8 7.9 1.9 1.0 (0.8) (4.9) MSCI EAFE (Net)
Bonds
Short-Term Taxable (0.2) 0.8 0.8 0.9 0.8 1.9 1.3 0.7 0.8 BBgBarc 1-3 Yr Govt/Credit
Intermediate-Term Taxable (0.2) 2.1 2.1 1.8 1.5 3.3 2.1 1.1 3.1 BBgBarc Intermed. Govt/Credit
Short-Term Municipal (0.5) 1.1 1.1 0.7 0.8 1.8 0.2 0.8 0.7 BBgBarc 1-3 Yr Municipal
Intermediate-Term Municipal (0.2) 4.5 4.5 2.4 2.4 4.3 (0.5) 3.3 6.1 BBgBarc 7 Yr Municipal
Cash
Cash/Cash Equivalents 0.3 0.8 0.9 0.4 0.3 0.3 0.3 0.1 0.0 Citi 3 Month T-bills
Satellite
High Yield 0.4 7.5 7.5 6.4 5.8 7.9 17.5 (4.6) 2.5 BofA/ML High Yield Master II
Real Estate 2.6 9.8 9.8 6.5 9.3 7.0 7.6 2.1 27.2 DJ US REIT
Commodities 4.7 1.7 1.7 (5.0) (8.5) (6.8) 11.8 (24.7) (17.0) Bloomberg Commodity
Emerging Markets 7.4 37.3 37.3 9.1 4.3 1.7 11.2 (14.9) (2.2) MSCI Emerging Mkts (Net)
Trailing Returns (%) Annual Returns (%)
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22%
19%
15%
39%
24% 23% 22% 22% 21%
13%12%
11%
-1% -1%
30%28%
24% 24%22% 22%
20%
17%
54%
48%
39%37%
29%
24%
16%
6%8% 7% 6% 5%
4% 3% 2% 2%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Returns by Asset Class As of December 31, 2017
Source: Morningstar Direct. Asset classes are represented by the following benchmarks: Large Cap (S&P 500), Mid Cap (Russell Mid Cap), Small Cap (Russell 2000), Cons. Discretionary (S&P 500 Sectors/Consumer Discretionary), Cons. Staples (S&P 500 Sectors/Consumer Staples), Energy (S&P 500 Sectors/Energy), Financials (S&P 500 Sectors/Financials), Health Care (S&P 500 Sectors/Health Care), Industrials (S&P 500 Sectors/Industrials), Info. Technology (S&P 500 Sectors/Info. Technology), Materials (S&P 500 Sectors/Materials), Telecom. (S&P 500 Sectors/Telecommunications), Utilities (S&P 500 Sectors/Utilities), Real Estate (S&P 500 Sectors/Real Estate), Australia ((MSCI Australia), Canada (MSCI Canada), France (MSCI France), Germany (MSCI Germany), Japan ((MSCI Japan), Switzerland ((MSCI Switzerland), United Kingdom (MSCI United Kingdom), United States (S&P 500), Brazil (MSCI Brazil), China (MSCI China), India (MSCI India), Korea (MSCI Korea), Mexico (MSCI Mexico), Russia (MSCI Russia), South Africa (MSCI South Africa), Taiwan (MSCI Taiwan), Agency (BBgBarc US Agency), Broad Market (BBgBarc US Agg. Bond), Corporate (BBgBarc US Corporate IG), High Yield (BBgBarc US Corporate HY), Municipal (BBgBarc Municipal), TIPS (BBgBarc US Treasury US TIPS), Treasury (BBgBarc US Treasury)
Year-to-Date Performance of Various Asset Classes
Market Cap
U.S. Sectors
International Markets
Emerging Markets
Fixed Income
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2,200
2,250
2,300
2,350
2,400
2,450
2,500
2,550
2,600
2,650
2,700
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Adju
sted
Clo
sing
Lev
el
S&P 500 Index As of December 31, 2017
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: +6.1% Q2: +3.1% Q3: +4.5% Q4: +6.6%
8 Robert W. Baird & Co. Member SIPC.
Economic Growth As of September 30, 2017
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
Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15
GD
P G
row
th (
%)
-10
-8
-6
-4
-2
0
2
4
6
8
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Con
trib
utio
n to
GD
P G
row
th
(%)
Personal Consumption Private InvestmentGovt. Spending Next Exports
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Inflation Watch As of November 30, 2017
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
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Year
-Ove
r-Ye
ar C
hang
e in
CP
I Headline CPICore CPI
Components Weight (%) 12-mo Change (%) Components Weight (%) 12-mo Change (%)
Headline CPI 100 2.2 Core CPI 79 1.7
Housing 43 2.8 Food 14 1.4
Transportation 15 4.4 Energy 7 9.4
Food & Beverage 15 1.4
Medical Care 8 1.7
Education/Communication 7 (1.7)
Recreation 6 1.4
Apparel/Clothing 2 (1.4)
Other 3 2.4
Headline CPI Core CPI: Headline less Food and Energy
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4.1
8
0
3
6
9
12
15
18
Nov-07 Nov-09 Nov-11 Nov-13 Nov-15 Nov-17
Unem
ploy
men
t Rat
e (%
)
U-3 Unemployment RateU-6 Underemployment Rate
-1,000
-800
-600
-400
-200
0
200
400
600
800
Aug-07 Aug-09 Aug-11 Aug-13 Aug-15 Aug-17
Chan
ge in
Pay
roll
(000
s)
62.7
60
61
62
63
64
65
66
67
Nov-07 Nov-09 Nov-11 Nov-13 Nov-15 Nov-17
Part
icip
atio
n Ra
te (%
)
Jobs Market As of November 30, 2017
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.
Jobs Gained/Lost Unemployment and Underemployment Rates
Labor Force Participation Wage Growth (y/o/y%)
2.6
0
1
2
3
4
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Wag
e Gr
row
th (%
)
11 Robert W. Baird & Co. Member SIPC.
Housing Market As of November 30, 2017
Source: Standard & Poor’s, US Department of Commerce: Bureau of Economic Analysis.
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.
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
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Inde
x Le
vel
$125,000
$175,000
$225,000
$275,000
$325,000
$375,000
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Median Price (New Homes)
Median Price (Existing)
80
100
120
140
160
180
200
220
240
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Inde
x Le
vel
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Units
(000
s)
New Housing Starts
Existing Home Sales
12 Robert W. Baird & Co. Member SIPC.
Consumer Health As of November 30, 2017
Source: Thomas Reuters/University of Michigan, US Department of Commerce: Bureau of Economic Analysis.
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.
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
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Inde
x Le
vel
-4
-2
0
2
4
6
8
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Cons
umer
Spe
ndin
g Gr
owth
(%)
$32,000
$34,000
$36,000
$38,000
$40,000
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-170
2
4
6
8
10
12
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Pers
onal
Sav
ings
Rat
e (%
)
13 Robert W. Baird & Co. Member SIPC.
Corporate Profitability
Source: BEA, Bloomberg, Standard & Poors, Baird analysis. Past performance is not a guarantee of future results.
Corporate Profitability
Earnings power ultimately drives long-term changes to stock prices. These two charts display how profitable US corporations are. The top chart measures revenues (top line growth) and earnings (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
$140
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17
Earnings Per Sh (right axis)
Revenues Per Sh (left axis)
Corporate Profits (% of GDP)
3%
6%
9%
12%
Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17
Corp
orat
e Pr
ofits
/GDP
As of September 30, 2017
14 Robert W. Baird & Co. Member SIPC.
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%
20%
40%
60%
80%
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Per
cent
of T
radi
ng D
ays
% of days up/down 2% or more
% of days up/down 1-2%
As of December 31, 2017
0
10
20
30
40
50
60
70
80
90
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17
VIX
Leve
l
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Commodity Markets As of December 31, 2017
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
$57.40
$0
$20
$40
$60
$80
$100
$120
$140
$160
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
WTI
Oil
Pri
ce ($
/b)
Gold Prices
1.75.1 2.8
-4.3
-36.4
31.2 29.4 29.2
12.8 10.95.8
-8.1-11.0 -12.1 -12.5
6.4
-40-35-30-25-20-15-10-505
101520253035
$1,291
$0
$500
$1,000
$1,500
$2,000
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Lond
on P
M G
old
($/o
z)
16 Robert W. Baird & Co. Member SIPC.
Energy Markets As of December 31, 2017
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)
$57.40
$0
$20
$40
$60
$80
$100
$120
$140
$160
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
WTI
Oil
Pri
ce ($
/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
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Bake
r Hug
hes
Oil
& G
as R
ig C
ount
Tota
l U.S
. Oil
Prod
uctio
n (m
mbb
/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
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Supp
ly /
Dem
and
Imba
lanc
es (M
Mbb
/d)
Glob
al O
il Su
pply
and
Dem
and
(MM
bb/d
)
Global Over/Under SupplySupplyDemand
Und
ersu
pply
O
vers
uppl
y
Natural Gas Prices (Henry Hub)
$2.95
$0
$2
$4
$6
$8
$10
$12
$14
$16
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Hen
ry H
ub N
atur
al G
as P
rice
($/m
mbt
u)
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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)
As of November 30, 2017
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
Money Market 340,833 613,001 (290,490) (431,604) (60,745) 23,827 40,622 24,080 52,648 84,147 66,165
Municipal Bond 14,353 12,758 75,969 16,043 (8,574) 54,251 (56,361) 32,748 21,822 33,533 34,678
Taxable Bond 112,649 61,001 333,826 246,664 190,178 329,181 34,920 110,193 29,820 199,509 365,101
Allocation 45,974 (21,999) 6,453 18,527 19,307 29,553 61,961 51,267 (20,669) (51,899) (22,129)
US Equity 37,163 709 (33,563) (21,054) (45,395) (41,163) 175,444 127,309 (60,053) (8,997) 18,600
International Equity 174,946 (41,542) 63,246 91,729 19,051 61,056 200,740 153,487 209,444 12,420 228,828
Alternative 11,561 19,820 28,434 24,006 23,172 17,902 49,512 20,076 20,516 (296) 8,757
Commodities 6,542 12,370 36,636 24,972 8,171 11,928 (32,890) (3,317) (1,526) 14,456 3,014
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
Ultrashort Bond 33.0% Allocation--85%+ Equity -10.8%
Long Government 33.3% Utilities -9.6%
Foreign Small/Mid Blend 25.1% Health -6.8%
Europe Stock 24.6% World Allocation -6.1%
Financial 18.1% Equity Energy -5.5%
Industrials 16.5% Allocation--70% to 85% Equity -4.2%
Bank Loan 12.8% Consumer Cyclical -4.2%
Prime Money Market 19.7% Large Growth -4.1%
Corporate Bond 21.9% Mid-Cap Growth -3.5%
Multisector Bond 17.6% Mid-Cap Value -3.4%
Biggest % Gainers/Losers by Asset Class
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Fund Flow Heat Map
Source: Morningstar Direct; Baird Analysis.
As of November 30, 2017
Asset Class 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
US Equity Large Cap Growth 0.1% -1.1% -1.8% -3.7% -2.9% -3.7% -1.3% -1.6% -0.9% -7.3% -3.8% Large Cap Blend 2.7% 5.3% -0.6% 0.0% 0.8% 1.9% 6.3% 7.0% -0.2% 4.4% 4.4% Large Cap Value 0.1% -2.3% -4.8% 0.6% 0.3% 0.2% 5.0% 3.0% -2.5% 1.6% -1.8% Mid Cap Growth 8.2% -5.2% -2.0% -1.0% -5.6% -3.8% 2.3% -4.0% -2.8% -9.2% -2.6% Mid Cap Blend 4.1% -0.9% 5.3% 4.3% -1.0% 4.0% 16.5% 7.6% 6.8% 2.3% 2.3% Mid Cap Value -2.7% -7.7% -1.4% 2.0% -0.2% -5.3% 5.7% 0.3% -4.4% -1.1% -4.2% Small Cap Growth -2.4% -2.4% 4.3% 0.3% -0.4% -3.7% 4.5% -7.2% -2.7% -6.2% -2.3% Small Cap Blend -1.9% 2.6% 5.2% 2.7% -4.0% -3.5% 9.0% 1.5% 0.3% 5.8% 2.1% Small Cap Value -2.2% 7.5% 4.4% 8.5% -2.8% -4.0% 5.0% -0.6% -0.2% 6.3% 0.1%
International Equity Internationl Growth 7.5% -3.2% 1.8% -3.2% -6.0% -2.6% 6.2% 5.0% 6.6% -1.8% 3.0% International Blend 22.7% 1.2% 8.8% 13.3% 6.7% 4.0% 15.6% 11.6% 19.9% 7.9% 15.9% International Value 5.0% -8.2% -4.7% 1.7% 6.1% 7.9% 14.7% 10.7% -0.2% -1.7% 4.6% Emerging Markets 19.4% 3.6% 32.5% 27.6% 7.0% 19.0% 9.2% 3.3% -0.7% 5.9% 14.5% Global Equity 8.8% -4.7% -5.4% -3.3% -3.1% -5.2% 5.8% 3.0% -1.1% -4.2% 0.2%
Fixed Income Short-Term Bond 1.4% -3.5% 70.4% 29.4% 9.4% 17.5% 11.8% 6.2% -0.7% 4.1% 8.9%
Intermediate-Term Bond 15.8% 2.6% 27.2% 9.5% 4.8% 12.6% -7.7% 4.7% 4.4% 10.6% 12.1%
High Yield Bond 3.3% 3.9% 28.9% 11.5% 10.5% 16.1% 0.4% -4.8% -2.6% 7.2% -5.7%
Bank Loan -9.9% -24.9% 44.3% 81.3% 33.5% 24.2% 93.6% -13.8% -16.5% 10.1% 11.8%
TIPS 6.5% 39.2% 56.3% 10.1% 10.6% 5.4% -22.6% -2.1% 3.5% 14.3% 14.4%
Short-Term Muni 4.4% 25.5% 106.1% 10.6% 4.4% 11.9% 4.6% 7.6% -1.8% 3.0% 4.8%
Intermediate-Term Muni 9.1% 8.8% 23.3% 7.1% 2.7% 14.5% -7.1% 13.4% 12.3% 10.4% 10.2%
High Yield Muni 1.3% -5.3% 27.9% 5.2% -1.3% 22.8% -15.0% 17.1% 5.1% 5.3% 11.1%
>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 Q4 2017 Market ChartBook
20 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017
Representative
Last Qtr YTD 1-Year 3-Year 5-Year 10-Year Std. Dev. Max. Loss P/E EPS Gr. Div. Yld. Benchmark2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0
Bellwethers
S&P 500 6.6 21.8 21.8 11.4 15.8 8.5 9.5 (8.4) 21.7 9.9 1.9 S&P 500
DJIA 11.0 28.1 28.1 14.4 16.4 9.3 10.1 (9.0) 20.3 9.3 2.2 Dow Jones Industrial Avg.
Market Cap
Mega 7.3 22.8 22.8 12.3 15.3 7.9 9.7 (8.4) 20.6 4.9 2.2 Russell Top 50
Large 6.8 23.0 23.0 11.9 16.0 8.4 9.5 (8.6) 20.6 9.8 2.1 Russell Top 200
Mid 6.1 18.5 18.5 9.6 15.0 9.1 10.4 (12.8) 20.6 9.7 1.8 Russell Midcap
Small 3.3 14.6 14.6 10.0 14.1 8.7 13.9 (16.8) 19.6 11.1 1.5 Russell 2000
Micro 1.8 13.2 13.2 8.9 14.3 7.7 15.2 (21.0) 16.8 (3.3) 1.3 Russell Micro Cap
Style
Value 5.1 13.2 13.2 8.7 14.0 7.2 10.1 (10.4) 17.8 8.4 2.5 Russell 3000 Value
Core 6.3 21.1 21.1 11.1 15.6 8.6 9.8 (8.8) 20.5 9.9 2.0 Russell 3000
Growth 7.6 29.6 29.6 13.5 17.2 9.9 10.1 (8.8) 24.2 11.8 1.4 Russell 3000 Growth
S&P 500 Sectors
Consumer Discretionary 9.9 23.0 23.0 12.8 17.6 13.5 11.6 (8.0) 23.5 11.4 1.4 S&P 500/Cons. Disc.
Consumer Staples 6.5 13.5 13.5 8.4 13.3 10.1 10.3 (7.5) 22.3 8.4 2.8 S&P 500/Cons. Staples
Energy 6.0 (1.0) (1.0) (0.2) 2.8 1.2 16.5 (38.7) 27.4 14.3 2.9 S&P 500/Energy
Financials 8.6 22.2 22.2 13.9 18.2 3.8 13.6 (15.2) 17.2 9.8 1.7 S&P 500/Financials
Health Care 1.5 22.1 22.1 8.3 17.6 11.0 11.7 (13.1) 23.5 9.4 1.6 S&P 500/Health Care
Industrials 6.1 21.0 21.0 11.9 16.7 8.6 11.2 (11.3) 21.8 9.8 2.0 S&P 500/Industrials
Information Technology 9.0 38.8 38.8 18.7 20.9 11.9 12.8 (8.2) 22.1 11.7 1.3 S&P 500/Info. Tech.
Materials 6.9 23.8 23.8 9.8 12.2 6.2 14.4 (22.7) 22.7 8.7 2.1 S&P 500/Materials
Telecomm 3.6 (1.3) (1.3) 8.0 7.7 5.1 13.9 (13.8) 15.3 2.8 5.3 S&P 500/Telecomm
Utilities 0.2 12.1 12.1 7.4 12.6 6.3 13.5 (12.7) 18.2 5.4 3.3 S&P 500/Utilities
Trailing Returns (%) 5-Year Risk Stats Other Metrics
21 Robert W. Baird & Co. Member SIPC.
6.6 6.1
3.35.3
7.9
5.56.8
2.0
4.6
21.8
18.5
14.613.7
30.2
13.3
25.3
7.8
22.2
0
5
10
15
20
25
30
35
Large Cap Mid Cap Small Cap Large Value LargeGrowth
MidValue
MidGrowth
SmallValue
SmallGrowth
Retu
rn (%
)
Last Quarter Year-to-Date
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.
As of December 31, 2017
Performance by Market Cap and Style
22 Robert W. Baird & Co. Member SIPC.
-1.3-1.0
6.312.1
13.521.0
21.822.122.2
23.023.8
38.8
-5 0 5 10 15 20 25 30 35 40
TelecommEnergy
Real EstateUtilities
Cons. StaplesIndustrials
S&P 500Health Care
FinancialsCons. Disc.
MaterialsInfo. Tech.
Return (%)
0.21.5
3.23.6
6.06.1
6.56.6
6.98.6
9.09.9
-5 0 5 10
UtilitiesHealth CareReal EstateTelecomm
EnergyIndustrials
Cons. StaplesS&P 500
MaterialsFinancialsInfo. Tech.
Cons. Disc.
Return (%)
Domestic Asset Class Performance
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.
As of December 31, 2017
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 22.7 21.7 1.9 9.9
Consumer Discretionary 23.0 23.5 1.4 11.4
Consumer Staples 21.4 22.3 2.8 8.4
Energy 30.8 27.4 2.9 14.3
Financials 17.3 17.2 1.7 9.8
Health Care 24.2 23.5 1.6 9.4
Industrials 23.4 21.8 2.0 9.8
Info. Tech. 24.8 22.1 1.3 11.7
Materials 26.6 22.7 2.1 8.7
Real Estate 35.7 37.4 3.4 7.3
Telecomm 15.2 15.3 5.3 2.8
Utilities 22.3 18.2 3.3 5.4
S&P 500 Sector Statistics
23 Robert W. Baird & Co. Member SIPC.
Investment Style Leadership
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.
As of December 31, 2017
Large Cap vs. Small Cap (Rolling 12-Month Periods)
-20
-15
-10
-5
0
5
10
15
20
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
12-M
o P
erfo
rman
ce D
iffer
entia
l (%
)
Large Cap Outperforms
Small Cap Outperforms
Value vs. Growth (Rolling 12-Month Periods)
-20
-15
-10
-5
0
5
10
15
20
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
12-M
o P
erfo
rman
ce D
iffer
entia
l (%
)
Defensive vs. Cyclical (Rolling 12-Month Periods)
-40
-30
-20
-10
0
10
20
30
40
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
12-M
o P
erfo
rman
ce D
iffer
entia
l (%
)
Value Outperforms
Growth Outperforms
Defensive Outperforms
Cyclical Outperforms
24 Robert W. Baird & Co. Member SIPC.
22.7
5
10
15
20
25
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
P/E
Ratio
(TTM
)
S&P 500 P/E 10-Year Average P/EAverage +1 Std. Dev. Average -1 Std. Dev.
22.1
5
10
15
20
25
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
P/E
Ratio
(TTM
)
Mid Cap 10-Year Average P/EAverage +1 Std. Dev. Average -1 Std. Dev.
23.7
5
10
15
20
25
30
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
P/E
Ratio
(TTM
)
Small Cap 10-Year Average P/EAverage +1 Std. Dev. Average -1 Std. Dev.
Historical Market Cap Valuations
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.
As of December 31, 2017
S&P 500 Valuation History
Mid Cap Valuations History Small Cap Valuation History
25 Robert W. Baird & Co. Member SIPC.
Historical Sector Valuation and Growth Ranges
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.
As of December 31, 2017
S&P 500 Sectors: 10-Year P/E Valuation Range
S&P 500 Sectors: 10-Year Earnings Growth Range
23.5 22.3
27.4
17.2
23.521.8 22.1 22.7
15.318.2
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
Ratio
10-Year Low
10-Year High
Current
Average
LEGEND
11.4
8.4
14.3
9.8 9.4 9.811.7
8.7
2.8
5.4
0
5
10
15
20
25
Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities
LT E
arni
ngs
Grow
th
26 Robert W. Baird & Co. Member SIPC.
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 June 2017: 362 for Large Growth, 298 for Large Value, 178 for Mid Growth, 103 for Mid Value, 205 for Small Growth, 109 for Small Value, 154 for International, and 213 for Global. Source: Morningstar Direct; S&P 500, MSCI, 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)
As of December 31, 2017
34%
78%
42% 47% 45%57% 57%
44%
0%
25%
50%
75%
100%
LargeGrowth
LargeValue
MidGrowth
MidValue
SmallGrowth
SmallValue
Int'l Global
Perc
ent o
f Tot
al
% Underperform
% Outperform
Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)
16%
37%20% 22%
31%44% 37%
53%
0%
25%
50%
75%
100%
LargeGrowth
LargeValue
MidGrowth
MidValue
SmallGrowth
SmallValue
Int'l Global
Perc
ent o
f Tot
al
% Underperform
% Outperform
International Equity Q4 2017 Market ChartBook
28 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017
Year-to-Date Performance
S&P 500 21.8%
Canada 16.9%
Mexico 16.3%
UK 22.4%
France 29.9%
Spain 27.7%
Germany 28.5%
Brazil 24.5%
Japan 24.4%
Hong Kong 36.2%
China 54.3%
India 38.8%
Australia 20.2%
South Africa 36.8%
Europe 26.2% Russia
6.1%
29 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017 Asset Class/Region Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2016 2015 2014 Benchmark
Broad Developed Markets
Developed Markets (USD) 4.2 25.0 25.0 7.8 7.9 1.9 1.0 (0.8) (4.9) MSCI EAFE (Net) USD
Developed Markets (Local Currency) 3.7 15.2 15.2 8.5 11.4 3.3 5.3 5.3 5.9 MSCI EAFE (Net) Local
Currency Effect (USD - Local Returns) 0.6 9.8 9.8 (0.7) (3.5) (1.4) (4.3) (6.1) (10.8)
Broad Emerging Markets
Emerging Markets 7.4 37.3 37.3 9.1 4.3 1.7 11.2 (14.9) (2.2) MSCI Emerging Markets (Net)
BRIC 6.6 42.0 42.0 11.5 5.5 0.0 12.4 (13.3) (2.6) MSCI BRIC
Returns by Style
Value 3.2 21.4 21.4 6.4 6.9 1.1 5.0 (5.7) (5.4) MSCI EAFE Value
Growth 5.2 28.9 28.9 9.2 8.8 2.7 (3.0) 4.1 (4.4) MSCI EAFE Growth
Large Cap 4.0 24.0 24.0 7.1 7.3 1.6 1.1 (2.1) (5.5) MSCI EAFE Large Cap
Mid Cap 5.2 29.0 29.0 10.7 10.6 3.6 0.7 4.4 (2.1) MSCI EAFE Mid Cap
Small Cap 6.1 33.0 33.0 14.2 12.9 5.8 2.2 9.6 (4.9) MSCI EAFE Small Cap
Returns by Region
Europe 2.3 26.2 26.2 7.3 8.0 2.0 0.2 (2.3) (5.7) MSCI Europe
Japan 8.5 24.4 24.4 12.0 11.5 3.4 2.7 9.9 (3.7) MSCI Japan
Pacific (ex Japan) 7.0 26.0 26.0 7.7 5.6 3.8 8.0 (8.4) (0.3) MSCI Pacific ex Japan
Trailing Returns (%) Annual Returns (%)
30 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017
Selected Country Performance (Latest Quarter) Selected Country Performance (Year to Date)
-8.0
-1.9
4.0
4.5
7.4
7.6
7.9
8.3
11.6
11.8
21.5
-3.7
-2.3
-1.5
0.9
1.6
1.8
2.8
4.2
5.7
6.8
8.5
-10 -5 0 5 10 15 20 25
Mexico
Brazil
Taiwan
Russia
MSCI Em. Mkts
China
Malaysia
Indonesia
South Korea
India
South Africa
Sweden
Italy
Spain
Netherlands
France
Switzerland
Germany
MSCI EAFE
U.K.
Australia
Japan
Return (%)
Emer
ging
Mar
kets
D
evel
oped
Mar
kets
6.1
16.3
24.5
24.8
25.1
28.5
36.8
37.3
38.8
47.8
54.3
20.2
21.8
22.4
23.6
24.4
25.0
27.7
28.5
29.6
29.9
32.7
0 10 20 30 40 50 60
Russia
Mexico
Brazil
Indonesia
Malaysia
Taiwan
South Africa
MSCI Em. Mkts
India
South Korea
China
Australia
Sweden
U.K.
Switzerland
Japan
MSCI EAFE
Spain
Germany
Italy
France
Netherlands
Return (%)
31 Robert W. Baird & Co. Member SIPC.
Financials18.6
Industrials10.7
Cons. Disc.12.0
Cons. Staples8.7
Info. Tech.18.2
Health Care10.9
Materials5.3
Energy6.3
Telecomm3.0
Utilities3.1
Real Estate3.1
-0.4
1.3
1.5
4.5
4.8
5.0
5.5
6.1
6.2
7.4
8.4
-5 0 5 10
Utilities
Health Care
Telecomm
Financials
Industrials
MSCI ACWI ex US
Cons. Staples
Cons. Disc.
Info. Tech.
Energy
Materials
Return (%)
14.5
16.5
18.1
18.6
23.9
26.0
27.2
28.1
29.4
32.2
51.1
0 5 10 15 20 25 30 35 40 45 50 55
Telecomm
Energy
Health Care
Utilities
Cons. Staples
Financials
MSCI ACWI Ex US
Cons. Disc.
Industrials
Materials
Info. Tech.
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.
As of December 31, 2017
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)
32 Robert W. Baird & Co. Member SIPC.
-15
-10
-5
0
5
10
15
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
12-M
o P
erfo
rman
ce D
iffer
entia
l (%
)
-50
-40
-30
-20
-10
0
10
20
30
40
50
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
12-M
o P
erfo
rman
ce D
iffer
entia
l (%
)
-30
-20
-10
0
10
20
30
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 Jun-17 Dec-17
12-M
o P
erfo
rman
ce D
iffer
entia
l (%
)Investment Style Leadership
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.
As of December 31, 2017
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
33 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017
Historical P/E Ratio
Current P/E Ratio of Selected Countries
15.4 14.9
19.3
13.9 13.114.8
16.3 16.7
13.312.0
8.6
12.8
16.6
21.8
16.4
7.3
02468
101214161820222426
UK France Switzerland Germany Spain Japan Australia Hong Kong Singapore China S. Korea Brazil S. Africa India Mexico Russia
P/E
Ratio
(TTM
)
Europe Asia-Pacific Emerging Markets
22.9
17.6
14.7
4
6
8
10
12
14
16
18
20
22
24
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
S&P 500 MSCI EAFE MSCI EM
34 Robert W. Baird & Co. Member SIPC.
21.7
16.5 15.4
19.3
14.9 13.9
18.0
13.1
16.5
12.3
18.1 18.8
14.816.3 16.7
13.3
0
5
10
15
20
25
30
35
P/E
Ratio
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.
As of December 31, 2017
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
12.0
8.6
13.4
21.8
7.3
16.3 16.715.3
12.8
16.418.6
12.1
16.6
0
5
10
15
20
25
30
P/E
Ratio
Fixed Income Q4 2017 Market ChartBook
36 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017 Bond Types Yield (%) Duration Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2016 2015 2014 Benchmark
Broad Developed Markets
U.S. Taxable Bonds 2.7 6.0 0.4 3.5 3.5 2.2 2.1 4.0 2.6 0.5 6.0 BBgBarc US Aggregate Bond
U.S. Municipal Bonds 2.4 5.8 0.7 5.4 5.4 3.0 3.0 4.5 0.2 3.3 9.1 BBgBarc Municipal Bond
International Bonds 0.8 7.8 1.6 10.5 10.5 1.8 (0.2) 2.4 1.5 (6.0) (3.1) BBgBarc Glbl Agg. Bond ex US
Broad Emerging Markets
Emerging Market Bonds 4.5 5.9 0.6 8.2 8.2 6.4 3.9 7.0 9.9 1.3 4.8 BBgBarc Emerging Markets
Taxable Bond Categories
Treasuries 2.2 6.2 0.1 2.3 2.3 1.4 1.3 3.3 1.0 0.8 5.1 BBgBarc US Treasury
Agencies 2.2 6.1 0.0 2.3 2.3 1.4 1.3 3.2 1.0 0.9 4.9 BBgBarc US Government
Mortgage-Backed 2.9 4.4 0.2 2.5 2.5 1.9 2.0 3.8 1.7 1.5 6.1 BBgBarc US MBS
Inv-Grade Corporate 3.3 7.6 1.2 6.4 6.4 3.9 3.5 5.7 6.1 (0.7) 7.5 BBgBarc US Corporate IG
High Yield Corporate 5.7 3.9 0.4 7.5 7.5 6.4 5.8 7.9 17.5 (4.6) 2.5 BofA/ML High Yield Master II
Municipal Bond Categories
Insured 2.5 6.6 1.2 5.4 5.4 3.0 3.4 4.6 0.7 2.9 10.3 BBgBarc Municipal Insured
State GO 2.2 5.2 0.4 4.7 4.7 2.4 2.4 4.1 (0.4) 3.0 7.3 BBgBarc Municipal State GO
Local GO 2.3 6.3 0.8 5.9 5.9 3.0 2.9 4.6 (0.1) 3.2 8.5 BBgBarc Municipal Local GO
Revenue 2.5 6.2 1.0 6.0 6.0 3.3 3.3 4.7 0.4 3.6 10.1 BBgBarc Municipal Revenue
High Yield 5.1 8.0 1.8 9.7 9.7 4.8 4.3 5.2 3.0 1.8 13.8 BBgBarc High Yield Muni
Annual Returns (%)Trailing Returns (%)Characteristics
37 Robert W. Baird & Co. Member SIPC.
-0.2 -0.1
2.81.7
0.8 1.1 1.20.40.9
2.6
10.5
7.6
4.85.8
7.4 7.5
-10123456789
101112
Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)
Retu
rn (%
)
QTR YTD
0.5 0.4 0.51.1
1.5 1.81.1
4.5
5.8
4.24.8
6.3
8.99.7
0
1
2
3
4
5
6
7
8
9
10
Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)
Retu
rn (%
)
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.
As of December 31, 2017
Taxable Bonds
Municipal Bonds
38 Robert W. Baird & Co. Member SIPC.
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.
As of December 31, 2017
The Relationship Between Yield and Volatility
International
Bank Loans
Emerging Mkts
Broad Bond Market
High Yield
Treasury
Mortgage-Backed Corporate
Municipal
HY Municipal
0
2
4
6
8
0 2 4 6 8 10 12
Yiel
d (%
)
10-Year Historical Volatility (Standard Deviation)
39 Robert W. Baird & Co. Member SIPC.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Yiel
d (%
)
Maturity
12/31/17 Current Qtr
12/31/16 Last Year
10yr
20yr
6mo
2yr
3yr
5yr
30 y
r
U.S. Treasury Bonds As of December 31, 2017
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
Current U.S. Treasury Yields by Maturity
1.391.53
1.89 1.982.20
2.40
2.74
0
1
2
3
3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr
Yiel
d (%
)
1
2
3
4
5
6
7
8
9
10
10-Y
ear U
.S. T
reas
ury
Rat
e (%
)
40 Robert W. Baird & Co. Member SIPC.
1.4 1.51.8 1.9 2.0
2.2 2.3 2.42.6 2.7
1.3 1.4 1.4 1.6 1.6 1.7 1.82.0
2.5 2.62.2 2.3 2.4
2.6 2.62.8 3.0
3.3
4.24.3
0
1
2
3
4
5
3mo 6mo 1yr 2yr 3yr 5yr 7yr 10yr 20yr 30yr
Yiel
d (%
)
Treasury
Municipal
Tax-Equivalent Yield
U.S. Treasury Bonds As of December 31, 2017
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
3.0
Yiel
d (%
)
Maturity
Treasury Municipal
20yr
3mo
6mo
2yr
3yr 10
yr
30yr5 yr
41 Robert W. Baird & Co. Member SIPC.
0
3
6
9
12
15
18
21
24
27
Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17
Effe
ctiv
e Yi
eld
(%)
4.1
5.5
10.3
0.7 3.8
26.8
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
Aver
age
Defa
ult R
ate
(%)
Effe
ctiv
e Yi
eld
(%)
2.9 2.7 2.93.5
0.0 0.0 0.1 0.2
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
Aver
age
Def
ault
Rat
e (%
)
Effe
ctiv
e Yi
eld
(%)
Corporate Bond Yields As of December 31, 2017
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-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17
Effe
ctiv
e Yi
eld
(%)
42 Robert W. Baird & Co. Member SIPC.
Bond Spreads As of December 31, 2017
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
1772
575
169 146 145336
97
4 36 10 (100)
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
High Yield Corporate MBS Global Agencies
Spre
ad o
ver T
reas
ury B
ond
(bps
)
Current Average
High Yield Corporate MBS Global Agencies
High 1772 575 169 146 145Average 607 186 48 64 29
Low 336 97 4 36 10
Current 343 93 25 36 14
Current/Historical Spreads (%)
43 Robert W. Baird & Co. Member SIPC.
Bond Sector Yields and Returns As of December 31, 2017
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.
Price Impact of a 1% Rise/Fall in Interest Rates
Bond Sector Avg. Maturity Avg. Yield Credit Quality YTD 1-Year Benchmark
Short-Term 2.8 2.0 AA+ 0.68% 0.68% BBgBarc US Treasury 1-5 Yr
Intermediate-Term 7.0 2.3 AA+ 2.17% 2.17% BBgBarc US Treasury 5-10 Yr
Long-Term 14.2 2.5 AA+ 4.19% 4.19% BBgBarc US Treasury 10-20 Yr
TIPS 8.3 2.3 AA+ 3.01% 3.01% BBgBarc US Treasury US TIPS
Aggregate Bond 8.3 2.7 AA 3.54% 3.54% BBgBarc U.S. Aggregate Bond
IG Corporates 11.0 3.3 AA+ 6.42% 6.42% BBgBarc U.S. Corporate IG HY Corporates 6.3 6.2 B 7.50% 7.50% BBgBarc U.S. High Yield - 2% Issuer Cap Floating Rates 2.6 1.8 A+ 2.31% 2.31% BBgBarc U.S. Floating Rate Notes MBS 6.8 2.9 AAA 2.47% 2.47% BBgBarc U.S. Mortgage Backed Securities ABS 2.3 2.3 AA+ 1.55% 1.55% BBgBarc Asset-Backed Securities
U.S. Treasuries
Returns
Broad Market
Sector Statistics
-2.7%
-6.3% -7.3%-9.9%
-0.1%-2.1%
-4.1%-6.2% -5.5% -6.2% -7.0%
2.8%
6.7%8.1%
11.4%
0.1%2.2%
3.8% 4.4% 4.9%6.3%
8.1%
-15%
-10%
-5%
0%
5%
10%
15%
1-5 YrTreasury
5-10 Yr Treasury TIPS 10-20 Yr.Treasury
Floating Rate ABS HY Corporates MBS Municipals Total BondMarket
IG Corporates
+1% -1%
44 Robert W. Baird & Co. Member SIPC.
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 March 2017: 103 for Short-Term Taxable, 227 Intermediate Term Taxable, 50 for Short-Term Municipal, and 77 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)
As of December 31, 2017
Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)
92% 92%
53% 57%
0%
25%
50%
75%
100%
Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal
Perc
ent o
f Tot
al
% Underperform
% Outperform
78%88%
32%48%
0%
25%
50%
75%
100%
Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal
Perc
ent o
f Tot
al
% 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. Russell 1000® Growth Index: Measures the performance of those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. A large-cap index. Russell 1000® Value Index: Measures the performance of those Russell 1000® Index companies with lower 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. Russell 2000® Growth Index: Measures the performance of those Russell 2000® Index companies with higher price-to-book ratios and higher forecasted growth values. A small-cap index. Russell 2000® Value Index: Measures the performance of those Russell 2000® Index companies with lower 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.