quarterly research conference call 10am pst

SEATTLE | 206.622.3700 LOS ANGELES | 310.297.1777 www.wurts.com

10am PST

January 28, 2014

QUARTERLY RESEARCH CONFERENCE CALL

December 2013 Quarterly Research Conference Call

Dial in: (888) 290-7503 US(862) 255- 5354 International

URL: http://www.infiniteconferencing.com/Events/wurts/

Participant Code: 81460974

Playback Info:Dial (888) 539‐4649Replay code (99604) followed by the # sign.

Audio Options: You may choose to listen through the webcast on your computer or dial in.

Instructions:Please login to the above website and/or dial in the number above and use the provided participant code. Questions can be asked by dialing *1 at the end of the presentation or by using the chat feature.

Introduction by: Jeffrey MacLean, Chief Executive Officer

Presented by: Scott Day, CFA, Managing Director Capital MarketsIan Toner, CFA, Director of Strategic Research

Jeffrey J. MacLeanCEO

Scott Day, CFAManaging Director

Capital Markets

Ian Toner, CFADirector of

Strategic Research

2

A N U P D A T E F R O M W U R T S & A S S O C I A T E S

3

2014 marks our 29th year serving institutional investors and the firm continues to grow.The firm has reinvested this growth back into additional personnel and resources devotedto better serving our clients.

The firm currently advises on over $74 Billion in client assets and we continue to rankamong the top consulting firms in the United States with regard to service quality,according to the Greenwich Associates Annual Consultant Survey.

Last year, we added new outsourced CIO (“OCIO”) client relationships, which now placesus 16th in worldwide OCIO assets under advisement, according to the most recentPensions & Investments survey.

Our clients continue to benefit from our increasing expertise in understanding the variousrisks within their portfolios. We now provide risk monitoring and analysis services on astandalone basis using Barra Analytics.

Wurts & Associates remains 100% employee‐owned and recently added Jeffrey Scott,Chief Investment Officer, as our newest shareholder.

We appreciate the opportunity to serve our clients and we look forward to an exciting2014.

M A Y Y O U L I V E I N I N T E R E S T I N G T I M E S

4

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

S&P 500 MSCI EAFE MSCI EM IntermediateGov't

US High Yield EM Bonds Gold

2013 Total Returns

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


US High Yield EM Bonds Gold

2013 Historical Percentile Rank

‐80%‐60%‐40%‐20%0%20%40%60%80%100%120%140%


US High Yield JP EMBI Gold

2013 Return Median Return

Top 10%

Bottom 10%

Since Inception Historical Returns

Source: MPI, Bloomberg, Wurts

Source: MPI, Bloomberg, Wurts Source: MPI, Bloomberg, Wurts

A L L A B O U T T H E P A N D N O T T H E E

5

Trailing 12-Month Growth

0

5

10

15

20

25

05101520253035404550

1978 1983 1988 1993 1998 2003 2008 2013

Russell 2000 Regular P/E

S&P 500 Shiller P/E

S&P 500 Shiller P/E (Left) Russelll 2000 Regular P/E (Right)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Return P/E Growth Operating Earnings Growth

S&P 500 Russell 2000

‐20%

‐10%

0%

10%

20%

30%

40%

50%

Return P/E Growth Operating EarningsGrowth

S&P 500 Russell 2000

2013 Historical Percentile Rank Historical P/E Ratio

Source: MPI, S&P, Bloomberg, Wurts

Source: S&P, Bloomberg,, WurtsSource: MPI, S&P, Bloomberg, Wurts

I N V E S T I N G D E A L S I N P R O B A B I L I T I E S , N O T C E R T A I N T Y

6

Bulls ‐ Bears % of Time 5 Weeks 10 Weeks 20 Weeks 52 Weeks< ‐20% 7% 0% 1% 3% 16%

‐20 to ‐10% 7% 1% 2% 3% 14%‐10 to 0% 10% 1% 2% 4% 12%0 to 10% 17% 2% 3% 5% 11%10 to 20% 20% 1% 2% 3% 7%20 to 30% 19% 1% 1% 2% 5%30 to 40% 14% 0% 1% 2% 6%>40% 6% 0% 0% 1% 2%

Investor Intelligence Bulls ‐ Bears Subsequent S&P 500 Returns

Investors Intelligence Sentiment Index

Investor Intelligence Level and S&P 500 ReturnsNAAIM Survey of Active Manager Sentiment

Source: Investors Intelligence

Source: Investors IntelligenceSource: National Association of Active Investment Managers

R E A L L Y – W E ’ R E B A C K H E R E A G A I N ?

7

$‐

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

1997 1999 2001 2003 2005 2007 2009 2011 2013

$‐

$50

$100

$150

$200

$250

$300

$350

$400

1999 2001 2003 2005 2007 2009 2011 2013

Covenant-Lite Loan Issuance ($Billions)

High Yield Underwriting Volume ($ Billions) NYSE Margin Debt vs S&P 500

Margin debt is up 100 times over the past 39 years

Source: Bloomberg, Wurts

Source: Bloomberg, Wurts Source: NYSE, S&P, Bloomberg, Wurts

T H E B E R N A N K E W A S I N C O N T R O L

8

600

1100

1600

2100

2600

3100

3600

4100

500

700

900

1100

1300

1500

1700

2008 2009 2010 2011 2012 2013

Fed Ba

lance Sheet

S&P 50

0

S&P 500 Fed Balance Sheet

QE 1‐9%

QE 1 Expanded

50%

QE 223%

Operation Twist19%

QE Infinity32%

‐16% ‐17%‐6%

Correlation = 94%

$0

$10

$20

$30

$40

$50

$60

$70

$80

Jan‐14 Mar‐14 May‐14 Jul‐14 Sep‐14 Nov‐14No MeetingMeeting

Projected 2014 QE (Billions)

Source: S&P, Federal Reserve, Bloomberg, Wurts

Source: Hank BlausteinSource: Bloomberg, Wurts

The S&P 500 and The Fed

T H E T R O U B L E W I T H T R A N S I T I O N

9

Hope of “transition”

Recognition of reality

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

1 11 21 31 41 51 61 71 81 91 101 111 121 131 141

Total R

eturn

Trading DaysEnd Of QE 1 End of QE 2 End of QE 3 Traditional Policy: Avg After Tightening

Source: S&P, Federal Reserve, Bloomberg, Wurts

S&P Total Return After Fed Tightening

Q E L O S T I N T R A N S L A T I O N

10

Sources: BLS, Federal Reserve, Bloomberg, Wurts

Sources: BEA, Bloomberg, Wurts

Sources: BLS, Federal Reserve, Bloomberg, Wurts

GDP

Labor Market Inflation

M I S S I N G T H E M A R K

11

Sources: Federal Reserve, Bloomberg, Wurts

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2010 2011 2012 2013 2014

Actual

Most Recent Fed Forecast

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

Aug‐11 Nov‐11 Feb‐12 May‐12 Aug‐12 Nov‐12 Feb‐13 May‐13

Real GDP An

nualized

(%)

Actual

1.0

1.5

2.0

2.5

3.0

Nov‐11 Feb‐12 May‐12 Aug‐12 Nov‐12 Feb‐13 May‐13 Aug‐13

Real GDP An

nualized

(%)

Sources: BEA, Bloomberg, Wurts Sources: BEA, Bloomberg, Wurts

Actual

Q2 2013 Real GDP ForecastQ1 2013 Real GDP Forecast

Fed Real GDP Forecast vs Actual

R E A C H I N G E S C A P E V E L O C I T Y

12

EBITDA and Nominal GDP YoY Growth

Source: S&P, Bloomberg, Wurts



‐70%

‐60%

‐50%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

2007 2008 2009 2010 2011 2012 2013

Forecast earnings are persistently higher than actual earnings.

‐5%

‐3%

‐1%

1%

3%

5%

7%

9%

‐30%‐25%‐20%‐15%‐10%‐5%0%5%10%15%20%25%

1990 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Growth in EBITDA (Left) Nominal GDP YoY (Right)

S&P 500 Operating Earnings Forecast Error Rate

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014

Trailing 12 Months Operating Earnings Estimate 12 Month Operating Earnings

S&P 500 Operating Earnings

A H I T C H I N T H E ‘ G I D D Y U P

13

0.5%

1.5%

2.5%

3.5%

4.5%94

95

96

97

98

99

100

101

102

2010 2011 2012 2013 2014SMR Duration Survey (Left) 10 Year Rates (Right)

6.8%

9.2%

0.9%

0.7%

0.5%0.3%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

1995 ‐ 2004 Net Margin Lower Interest Expense Lower Energy Cost

(21%) (12%)

SMR Duration Survey & 10 Year Rates

(38%)

(29%)

Source: CSFB, S&P, Bloomberg, Wurts

Source: S&P, US Treasury, Bloomberg, Wurts Source: Stone & McCarthy, US Treasury, Bloomberg, Wurts

Contribution to Increase in S&P 500 Net Margin

S&P 500 & Rates

H A P P Y B I R T H D A Y F E D

14

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

1984 1988 1992 1996 2000 2004 2008 2012

Trillions

Required Reserves Total Reserves

$0

$1

$2

$3

$4

$5

$6

0%

2%

4%

6%

8%

10%

12%

1984 1988 1992 1996 2000 2004 2008 2012

Interest Paymen

t (Millions)

Interest Rate (Fed

Fun

ds)

Interest Payment (Right) Interest Rate (Left)

Fed Required and Total Bank Reserves

Interest Paid on Excess Reserves

0%

20%

40%

60%

80%

100%

Current 1% 2% 3% 4% 5%

Interest Paid Interest Earned

Interest Paid vs Interest Earned

Source: Federal Reserve, Bloomberg, Wurts

Source: Federal Reserve, Bloomberg, WurtsSource: Federal Reserve, Bloomberg, Wurts

H A P P Y B I R T H D A Y F E D

15



10

20

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

16%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2014 2015 2016 Long RunFed Weighted Average Projection Market Expectation

Fed Projected Funds Rate

Fed Balance Sheet Leverage A Bottom in Rates?

Source: Bloomberg, Wurts

W H Y T A P E R N O W ?

16

Sources: S&P, Bloomberg, Wurts

The Data Dependency Camp

The Financial Stability Camp

Source: BEA, BLS, Bloomberg, Wurts

E U R O P E : D O W N , B U T N O T O U T

17

Sources: Eurostat, Organization for Economic Cooperation & Development, Bloomberg, WurtsSources: ECB, Eurostat, Bloomberg, Wurts

Sources: Eurostat, Bloomberg, Wurts

“whatever it takes”

‐10% ‐8% ‐6% ‐4% ‐2% 0% 2%

Greece

Spain

Portugal

Italy

France

Germany

EurozoneDomestic Demand GDP

Real GDP & Domestic DemandECB Balance Sheet & Money Supply Growth

Growing Economic Concerns

J A P A N : H O W I S T H E E X P E R I M E N T G O I N G ?

18

GDP

Sources: Bank of Japan, TSE, Bloomberg, WurtsSources: Economic & Social Research Institute of Japan, Bloomberg, Wurts

Sources: Ministry of Internal Affairs & Communication, Bloomberg, Wurts

Inflation

Capital Markets

E M : O P P O R T U N I T Y O R W I L L T H E C H E A P G E T C H E A P E R ?

19

Sources: MSCI, S&P, Bloomberg, WurtsSources: Banco Central do Brazil, People’s Bank of China, Central Bank of Russia, Bloomberg, Wurts

Sources: IBGE, Bloomberg, Wurts

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

‐50%

0%

50%

100%

150%

200%

2009 2010 2011 2012 2013

Total R

eturn Differen

ce

Total R

eturn Since 20

09

Difference (Right) S&P 500 (Left) MSCI EM (Left)

Equity Total Return Comparison

Average GDP

Central Bank Policy

Economic Overview

E C O N O M I C A N D C A P I T A L M A R K E T S U M M A R Y

20

G L O B A L E C O N O M I C S U M M A R Y

Summary: Global economic growth trend remains slow and low with some recent improvement in EAFE. The underlying strength of theeconomies remains historically weak.

U.S.: Not much change over the past 6 months. Growth trends remain slightly positive, but historically weak. EAFE: A nice recovery over the past 6 months and both the trend and underlying strength improved. EM: A slight improvement in trend growth, but the underlying economies remain historically weak. Canada: Remains historically weak and trending lower.

Outlook (Next 3-6 Months): Look for U.S. growth to remain slow (with the risk of GDP slipping toward 1%). EAFE growth trend looks good andcould surprise on the upside toward 1%, while EM growth trends are likely to remain weak unless the central banks begin to provide stimulus.

21

US

EAFE

EM

Canada

Slowing Growth

Expanding Growth

Strong

Weak

*Large box is current, small box is six months ago

G L O B A L E Q U I T Y S U M M A R Y

Summary:While the U.S. is mostly unchanged, both EAFE and EM have experienced broad changes over the past 6 months. U.S.: The trend remains slightly bullish, but historically rich. EAFE: The trend remains slightly bullish and the economic improvements have moved the valuation from slightly rich to neutral. EM: A moderate change in trend from neutral toward slightly bullish. The poor performance pushed valuations from rich to cheap. Canada: Similar to EM with a moderate change in trend from neutral to slightly bullish, while valuations remain rich.

Outlook (Next 3-6 Months): While the general equity market trend remains slightly bullish to neutral, valuations remain neutral to historicallyrich. We need to respect both the slightly bullish trend as well as the rich valuations. Thereby, our outlook for equities remains neutral until we see thetrend move from neutral to bearish.

22

US

EAFE EM

Canada Lower Equities

Higher Equities

Cheap

Rich

* Large box is current and small box is six months ago

G L O B A L R A T E S S U M M A R Y

Summary:With the historic rise in global interest rates, the bearish downtrend remains strong (higher rates); however, valuations havemoved from historically rich toward cheap (except for EAFE).

U.S., EM, Canada: The trend remains firmly bearish (higher rates), but the sharp move higher in rates has improved valuations from rich tocheap.

EAFE: The trend toward higher rates continues, and with the move, valuations are neutral.

Outlook (Next 3-6 Months):We expected rates to move lower to correct for the cheap valuations. U.S. rates rallied 60 bps, but then rose onceagain. The valuations have yet to correct and we expect to see rates move lower once again, possibly below the prior 2.4% low in US 10‐year yields.

23

US

EAFE

EM

Canada

Higher Rates

Lower Rates

Cheap

Rich


C R E D I T S U M M A R Y

Summary: The move toward wider credit spreads has been slow with the overall trend in credit being fairly flat. Investment Grade (IG): While valuations have remained unchanged, the trend has moved from slightly bullish (tighter spreads)/neutral to

slightly bearish (wider spreads). High Yield (HY): Similar to IG, the valuation has not significantly changed, but the trend has slowed by moving from slightly bullish toward

neutral. EM:Much like equities, the most significant move was in EM debt. The trend has moved slightly, but valuations moved from rich to neutral.

Outlook (Next 3-6 Months): Look for spreads to continue to press wider with the potential for an increase in the speed of the spread wideningas the equity market correction grows deeper. Expect to see HY join IG and EM in the trend toward wider spreads.

24

US IG US HY

EM (USD)

Wider Spreads

Tighter Spreads

Cheap

Rich


C A P I T A L M A R K E T S U M M A R Y

25

Global equities trend remains slightly bullish EAFE currently offers the best relative value while the S&P/TSX offers the least value. S&P 500 trend remains slightly bullish, but valuations are historically rich.

The trend in the global interest rates remains bearish (expecting higher rates) The move toward higher rates since July 2012 has been one of the worst in history and changed the valuation from rich toward

neutral, with the exception of EAFE rates.

Credit Spreads remain neutral in trend but rich in valuation With record issuance in High Yield and a dramatic return of covenant light loans, credit remains a focus for investors though spreads

have shown little change over the past several quarters.

C A P I T A L M A R K E T S U M M A R Y

S&P 500

MSCI EAFE

S&P/TSX

MSCI EM

US Rates

EAFE Rates

Canada Rates

EM Rates

IG Credit

HY Credit

EM Credit (USD)Commodity

‐100%

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

‐100% ‐80% ‐60% ‐40% ‐20% 0% 20% 40% 60% 80% 100%

Bullish Trend

Cheap

RichBearish Trend

I T W A S A V E R Y G O O D Y E A R – F O R S O M E

26

Q & A Session

Thank you for participating in our 4Q 2013 Quarterly Research Conference Call. We are now open for questions. Questions can be asked through the chat feature or by pressing *1 if you are dialed into the conference.

Dial in:

(888) 290-7503

Participant code:

81460974

27

quarterly research conference call 10am pst

Documents