[Type here]

Presented By:

David Stahl Relationship Manager

248.223.3319

david.stahl@plantemoran.com

{2017 Road Ahead}

Jim Baird Chief Investment Officer

269.567.4552

jim.baird@plantemoran.com

Remaining steadfast amidst economic and political change: Investing in 2017

Webinar Transcript Presented by:

Remaining steadfast amidst economic and political change: Investing in 2017

2017 Road Ahead

Page 2 of 17

The following is a transcript of our 2017 Road Ahead Webinar that took place on Thursday, December 15, 2016. Please note this transcript has been edited to provide context and clarity.

Jim Baird: Welcome to everyone on the webinar today. We have a number of things we want to cover, but will begin by spending a few minutes talking about what happened during 2016. There certainly were some interesting developments over the course of the year, particularly in the last few months.

Next, we want to really focus on a more forward look. Number one is as it relates to the economy and where we think we're headed. Next, we will talk about inflation and drill down on that as we believe this is a story worth spending a little extra time on. Moving on to Fed policy, even in the aftermath of yesterday's meeting, we'll talk a little bit about where that's headed in the coming year. Then, of course, what all of this means for your investment portfolio and for the markets. With that, I'm going to go ahead and turn it over to Dave to kick off our discussion around last year.

Dave Stahl: Thanks, Jim. Before we get going on looking ahead, I think it's always a good idea to reflect on where we've been and what we've been through. It's certainly been a fun year. I say that a little tongue-in-cheek, but a healthy interaction this year between investment, economic, and political factors has certainly kept everyone busy.

When we look back at how we started 2016 and what we saw coming down the path at the beginning of the year, interest rates started off quite low and the expectation was they may head up from here. Over what time and how quickly,

2017 Road Ahead

Page 3 of 17

we don't know. Then they promptly fell for the first six months of the year and bond investors certainly were able to participate and enjoy that experience for a little while. Obviously, that's reversed course over the last month and a half or so and we'll get into that more as we get into the look ahead.

On the equity side, one of the continuing factors that we've looked at are the differences we're seeing between the U.S. and international markets from a fundamental and valuation perspective. We felt there was a case for international stocks to do well over the long-term, and as it turns out, that long-term component was pretty crucial. We saw a bounce back in emerging markets, which had a really tough 2015 although more developed economies, at least in terms of their investment returns for U.S. investors, were pretty muted thanks to the dollar strengthening as much as it did.

We felt bonds remained an effective diversifier even though the natural question with yields as low as they are would be, "Why am I holding bonds?" It was a very rocky year for the markets but it turned out very positively for U.S. equities. Bonds have really held up and served their purpose as a diversifier and less volatile piece of the portfolio. We continue to feel holding bonds makes sense going forward.

Heading back to the equity side, economic data was looking positive to start the year, remains fairly positive and the markets have reacted to that over that time period.

One of the things that's probably on a lot of listeners' minds would be, “What do we think about what just happened last month and what could the possible implications be going forward?” I'll turn it back over to Jim to spend some time on the election and our thoughts.

Jim Baird: Thanks Dave. It has been an interesting year. I think the experience of the last five weeks or so leading up to the election, and obviously the immediate aftermath, is really indicative of a broader story. I'm not going to spend the time to go through every item here that you see on the screen, but much of the Trump agenda that has been discussed to date has been focused on improving economic growth and many of the things that go along with that. Of course, he's talked a lot about corporate tax reform, personal tax reform, lowering marginal rates for both corporations and individuals.

Infrastructure spending is a big piece of it and a piece that, as we look forward from here, we think this has a strong likelihood of being one of the first things that they're able to get done in terms of actual passage of a bill with strong bipartisan support. It was a key plank in Secretary Clinton's platform as well and one that the congressional Democrats have indicated a willingness to work with the Trump Administration and congressional Republicans to get something done. A number of things in terms of regulatory reform - that's an area, in

2017 Road Ahead

Page 4 of 17

particular, where there's still much more in terms of questions and answers and in terms of how that will take shape.

The bigger issue that I wanted to discuss in this sense, though, is that I think as you look at what the dynamic was politically here in the U.S., it's really indicative of a broader global story that emanated out of Europe. It's been something that's been building over the last several years.

Here, what we're illustrating is the rise of the number of populist parties across the European continent, and certainly, even as early as a decade ago, you were starting to see some of those factors come into play a little bit more. Even in recent vintage, you look at 2015, and the traction that many of these populist parties are getting in Europe has increased tremendously.

For most of us, the focal point would be what occurred last June with the somewhat surprising decision on the Brexit vote, which hasn't fully been realized yet. Certainly much more to come on that, but it was indicative of, a broader movement globally. As we look at the pro-growth agenda that the Trump Administration is going to try to bring to bear here in the coming months, recognize that it's part of a much, much larger story that is likely to impact the global economy and capital markets in the years to come.

Dave Stahl: All right, let's spend some time taking a look at the economy and what may occur from here as we look forward, as we move onto economic growth, GDP. We've seen an improvement here in the second half of the year as investment,

2017 Road Ahead

Page 5 of 17

exports, and others have really built on where consumers had been doing for some time.

As we look forward, estimates continue to appear to be positive - up a few basis points from where we are today, around the 2.2% mark. Not exactly the type of growth to get overly excited about relative to what we'd love to see to move from here, but nonetheless growth.

Jim Baird: One thing I would add there, and the numbers that we presented are based on Bloomberg consensus estimates for economists, is that we really haven't seen these numbers reflect the full impact of potential tax, regulatory, and infrastructure spending bills that undoubtedly will hit the floor next year. Many economists are pointing to probably the latter half of the year before the impact of that should start to be felt. Recognize that these growth figures that we're presenting, for the most part, don't reflect some of the positive upside that most economists point to as a possibility later next year and into 2018.

Dave Stahl: You're seeing some of that sentiment come into data that is a little bit more up-to-date and would have captured post-election thinking and that's on the next slide. If you look at consumer confidence in terms of where consumers see things heading from here, there was really not much of a change in the underlying data that consumers would be looking at or feeling, but nonetheless, post-election there appears to be a sense of optimism from those surveyed. While obviously that's not shared across the board, it's showed up in some of these surveys, showed up in market performance thus far, and remains to be seen what will happen from here.

If we move on to unemployment, we've been talking about trends that have been moving north and positive. Unemployment has moved down, which obviously is a positive. That's something that's anticipated to stay steady as we move into next year with jobs being added somewhere in the potential 130,000- to 140,000-a-month clip based on, again, consensus estimates and where economists see us heading from here.

On the global front, continuing expectations for modest growth, but nonetheless a little bit of a positive trend. There's been a lot of concern about the global economy for a considerable time now with some of the structural issues that we worked through over the years and we still have to work through going forward. Nonetheless, some positive expectations that could very well influence what we see in the markets.

Then in terms of what's happened on the economic front across the globe in terms of economic surprises, if you will, we certainly see much more in the way of positives. Again, as we've looked at the various issues and news cycles that have come up throughout the year, Jim mentioned Brexit, the election this year was certainly very contentious and focused on a lot of negatives throughout the entire period. Nonetheless, we're seeing some positive surprises throughout

2017 Road Ahead

Page 6 of 17

that you're seeing play out in terms of how investors are viewing the markets and ultimately pushing performance up.

Jim Baird: I think that's a key point. It's not just the level of growth or the level of job creation or the level of inflation, it's “What does it end up being in reality relative to expectations?” Those positive surprises can be a real catalyst for market movement, as we've seen.

Let's turn a little bit and talk about inflation. As I mentioned earlier, this is something that, we think, could become a more meaningful story here in the coming quarters. As a starting point, we look at a few key measures of inflation. We're illustrating a couple things here. Number one is core CPI. The difference between the headline Consumer Price Index and core CPI is that the core strips out the impact of energy and food costs. The reason that's done is because those tend to be volatile and looking at the core numbers provides a better view of the overall trend.

What we've seen there is the core CPI has actually been north of 2% for much of this year, driven largely by higher inflation in services more so than in goods. At the same time, we see the core PCE deflator, which is the green series that you look at there. The question might be, "Why do we care about that?" That's really what the Fed is going to focus in on. When you think about the Fed's 2% target that they've stated they're trying to get to, that particular read is still south of that. It's trending in that direction, but that is part of the reason why the Fed, to this point, has maintained a pretty loose policy stance.

2017 Road Ahead

Page 7 of 17

Next on the topic of wage growth, when you look at some of the catalysts that have kept inflation down in recent years, wage growth would certainly be on the short list. Although we've seen much improvement in the jobs front -- the unemployment rate coming down, job creation trending positively for the past several years – wage growth has still been very, very limited. What we illustrate here: the orange series is the Atlanta Fed's hourly wage growth index. That has clearly been in an upward-sloping trend really over the last few years and has started to show perhaps a little bit more acceleration here in recent months.

Not surprising is that most economists now look at unemployment south of 5% as being a "full-employment economy". To the extent that we continue to see job creation, and perhaps layered on with stronger (economic) growth in the coming year, if we get that infrastructure bill through and some other things going, you could see even more upward pressure on wages, which should in turn push inflation higher as well.

The next slide here really illustrates that some of that is also showing up in terms of import prices. The biggest drag that we saw there over the last few years would have been the collapse in oil, in particular, but also other commodity prices. In addition, the strength of the dollar over the last few years has contributed to the U.S. effectively importing deflation from abroad. As you can see here, that has already started to turn. While there's some reasons to believe that the dollar could in fact remain on a strengthening trend for some time to come, it seems clear at this point that the oil and commodities cycle has bottomed. (The price of) oil has now more than doubled what it was at the bottom. Other commodity prices have stabilized as well. What was a disinflationary story has become a reflationary story.

Lastly, as we look forward from here, the Fed obviously watches inflation. They also keep an eye on inflation expectations or what consumers and businesses expect inflation to do in the future, because that can influence near-term behavior as well. Inflation expectations were already in an uptrend pre-election. If we were going to go back about a year ago, looking five years out, the expectation was for inflation of about 1.2%, arguably lower than should have been the case, but that's what the market was pricing in.

At the close of trading on November 8, the day of the election, it was at about 1.57%. Now, just five weeks later, it's up another 30 basis points. Looking out 10 years, you see a very similar trend. There's no question that inflation expectations are moving up as well. That was something that the Fed specifically referenced in their statement yesterday as they announced the decision to go ahead and raise rates.

2017 Road Ahead

Page 8 of 17

That's a nice transition into Fed policy. We have seen an evolution in their rate expectations over the last few years. Going back just over a year ago, September of 2015, we illustrate a number of things here, but the core takeaway from this slide is that as time has progressed over the last year, we've seen longer-run expectations come down. That's represented by that orange bar right at the top. What was the long-term target for the Fed fund's rate a year ago? It was 3.5%. Now it's about 2.9% based on the Fed's revised projections. What did they expect rates to be at in 2017? Well, about a year ago they were projecting that the fund's rate would be around 2.5% to 2.75% at the end of next year. Today, that's closer to 1%. You've seen those longer-term expectations come down, even as the Fed is now taking steps to raise rates.

We see it here in another context on the next slide. For as much as the Fed has lowered expectations, investors still remain quite skeptical of the Fed's ability to raise rates even at the pace that they've already suggested. The green line at the top illustrates the Fed's expectations out over the next three years as of September of 2015. Again, as of September 2016, you can see how far down that's come: about a 1% difference for the end of this year and closer to 2% for the end of 2019. The market is that dotted line at the bottom. For the next year or so, there's probably very little divergence in opinion. As you move out beyond that, it becomes more pronounced.

Then lastly in this area, we can't really look at monetary policy here in the U.S. without considering what's happening outside the U.S. When you look across the major developed economies, the Fed really stands alone in its tightening stance right now. Even if they increase rates relatively gradually, that is the path

2017 Road Ahead

Page 9 of 17

that they're on. At the same time, we look at the Bank of Japan, the ECB, the Swiss National Bank - all of whom are not only maintaining interest rates at or below zero, but are projected to do so for the next several years to provide support to their respective economies and currencies.

What does that mean? Obviously, a divergence globally creates a different environment, but it also has the potential to further support the dollar and, at some level, put a lid on long-term U.S. interest rates. Even if they continue to creep higher, U.S. treasuries are still going to look like an attractive option for investors outside the U.S.

Dave Stahl: Focusing on the investment front, we can move on to looking at how that's played out within the rate market.

If you look at the slide that we have up here, we chart out the yield curve and ultimately see how it has steepened, specifically as of late. The 10-year treasury, which is a key benchmark rate for the markets, has moved a lot this year on a relative basis. It's moved extremely both ways. It started the year just under 2.25%, moved all the way down to just under 1.4% in the summer, was around 1.8% before the election, and has skyrocketed to about 2.5% now (as of December 15). It's been a ride, so to speak, in the yield market, but ultimately it came back near to where we started.

At the same time, within the credit markets, investors have benefited not only from the yield movement, but credit spreads have come in quite significantly. So, if you look at this chart, we have basically a comparison of long-run

2017 Road Ahead

Page 10 of 17

averages, kind of a distribution around there, and then the current spreads that you're seeing throughout the market. As investors have flocked to equities, so too have they flocked to corporate credit, and ultimately investors have benefited in that area.

Jim Baird: It really speaks to the global thirst for yield. It's (about) finding yield wherever you can find it. As a result, you've seen those prices in many other sectors of the bond market bid up pretty highly at this point.

Dave Stahl: I mentioned this question earlier. “Why would I own bonds?” I think the next slide really speaks to that as well.

Why would you continue to own bonds if rates are going to rise from here? When I talk about the ride that it's been in the bond markets over the last month and a half, when we've seen a huge move in rates, bonds lost - give or take - around 3.5% and are still positive for the year. When you look over the long run on this chart in front of you, you can look at total returns within the bond market represented by the Barclays Aggregate Index, and returns in a domestic stock market, represented by the Russell 3000 Index. That's a very different experience, and there's a place for both within a diversified portfolio. We really view bonds as continuing to be that dry powder –that safer part of the portfolio – even if yields are on the lower end and have the potential to move up from here.

Moving to the equity side, from an earnings perspective, there's a view that there's room to move up from here given some of the items we brought up

2017 Road Ahead

Page 11 of 17

already. The questions that we continue to pose is “How much of that is already priced in and how can that play out in terms of total return for an equity investor?” Jim is going to touch on a slide next that ties the earnings component into what drives returns.

Jim Baird: Some of you who have seen the materials we presented in prior years and other presentations are probably already familiar with this. One of the things we've done here is to deconstruct the composition of returns over a variety of time frames. If you think back to the 2009 to 2012 time period, (it was a) very strong period for the equity market. Most of the return during that period was driven by organic earnings growth. Coming out of the recession, we saw a big surge there which obviously was fuel for stronger performance.

During that same time period, we actually saw P/E multiples, or effectively the price that investors are willing to pay for every dollar of earnings, come down. For as strong as the performance was, valuations were actually becoming more reasonable. Of course, the thin, blue bar there represents dividend yield, which tends to be pretty consistent around 2%.

Fast forward to basically 2013 through now and it's a very different story. While the S&P 500 is up about 14% during that time period per year, much of that has been driven by P/E expansion, in other words, valuations becoming richer. Earnings growth, as illustrated by the slide that Dave just went through, over the last few years has been negative. Overall earnings have not been a big support and, again, a couple percent (earned) in dividends.

2017 Road Ahead

Page 12 of 17

As we look forward from here, the thing that we have to be very careful about is that we're not trying to project definitively what the market is going to provide in terms of return over the next year or two years or even five years. What we can look at is “What are the likely factors that are going to weigh into that?” That third bar represents looking out five years. If certain things were to happen, what would it mean for the markets? Again, we would expect that you're likely to clip that 2% dividend yield. If we see earnings revert to something that's more normal given the growth that's projected, then we should see positive support there to the tune of perhaps even 5% or 6%.

At the same time, with the P/E multiple now on the S&P 500 north of 21 -- well above the long-term average of 16 -- there's room for potential contraction there. If we see that, it's going to weigh on top-line performance for equities. Now, I will readily acknowledge that that is a big if, particularly in an environment that continues to be characterized by low interest rates. What we know from many, many decades of market history is a low-interest-rate environment tends to be favorable for equities and tends to support higher-equity multiples. So, there's a balancing act here.

The way that I would look at it would be to say, number one, we certainly think it's going to be difficult for equity markets to provide a return that's comparable to what we've seen in the years post-recession. Number two, (returns are) likely to be somewhat below the long-term average based on that valuation headwind that we face. At the same time, against the backdrop of economic growth and likely continued low interest rates, I think you can still reasonably expect mid-single digit returns on equities and still something that's going to outpace what you're going to be able to achieve from high-quality bonds or cash.

Dave Stahl: The other thing we look at on the equity side is the impact of rates and what may happen from here if the Fed continues to hike them, as it has indicated it will. The chart here compares quick tightening cycles, slow tightening cycles, and really what we've experienced thus far in the current cycle.

2017 Road Ahead

Page 13 of 17

The bottom line is, if the Fed truly goes slow and steady, that is not necessarily a negative thing for equities as long as they avoid a big shock to the markets, which they seem incredibly careful not to do. You even saw it in (the FOMC’s December 14) announcement. In the written press release, they were very, very clear on gradual increases, not moving quickly. I think they'll continue to balance that and are clearly very cautious about (the impact of) their moves within the equity markets.

2017 Road Ahead

Page 14 of 17

In some more specific examples of opportunities in the equity market, one of the areas we're looking at these days is small-cap equities. If you look at the slide in front of you, we continue to evaluate the relative value between large caps and small caps within the United States, not only from a fundamental perspective, but also from a policy perspective. If some of the policies are put in place over the coming years, small-cap companies may be a little bit more insulated and may hold up well given a lot of their earnings are really driven from domestic sales. That's one area.

Let’s move to the international front and take a look at valuations overseas relative to the U.S. markets. Even though we think there's some value there for a long-term investor, the dollar strengthening could continue to be a headwind and, therefore, create some caution as we're evaluating that space. With that, I'll turn it over to Jim to wrap up.

Jim Baird: Thanks, Dave. I would note particularly on that last point, international equities, as we said a year ago, are very much a long-term story there. What happens in a given year remains to be seen. Even some of the policy changes that we see likely to take place that are expected to support stronger growth here (in the U.S.) - certainly rising interest rates here relative to abroad and a host of other factors in the near term - could make international equities a little bit tougher (in the near-term), even if the long-term value story is a good one. We still like international equities over the long term.

Let's talk briefly about a few risks. I do want to acknowledge that while our overall outlook is favorable - both for the economy and the likelihood of equity investors to be able to achieve a positive return over the next several years - we'd be shortsighted if we weren't mindful of the things that could go wrong. I'm not going to go through each one of these in-depth, but we've seen this enthusiasm in the aftermath of the election. We've seen it in consumer sentiment, as Dave pointed out. We're seeing it in the business side as well. There is a political reality that will likely come into play here in the New Year. While there's a lot of promise, I would say, about this pro-growth agenda that is being put forward, the likelihood is once we get into the process of implementation, there will be at a minimum some need for compromise. And so some questions still persist about what will ultimately be signed into law and ultimately hit the economy.

There's also the potential, as we talked about inflation, of inflationary pressures picking up more than the Fed expects or, frankly, more than most of us expect. Could that stronger-growth agenda lead to even stronger inflation, forcing the Fed to step in and act more aggressively? That could be a risk. Again, I put that in the limited possibility category, but something to think about.

Then, of course, as we started the discussion today, this rise in global populism. Where does that take not only the U.S., but the global economy? Plenty of questions that remain there. As it relates to the equity markets and to bonds,

2017 Road Ahead

Page 15 of 17

it's some of the same underlying themes that we talked about earlier. Sometimes it's not only what happens, but what happens relative to expectations. If some of these potential growth catalysts don't come into play, I would expect that you would see a negative reaction in the market. Lots of questions and plenty for all of us to watch in the coming months.

To move forward and just summarize now the key thoughts. From an economic perspective, as Dave mentioned, growth expectations for 2017 look good, with the potential for additional fiscal stimulus coming in the form of tax cuts and/or infrastructure spending being supportive of potentially even better growth late in 2017 and into 2018. The employment markets, as we've mentioned, have already reached full employment. Job creation is projected to slow, but wages should continue to perk up, which provides additional fuel for consumers to spend and create somewhat of that virtuous cycle. We talked about inflation pressures already. While those are poised to build, the base-case scenario would be that those should not become excessive.

From a bond investor perspective, rising rates likely will act as a near-term headwind, as we've seen here over the last five weeks or so in particular, but should support stronger bond performance over time. As yields pick up, capital is reinvested into higher-yielding bonds; which should be a net positive for performance over the mid- to long-term.

Continued growth, moderately increasing inflation, along with low sovereign yields outside of the U.S., should also mitigate the degree of upside in long-term bond yields. That's what we've seen already. When foreign buyers step in, because they're looking at a U.S. Treasury bond that might be yielding 2.5%, if their other option is to buy a European bond that has a negative yield, Treasuries are still an attractive alternative. That could put a lid on the degree to which long-term yields rise. As Dave mentioned already, from a strategic perspective, we still think the bonds are a critical component of a diversified portfolio, providing a source of income and a relative stability, particularly compared to equities.

On the equity front, the earnings recession that we've seen in the S&P 500 over the last five or six quarters appears to be nearing an end. Much of the negative drag over that period was the direct result of the collapse in oil prices, which hit the energy sector particularly hard. We're seeing that turn now. That dynamic - coupled with, again, the prospects for growth to continue into the next year –paints a better picture on the earnings front.

Post-election optimism around President-elect Trump’s pro-growth agenda has certainly, and without question, provided a near-term catalyst for performance. As mentioned already, the key as we move into the next year will be one of implementation. U.S. equity valuations remain somewhat elevated, but not unreasonably so, in my opinion, given the low-rate environment. You could see from time to time some draw down in equity values, but in a low-rate

2017 Road Ahead

Page 16 of 17

environment we could certainly see valuations remain elevated for some time to come as well.

Small-cap value stocks, in particular - Dave touched on this - are more competitively valued today than they have been. We see a little better opportunity there than would have been the case even a few years ago. International (equities) we've talked about extensively. Overall, we remain in an environment that is likely to be characterized by lower returns as we move forward from here, but still one that we think should reward long-term investors for taking risk, for investing in equities. Perhaps most importantly, remaining committed to your long-term strategy in order to reach your goals and taking into account your tolerance for risk and investment time horizon remain foundational to investment success.

With that, we want to thank everybody for joining us today. Again, if you've submitted questions throughout the course of the webinar, we'll make every effort to get back to you shortly. A webinar replay is available on our website.

2017 Road Ahead

Page 17 of 17

Disclosures:

This presentation and any related material are current as of the date of this presentation only.

Past Performance Does Not Guarantee Future Results.

All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about economic and market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

Investment recommendations provided herein are subject to change at any time. Those recommendations provided herein are provided for informational purposes only and are not provided as a recommendation to buy or sell any one security or allocate to any asset class. Past and current recommendations that are profitable are not indicative of future results, which may in fact result in a loss. Please contact PMFA if you are interested in receiving a list of all past specific investment recommendations for the preceding 12 months.

Plante Moran Financial Advisors is an affiliate of Plante & Moran, PLLC.

wealth.plantemoran.com