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Weekly Market Review

Talking Points

• Among equities, large-caps underperformed small-caps, and growth stocks outperformed value-oriented issues. Domestic stocks underperformed international equities. Developed markets outperformed emerging market stocks.

• Treasury prices were higher this week. The yield on the 10-year T-note declined.

• Commodity prices sank again on the week. Energy, metals and grains all declined.

• The dollar was mixed this week against a basket of currencies.

• Among economic data released this week, the first estimate of fourth quarter GDP came in lower than forecast; durable goods orders declined for the fourth straight month; new-home sales rose more than forecast, but pending home sales declined; and initial jobless claims plunged to a 15-week low in the latest week.

Weekly Highlights

• Domestic stock prices slid this week. Broad equity indices ended their worst month since January 2014, primarily as a result of continuing concerns about growth in the eurozone and domestically. Today’s first estimate of fourth quarter real gross domestic product (GDP) came in at 2.6%, well below expectations.

• Global markets also retreated on the week. World markets declined along with domestic U.S. indices, but performed slightly better on a relative basis. European stocks declined on the week, but still posted their best January performance since 1989. China stocks suffered their worst weekly decline in a year amid concerns about stricter lending requirements and slowing economic growth.

• Treasury prices were higher for the week. The yield on the benchmark 10-year U.S. Treasury declined as investors digested news about slowing U.S. economic growth.

• Commodity indices sank again this week. Each of the three major complexes – energy, metals and grains – declined sharply this week in the face of slowing growth and demand.

Chart of the Week

January 30, 2015

PMC Weekly Market Review

2

January 30, 2015

MARKET DASHBOARD

0.70.80.9

11.11.21.31.41.51.6

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

Source: Bloomberg

Wealth Index|Growth of $1: Trailing 24 Months

S&P 500 Dow Industrials Small Cap EAFE Emerging Mkts.

L

S

Source: Bloomberg

YTDValue Growth

-5.25% -3.39% -1.55%

-1.49% -1.61% -1.72%

-2.31%-3.26%-4.23%

One WeekValue Growth

-2.31% -1.98% -1.66%

-3.80% -2.99% -2.21%

-1.66% -1.76% -1.86%

1700

1750

1800

1850

1900

1950

2000

2050

2100

2150

8/5 8/19 9/2 9/16 9/30 10/14 10/28 11/11 11/25 12/9 12/23 1/6 1/20

Source: Bloomberg

S&P 500 Index: Trailing 180 Days

% Wgt in S&P 500

Week % Chg. YTD % Chg.

Consumer Discretionary 12.1 -1.33% -3.1%Consumer Staples 9.9 -3.47% -1.3%Energy 8.3 -1.82% -4.9%Financials 16.0 -3.28% -7.0%Health Care 14.9 -2.45% 1.2%Industrials 10.3 -2.52% -3.7%Information Technology 19.5 -4.11% -3.9%Materials 3.2 -1.20% -2.0%Telecom Services 2.3 -2.37% -2.2%Utilities 3.4 -1.75% 2.3%

Source: Bloomberg

Sector Performance: S&P/Global Industry Classification Sectors (GICS)

10

12

14

16

18

20

22

24

26

28

Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15Source: Bloomberg

VIX Index: Trailing 180 Days

Last Price Change % Chg. YTD % Last Price Change % Chg. YTD %S&P 500 1,994.99 -56.83 -2.77% -3.1% Russell Global EM 3,028.10 -52.37 -1.70% 1.6%Dow Industrials 17,164.95 -507.65 -2.87% -3.7% 10-Year US Treas. 1.68 -14 bps NM NMNasdaq 4,635.24 -122.64 -2.58% -2.1% DJ UBS Comm. Idx. 100.84 -0.29 -0.29% -3.3%Russell 2000 1,165.39 -23.54 -1.98% -3.3% Gold $1,283.82 -$10.10 -0.78% 8.4%Euro Stoxx Index 367.05 -3.32 -0.90% 7.2% Crude Oil $47.70 $2.09 4.58% -11.2%Shanghai Composite 3,210.36 -141.40 -4.22% -0.8% Dollar Index 94.87 0.10 0.11% 5.1%Russell Global 1,700.01 -31.00 -1.79% -1.6% VIX Index 20.97 4.31 25.87% 9.2%Source: Bloomberg; Index % change is based on price.


3

January 30, 2015

THE ECONOMY AND MARKETS

A Macro View – Plunging Oil Prices Largely due to the price wars among major world oil producing countries, the crude oil price has tumbled more than 50% since last summer. The magnitude of the drop within such a short period is astounding and has caused great confusion regarding its impact. How will it affect different sectors and companies? Is it overall a good or bad thing for investors? There is no doubt that plunging oil prices is a disaster for the energy sector. Hailed and embraced by many as a revolutionary growth sector for decades to come in recent years, the sector may suffer as much as the technology sector experienced during the aftermath of the explosion of dot com bubble. However, the damage might not be contained to the energy sector, currently only 8% of the S&P 500 Index. Industrial companies that supply equipment to energy companies may suffer, financial companies that lend money to the energy sector may suffer, lodging and leisure companies that serve mostly the energy companies may suffer, etc. Some quintessential American industrial companies have already mentioned their exposure to the energy sector as a source of disappointment in their recent earnings release and more may come if oil prices keep plunging or simply stay at current levels. There is no doubt either that plunging oil prices should boost consumer spending and thus the companies could benefit from rising consumer demand. However, compared with the damage to the energy companies that is swift and relatively easy to quantify, there is a delayed effect on consumer behavior and it is far more challenging to quantify the benefit. Corporate America, especially the energy companies, is the most capitalist and efficient entity on earth. Energy companies essentially drill for profit/money not for oil and they have already reacted to plunging oil price through merger & acquisition, cut in spending and mass layoffs. Unlike Corporate America, consumers do not react to oil prices in real time. Just because a consumer saves $100 last month on gasoline does not mean they will “pre-spend” $1,200 projected savings of next year or even spend $100 more next month. The average consumer probably has not figured out the amount of the savings or does not even bother to do so yet. Plus, they might be skeptical on how long oil prices will stay low. It takes time for consumers to change their spending behavior and boost their spending even if they are convinced that low oil prices are here to stay. It is even trickier for companies that may potentially benefit from rise in consumer demand to figure out the exact benefit. Consumer discretionary companies in theory are the biggest beneficiaries of plunging oil prices, as consumers can spend their gas savings on things like restaurants, clothes, etc. However, this is also a very competitive sector and gaining advantages over their competition is far more important than how to benefit from macro factors, such as lower gasoline prices. That is why while energy companies and other potential “victims” of plunging oil prices are busy slashing their earnings projections, very few potential “beneficiaries” advertise their good fortune. In conclusion, the damage of plunging oil prices to the affected companies is generally front-ended and relatively easy to quantify. The potential benefit is more back-ended (the time lag effect) and difficult to discern. While low oil prices are a net positive for the U.S. economy and companies, especially in the long run, the sudden change is likely to cause confusion and turmoil in the short term. Frank Wei, CFA Senior Investment Analyst


4

January 30, 2015

THIS WEEK IN THE ECONOMY AND MARKETS

230

240

250

260

270

280

290

300

310

320

330

11/7 11/21 12/5 12/19 1/2 1/16

Thou

sand

s

Initial Jobless Claims-Trailing 12 Wks.

Source: Bloomberg

-25

-20

-15

-10

-5

0

5

10

15

20

25

1/31 3/31 5/31 7/31 9/30 11/30% C

hang

e

Durable Goods Orders - Trailing 12 Mos.

Source: Bloomberg

0

2

4

6

8

10

12

14

16

Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14

% G

ain/

Loss

Yea

r/Ye

ar

S&P/Case-Shiller Home Price Index-YoY % Gain/Loss

Source: BloombergSource: Bloomberg

-6

-4

-2

0

2

4

6

8

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

Inde

x M

onth

ly %

Chg

Pending Home Sales - Trailing 12 Mos.

Source: Bloomberg

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14

%

Real GDP Growth Rate - Annualized - 12 Qtrs.

Source: Bloomberg

0

100

200

300

400

500

600

1/31 3/31 5/31 7/31 9/30 11/30

Thou

sand

s

New Home Sales - Trailing 12 Mos.

Source: Bloomberg

PMC Weekly Market Review January 30, 2015

EUROZONE

5

Last Change % Chg. YTD % Last Change % Chg. YTD %Germany 10-Yr. Govt. 0.30 6 bps NM NM France 10-Yr. Govt. 0.54 0 bps NM NMGreece 10-Yr. Govt. 10.98 -125 bps NM NM Ireland 10-Yr. Govt. 1.13 -8 bps NM NMItaly 10-Yr. Govt. 1.59 -7 bps NM NM Portugal 10-Yr. Govt. 2.62 -18 bps NM NMSpain 10-Yr. Govt. 1.42 -5 bps NM NM Netherlands 10-Yr. Govt. 0.37 2 bps NM NMBelgium 10-Yr. Govt. 0.60 3 bps NM NM U.K. 10-Yr. Govt. 1.33 14 bps NM NM

SELECTED EUROPEAN SOVEREIGN YIELD PERFORMANCE

Source: BloombergBasis points (bps)

0.30

0.40

0.50

0.60

0.70

0.80

0.90

11/4 11/18 12/2 12/16 12/30 1/13 1/27

%

Germany 10-Year Government Bond Yield

Source: Bloomberg

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

11/4 11/18 12/2 12/16 12/30 1/13 1/27

%

Spain 10-Year Government Bond Yield

Source: Bloomberg

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

11/4 11/18 12/2 12/16 12/30 1/13 1/27

%

Italy 10-Year Government Bond Yield

Source: Bloomberg

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

11/4 11/18 12/2 12/16 12/30 1/13 1/27

%

Greece 10-Year Government Bond Yield

Source: Bloomberg


EQUITIES

6

4,400

4,450

4,500

4,550

4,600

4,650

4,700

4,750

4,800

4,850

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

xNasdaq Composite-Trailing 90 Days

Source: Bloomberg

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

Shanghai Composite Index-Trailing 90 Days

Source: Bloomberg

290

300

310

320

330

340

350

360

370

380

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

Euro Stoxx Index-Trailing 90 Days

Source: Bloomberg

16,400

16,600

16,800

17,000

17,200

17,400

17,600

17,800

18,000

18,200

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

Dow Jones Industrial Average -Trailing 90 Days

Source: Bloomberg

Last Change % Chg. YTD % Last Change % Chg. YTD %S&P 500 1,994.99 -56.83 -2.77% -3.10% Swiss Market Index 8,385.13 223.97 2.74% -6.66%Dow Industrials 17,164.95 -507.65 -2.87% -3.69% CAC 40 Index (France) 4,604.25 -36.44 -0.79% 7.76%Nasdaq Composite 4,635.24 -122.64 -2.58% -2.13% DAX Index (Germany) 10,694.32 44.74 0.42% 9.06%Russell Global 1,700.01 -31.00 -1.79% -1.6% Irish Overall Index 5,471.52 -106.30 -1.91% 4.73%Russell Global EM 3,028.10 -52.37 -1.70% 1.6% Nikkei 225 17,674.39 162.64 0.93% 1.28%S&P/TSX (Canada) 14,673.48 -105.87 -0.72% 0.28% Hang Seng Index 24,507.05 -343.40 -1.38% 3.82%Mexico IPC 40,950.58 -1699.14 -3.98% -5.09% Shanghai Composite 3,210.36 -141.40 -4.22% -0.75%Brazil Bovespa 46,907.68 -1867.62 -3.83% -6.20% Kospi Index (S. Korea) 1,949.26 13.17 0.68% 1.76%Euro Stoxx 600 367.05 -3.32 -0.90% 7.16% Taiwan Taiex Index 9,361.91 -109.03 -1.15% 0.59%FTSE 100 6,749.40 -83.43 -1.22% 2.79% Tel Aviv 25 Index 1,447.85 -7.81 -0.54% -1.17%

IBEX 35 (Spain) 10,403.30 -178.20 -1.68% 1.20% MICEX Index (Russia) 1,647.69 -24.11 -1.44% 17.98%

WORLD MARKET PERFORMANCE

Source: Bloomberg; Index % change is based on price.


EQUITIES – EMERGING AND FRONTIER MARKETS

7

Last Change % Chg. YTD % Last Change % Chg. YTD %Mexico IPC 40,950.58 -1699.14 -4.0% -5.1% Hang Seng Index 24,507.05 -343.40 -1.4% 3.8%Brazil (Bovespa Index) 46,907.68 -1867.62 -3.8% -6.2% India (Sensex 30) 29,182.95 -95.89 -0.3% 6.1%MICEX Index (Russia) 1,647.69 -24.11 -1.4% 18.0% Malaysia (KLCI Index) 1,781.26 -21.82 -1.2% 1.1%Czech Republic (Prague) 955.78 -6.16 -0.6% 1.0% Singapore (Straits Times Index) 3,391.20 -20.30 -0.6% 0.8%Turkey (Istanbul) 88,945.82 -1790.23 -2.0% 3.8% Thailand (SET Index) 1,581.25 -17.08 -1.1% 5.6%Egypt (Hermes Index) 903.48 -4.19 -0.5% 8.3% Indonesia (Jakarta) 5,289.40 -34.48 -0.6% 1.2%Kenya (Nairobi 20 Index) 5,212.11 -5.77 -0.1% 1.9% Pakistan (Karachi KSE 100) 34,443.87 417.28 1.2% 7.2%Saudi Arabia (TASI Index) 8,878.54 484.73 5.8% 6.5% Vietnam (Ho Chi Minh) 576.07 -6.31 -1.1% 5.6%Lebanon (Beirut BLOM Index) 1,170.93 2.32 0.2% 0.1% Sri Lanka (Colombo) 7,180.05 -96.58 -1.3% -1.6%Palestine 501.43 -3.71 -0.7% -0.3% Cambodia (Laos) 1,402.11 -11.47 -0.8% -0.9%

EMERGING AND FRONTIER MARKET PERFORMANCE


42,000

44,000

46,000

48,000

50,000

52,000

54,000

56,000

58,000

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

Brazil (Bovespa Index)-Trailing 90 Days

Source: Bloomberg

25,000

25,500

26,000

26,500

27,000

27,500

28,000

28,500

29,000

29,500

30,000

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

India (Sensex Index)-Trailing 90 Days

Source: Bloomberg

400

500

600

700

800

900

1,000

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

Egypt (Hermes Index)-Trailing 90 Days

Source: Bloomberg

3,100

3,150

3,200

3,250

3,300

3,350

3,400

3,450

11/3 11/17 12/1 12/15 12/29 1/12 1/26

Inde

x

Singapore (Straits Times Index)-Trailing 90 Days

Source: Bloomberg


INTEREST RATES

YIELD CURVES

8

Last Change % Chg. YTD % Last Change % Chg. YTD %2-Yr. U.S. Treasury 0.45% 0 bps NM NM Prime Rate 3.25% 0.00 NM NM5-Yr. U.S. Treasury 1.19% -14 bps NM NM Fed Funds Rate 0.25% 0.00 NM NM10-Yr. U.S. Treasury 1.68% -14 bps NM NM Discount Rate 0.75% 0.00 NM NM30-Yr. U.S. Treasury 2.25% -14 bps NM NM LIBOR (3 Mo.) 0.25% 0 bps NM NMGerman 10-Yr. Govt. 0.30% 6 bps NM NM Bond Buyer 40 Muni 3.35% -6 bps NM NMFrance 10-Yr. 0.54% 0 bps NM NM Bond Buyer 40 G.O. 3.36% NA NM NMItaly 10-Yr. 1.59% -7 bps NM NM Bond Buyer 40 Rev. 4.06% NA NM NMFed 5-Yr Fwd BE Inf. 1.78% -2 bps NM NM

SELECTED INTEREST RATES

Source: Bloomberg

1M 1Y 3Y 5Y 8Y 10Y 15Y 20Y 30Y0.00

1.00

2.00

3.00

4.00

5.00

6.00

US Treasury Actives Curve 20150123US Treasury Actives Curve 20150130USD US Industrial (BB) BFV Cur 20150130USD Composite (BBB) BFV Curve 20150130

2.00

2.10

2.20

2.30

2.40

2.50

2.60

2.70

8/5 9/5 10/5 11/5 12/5 1/5

Yiel

d %

10-Year Treasury Yield - Trailing 180 Days

Source: Bloomberg

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

BBB/Baa- 10-Yr Treas. Spread Rising Line = Risk Aversion

Source: Bloomberg

Source: Bloomberg


CURRENCIES

9

70

75

80

85

90

95

100

8/5 9/5 10/5 11/5 12/5 1/5

U.S. Dollar Index - Trailing Six Months

Source: Bloomberg

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

8/5 9/5 10/5 11/5 12/5 1/5

Euro - U.S. Dollars per Euro

Source: Bloomberg

80.00

85.00

90.00

95.00

100.00

105.00

110.00

115.00

120.00

125.00

8/5 9/5 10/5 11/5 12/5 1/5

Japanese yen - Yen per U.S. Dollar

Source: Bloomberg

Last Change % Chg. YTD % Last Change % Chg. YTD %Dollar Index 94.87 0.105 0.11% 5.09% Chinese Yuan 6.25 0.022 -0.35% -0.72%Euro 1.13 0.008 0.75% -6.70% Swiss Franc 0.92 0.041 -4.41% 7.99%Japanese Yen 117.54 -0.270 0.23% 1.94% New Zealand Dollar 0.73 -0.019 -2.52% -6.86%British Pound 1.50 0.007 0.43% -3.36% Brazilian Real 2.68 0.103 -3.83% -0.94%Canadian Dollar 1.27 0.031 -2.41% -8.69% Mexican Peso 14.97 0.321 -2.14% -1.51%

SELECTED CURRENCY PERFORMANCE

Source: Bloomberg

6.00

6.05

6.10

6.15

6.20

6.25

6.30

8/5

8/7

8/9

8/11

8/13

8/15

8/17

8/19

8/21

8/23

8/25

8/27

8/29

8/31 9/

29/

49/

69/

89/

109/

129/

149/

169/

189/

209/

229/

249/

269/

289/

3010

/210

/410

/610

/810

/10

10/1

210

/14

10/1

610

/18

10/2

010

/22

10/2

410

/26

10/2

810

/30

11/1

11/3

11/5

11/7

11/9

11/1

111

/13

11/1

511

/17

11/1

911

/21

11/2

311

/25

11/2

711

/29

12/1

12/3

12/5

12/7

12/9

12/1

112

/13

12/1

512

/17

12/1

912

/21

12/2

312

/25

12/2

712

/29

12/3

11/

21/

41/

61/

81/

101/

121/

141/

161/

181/

201/

221/

241/

261/

281/

30

Chinese yuan - yuan per U.S. Dollar

Source: Bloomberg


COMMODITIES

10

40

50

60

70

80

90

100

8/5 9/5 10/5 11/5 12/5 1/5

$ pe

r bar

rel

Crude Oil - Light Crude ($ per barrel)

Source: Bloomberg

1,100

1,150

1,200

1,250

1,300

1,350

8/5 9/5 10/5 11/5 12/5 1/5

$ pe

r oun

ce

Gold - Spot gold price ($ per ounce)

Source: Bloomberg

5,000

5,500

6,000

6,500

7,000

7,500

8/5 9/4 10/4 11/3 12/3 1/2

Inde

x

Copper

Source: Bloomberg

320

330

340

350

360

370

380

390

400

410

420

8/5 9/5 10/5 11/5 12/5 1/5

$ pe

r bus

hel

Corn - Active Contract

Source: Bloomberg

Last Change % Chg. YTD % Last Change % Chg. YTD %DJ UBS Comm. Idx. 100.84 -0.29 -0.29% -3.34% Platinum Spot $1,241.56 -$26.94 -2.12% 2.80%Rogers Int. Comm. Idx. 2529.95 -63.62 -2.45% -9.41% Corn 370.00 -16.75 -4.33% -6.80%Crude Oil $47.73 $2.09 4.58% -11.21% Wheat 502.75 -27.25 -5.14% -14.75%Natural Gas $2.67 -$0.29 -9.70% -7.77% Soybeans 961.00 -11.75 -1.21% -6.11%Gasoline ($/Gal.) $2.05 $0.01 0.69% -8.44% Sugar 14.79 0.00 0.00% 1.86%Heating Oil 168.72 6.45 3.98% -7.24% Orange Juice 140.00 0.00 0.00% 0.14%Gold Spot $1,283.73 -$10.10 -0.78% 8.41% Aluminum 1,819.00 -12.00 -0.66% -1.81%Silver Spot $17.25 -$1.05 -5.72% 9.81% Copper 5,395.00 -124.50 -2.26% -14.37%Source: Bloomberg; % change is based on price.

SELECTED COMMODITY MARKET PERFORMANCE


ALTERNATIVE INVESTMENTS

11

1,170

1,180

1,190

1,200

1,210

1,220

1,230

1,240

11/4 11/18 12/2 12/16 12/30 1/13 1/27

Inde

x

HFRX Global Hedge Fund Index - Trailing 90 Days

Source: Bloomberg

976

978

980

982

984

986

988

990

992

11/4 11/18 12/2 12/16 12/30 1/13 1/27

Inde

x

HFRX Equity Market Neutral - Trailing 90 Days

Source: Bloomberg

1,360

1,365

1,370

1,375

1,380

1,385

1,390

1,395

1,400

1,405

11/4 11/18 12/2 12/16 12/30 1/13

Inde

x

IQ Fixed Income Beta Arb Index - Trailing 90 Days

Source: Bloomberg

1,145

1,150

1,155

1,160

1,165

1,170

1,175

1,180

1,185

1,190

1,195

11/4 11/18 12/2 12/16 12/30 1/13 1/27

Inde

x

HFRX Equity Hedge Index - Trailing 90 Days

Source: Bloomberg

Last Change % Chg. YTD % Last Change % Chg. YTD %HFRX Global Hedge Fund Index 1215.77 -2.03 -0.17% -0.20% HFRX Distressed Index 999.36 -6.70 -0.67% -1.57%HFRX Equity Market Neutral 983.43 4.60 0.47% 0.32% HFRX Merger Arbitrage Index 1608.82 14.41 0.90% 1.24%HFRX Equity Hedge Index 1179.84 -3.38 -0.29% -0.28% HFRX Convertible Arbitrage Index 698.63 1.41 0.20% -0.56%HFRX Event-Driven Index 1493.37 -7.32 -0.49% -1.47% HFRX Macro CTA Index 1208.24 0.47 0.04% 1.94%HFRX Absolute Return Index 1001.00 2.99 0.30% 0.65% IQ Fixed Income Beta Arb Index 1405.46 4.25 0.30% 1.29%

SELECTED ALTERNATIVE INVESTMENT INDEX PERFORMANCE



2.60

2.70

2.80

2.90

3.00

3.10

3.20

3.30

3.40

3.50

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

S&P 500/MSCI EAFE - Trailing 180 Days

Source: Bloomberg

1.35

1.40

1.45

1.50

1.55

1.60

1.65

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

MSCI EAFE/MSCI EM - Trailing 180 Days

Source: Bloomberg

0.37

0.38

0.38

0.39

0.39

0.40

0.40

0.41

0.41

0.42

0.42

8/5 9/5 10/5 11/5 12/5 1/5

Inde

xLarge Cap/Small Cap - Trailing 180 Days

Source: Bloomberg

0.73

0.74

0.74

0.75

0.75

0.76

0.76

0.77

0.77

0.78

0.78

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

Growth/Value - Trailing 180 Days

Source: Bloomberg

January 30, 2015

12

PORTFOLIO CONSTRUCTION

3.00

3.50

4.00

4.50

5.00

5.50

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

S&P 500/MSCI EM - Trailing 180 Days

Source: Bloomberg


0.290

0.300

0.310

0.320

0.330

0.340

0.350

8/5 9/5 10/5 11/5 12/5 1/5

Inde

xHigh Yield/Inv. Grade Bonds - Trailing 180 Days

Source: Bloomberg

0.194

0.196

0.198

0.200

0.202

0.204

0.206

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

Info Tech/S&P 500 - Trailing 180 Days

Source: Bloomberg

1.80

1.81

1.82

1.83

1.84

1.85

1.86

1.87

1.88

1.89

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

Inv. Grade Bonds/Int. Govt. Bonds - Trailing 180 Days

Source: Bloomberg

0.54

0.56

0.58

0.60

0.62

0.64

0.66

8/5 9/5 10/5 11/5 12/5 1/5

Inde

x

High Yield Bonds/Int. Govt. Bonds - Trailing 180 Days

Source: Bloomberg

January 30, 2015

13

PORTFOLIO CONSTRUCTION (cont’d.)


14

January 30, 2015

The Relative Strength Matrix provides an indication of how the various asset classes have performed relative to one another over the past 30 days. A number greater than 1.0 indicates that the asset class in the far left column has outperformed the corresponding asset class in the top row over the past 30 days. A number below 1.0 means the asset class on the left has underperformed the asset class at the top. The green shading indicates outperformance, and the red shading indicates underperformance.

Source: Bloomberg

#N/A 11/20 11/27 12/4 12/11 12/18 12/25 1/1 1/8 1/15 1/22 1/29

Large Cap (R200) 0.49% 0.61% 0.99% -0.04% -1.84% 1.21% 0.94% -1.11% 0.13% -3.39% 3.56% -2.34%

Small Cap (R2000) 0.30% -0.40% 1.70% -1.48% -0.52% 2.16% 1.23% -0.17% -0.71% -3.46% 3.09% -0.02%

MSCI EAFE 0.47% 0.14% 1.51% -0.67% -2.34% -1.12% 1.25% -0.81% -2.31% 0.64% 2.01% 0.67%

MSCI Em. Mkts. 0.14% -0.26% 2.27% -2.54% -4.14% -1.15% 1.66% 0.60% 0.27% 0.12% 2.45% -1.05%

BarCap Agg. (AGG) 0.20% 0.01% 0.46% -0.16% 0.11% -0.10% -0.37% 0.39% 0.58% 1.06% -0.45% 0.49%

High Yield (JNK) -0.42% -0.85% 0.83% -2.03% -2.78% 0.95% 1.64% -1.18% 0.23% -0.47% 0.80% 0.49%

DJ UBS Index -0.90% 1.70% -0.36% -4.50% -1.35% -1.95% -2.17% -1.73% -0.66% -1.85% -0.13% -2.78%

Hedge Funds (HFRX Global) 0.00% -0.14% 0.63% -0.59% -1.17% 0.07% 0.60% 0.32% 0.01% -0.63% 0.41% 0.00%

60/40* 0.30% 0.11% 1.01% -0.55% -1.26% 0.36% 0.63% -0.36% -0.15% -0.92% 1.69% -0.46%

48/32/20 (w/Alts.)** 0.24% 0.06% 0.93% -0.56% -1.25% 0.31% 0.62% -0.23% -0.12% -0.86% 1.43% -0.37%

Source: Bloomberg; *60/40 portfolio = 30% Large Cap/10% Small Cap/15% EAFE/5% Emerging Markets/35% BarCap Agg./5% High Yield.**48/32/20 portfolio = 24% Large Cap/8% Small Cap/12% EAFE/4% Emerging Markets/28% BarCap Agg./4% High Yield/20% HFRX Global Index.

WEEKLY ASSET CLASS PERFORMANCE (Prior 12 weeks ending Thursday)

Alternatives

Asset Allocation

Domestic Equity

Int'l. Equity

Fixed Income

Commodities

Equity

Large Cap Core

Large Cap Growth

Large Cap Value

Mid Cap Core

Mid Cap Growth

Mid Cap Value

Small Cap Core

Small Cap Growth

Small Cap Value

Int'l . Developed

Emerging Markets REITs Comm. Int. Bond High Yield

Large Cap Core 1.00 0.95 1.06 0.91 0.91 0.92 0.92 0.89 0.95 0.94 0.96 0.69 1.61 0.78 0.98Large Cap Growth 1.06 1.00 1.12 0.97 0.96 0.97 0.97 0.94 1.01 0.99 1.02 0.73 1.70 0.83 1.04Large Cap Value 0.95 0.89 1.00 0.86 0.86 0.87 0.87 0.84 0.90 0.89 0.91 0.66 1.52 0.74 0.93Mid Cap Core 1.09 1.03 1.16 1.00 1.00 1.00 1.00 0.98 1.04 1.03 1.05 0.76 1.76 0.85 1.07Mid Cap Growth 1.10 1.04 1.16 1.00 1.00 1.01 1.01 0.98 1.04 1.03 1.06 0.76 1.77 0.86 1.08Mid Cap Value 1.09 1.03 1.15 1.00 0.99 1.00 1.00 0.97 1.04 1.02 1.05 0.76 1.75 0.85 1.07Small Cap Core 1.09 1.03 1.15 1.00 0.99 1.00 1.00 0.97 1.04 1.02 1.05 0.76 1.75 0.85 1.07Small Cap Growth 1.12 1.06 1.19 1.03 1.02 1.03 1.03 1.00 1.07 1.05 1.08 0.78 1.81 0.88 1.10Small Cap Value 1.05 0.99 1.11 0.96 0.96 0.96 0.96 0.94 1.00 0.99 1.01 0.73 1.69 0.82 1.03Int'l . Developed 1.06 1.01 1.13 0.97 0.97 0.98 0.98 0.95 1.01 1.00 1.02 0.74 1.71 0.83 1.04Emerging Markets 1.04 0.98 1.10 0.95 0.95 0.95 0.95 0.93 0.99 0.98 1.00 0.72 1.67 0.81 1.02REITs 1.44 1.36 1.52 1.32 1.31 1.32 1.32 1.28 1.37 1.35 1.39 1.00 2.32 1.12 1.41Commodities 0.62 0.59 0.66 0.57 0.57 0.57 0.57 0.55 0.59 0.58 0.60 0.43 1.00 0.48 0.61Int. Bond 1.28 1.21 1.36 1.17 1.17 1.18 1.18 1.14 1.22 1.20 1.23 0.89 2.06 1.00 1.26High Yield 1.02 0.96 1.08 0.93 0.93 0.94 0.94 0.91 0.97 0.96 0.98 0.71 1.64 0.80 1.00

RELATIVE STRENGTH MATRIX (BASED ON 30-DAY RSI)


15

INDEX OVERVIEW The S&P 500 Index is an unmanaged index comprised of 500 widely held securities considered to be representative of the stock market in general. The S&P/Case-Shiller Home Price Indices measure the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States. The Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. The MSCI EAFE Index represents 21 developed markets outside of North America. The MSCI EAFE Growth Index is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East. The MSCI EAFE Value Index is an unmanaged index considered representative of value stocks of Europe, Australasia and the Far East. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Europe Index is an unmanaged index considered representative of stocks of developed European countries. The MSCI Pacific Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in the Pacific region. The Barclays US Credit Index is an unmanaged index considered representative of publicly issued, SEC-registered US corporate and specified foreign debentures and secured notes. The Barclays US Aggregate Bond Index is a market capitalization-weighted index of investment-grade, fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. The Barclays US Corporate High Yield Index covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. The index may include emerging market debt. The Barclays Capital Municipal Bond Index is an unmanaged index comprised of investment-grade, fixed-rate municipal securities representative of the tax-exempt bond market in general. The Barclays US Treasury Total Return Index is an unmanaged index of public obligations of the US Treasury with a remaining maturity of one year or more. The Citigroup World Government Bond Index is a market capitalization weighted bond index consisting of the government bond markets of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, Norway, Poland, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The DJ-UBS Commodity Index Total ReturnSM measures the collateralized returns from a basket of 19 commodity futures contracts representing the energy, precious metals, industrial metals, grains, softs and livestock sectors. The Russell 1000 Index is a market capitalization-weighted benchmark index made up of the 1000 largest U.S. companies in the Russell 3000 Index. The Russell 1000 Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 2000 Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Growth Index is an unmanaged index considered representative of small-cap growth stocks. The Russell 2000 Growth Index is an unmanaged index considered representative of small-cap value stocks. The Russell 3000 Index is an unmanaged index considered representative of the US stock market. The Russell Midcap Index is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Value Index is an unmanaged index considered representative of mid-cap value stocks. The HFRX Indices are a series of benchmarks of hedge fund industry performance which are engineered to achieve representative performance of a larger universe of hedge fund strategies. Hedge Fund Research, Inc. employs the HFRX Methodology (UCITS compliant), a proprietary and highly quantitative process by which hedge funds are selected as constituents for the HFRX Indices. The ISM Non-Manufacturing Index is an index based on surveys of more than 400 non-manufacturing firms' purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys that monitors economic conditions of the nation. The ISM Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys. The Consumer Price Index (CPI) measures the change in the cost of a fixed basket of products and services. The Gross Domestic Product (GDP) rate is a measurement of the output of goods and services produced by labor and property located in the United States. Basis Point(s) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The CBOE Volatility Index (VIX) is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500 Index option bid/ask quotes. The Index uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index. The MSCI World ex-U.S. Index - captures large and mid-cap representation across 22 of 23 Developed Markets DM countries*--excluding the United States. With 1,002 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. (* DM countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.) The MSCI Japan Index - is designed to measure the performance of the large and mid-cap segments of the Japanese market. With 320 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Barclays Global Aggregate ex-U.S. Index - is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S. The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy. A separately managed account (SMA) is an individual managed investment account offered typically by a brokerage firm through one of their brokers or financial consultants and managed by independent investment management firms (often called money managers for short) and have varying fee structures. An open-end index fund continuously issues and redeems shares based on investor demand. As an index fund, its investment objective is to duplicate the performance of the index it uses as a benchmark. The MSCI EM (Emerging Markets) Latin America Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets in Latin America. The Barclays U.S. 5-10 Year Corporate Bond Index measures the investment return of U.S. dollar denominated, investment-grade, fixed rate, taxable securities issued by industrial, utility, and financial companies with maturities between 5 and 10 years. Barclays U.S. Aggregate Bond Index is weighted according to market capitalization, which means the securities represented in the index are weighted according to the market size of the bond category. Treasury securities, mortgage-backed securities (MBS) foreign bonds, government agency bonds and corporate bonds are some of the categories included in the index. Barclays U.S Corporate High-Yield Index is composed of fixed-rate, publicly issued, non-investment grade debt. Barclays U.S. Corporate 5-10 Year Index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 5 and 10 years.


16

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results. Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index. Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses. Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor. © 2015 Envestnet. All rights reserved. ABOUT ENVESTNET® Envestnet, Inc. (NYSE: ENV) is a leading provider of unified wealth management technology and services to investment advisors. Our open-architecture platforms unify and fortify the wealth management process, delivering unparalleled flexibility, accuracy, performance and value. Envestnet solutions enable the transformation of wealth management into a transparent, objective, independent and fully-aligned standard of care, and empower advisors to deliver better results. 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