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Q2 2017 Market ChartBook Baird Private Wealth Management June 30, 2017 Wealth Management | Capital Markets – Investment Banking | Private Equity | Asset Management Charlotte Chicago Frankfurt London Milwaukee Shanghai rwbaird.com 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 Q2 2017 Market ChartBook Q2 2017 Market Highlights Economy and Market Domestic Equity Fixed Income At A Glance: The first half of the year has come to an end and many market events have transpired thus far. Nervousness regarding the future of the EU has faded, the Federal Reserve has continued their hawkish monetary policy with consecutive hikes in March and June and the US economy continued to muddle along with final revisions for Q1 GDP coming in at 1.4%, down from Q4’s 2.1%. US policy-making efforts remain in gridlock causing market skeptics to reduce future growth and inflation expectations. As economic data relies heavily on the ability of the Trump administration to push forward with tax reform, debt negotiations and infrastructure spending, the upbeat economic outlook may be challenged this fall. At a Glance: The S&P 500 generated a solid 3.1% return during the quarter. Strong Q1 earnings growth and continued optimism among equity investors has led to attractive returns. At a Glance: In the US, investors have started to question the path of Fed rate hikes given the weaker than expected inflation data and economic growth, leading 10 year rates to fall to a low of 2.13% during the quarter. The 10-year Treasury yield was largely flat from 2.32% to start the quarter to 2.31% at the finish. In all, the Barclays Aggregate Bond Index produced a modest gain of 1.5%. Economic Health: The labor market continued to tighten, adding an average of 149,000 jobs for the previous three months through May. The strong gains have helped to hold the national unemployment rate to 4.3%, a 16-year low. Jobless claims extended the trend of below 300,000, a streak the US has not seen since 1973. Inflation. Core consumer prices, which exclude the effects of food and energy, fell to 1.7% y/y through May. When including the effects of food and energy, headline inflation also fell during the quarter to 1.9% y/y. Fed Speak. In a widely anticipated move, the FOMC elected to raise the target fed funds rate 25bps at its June meeting. Chairwomen Yellen conveyed her views regarding recent slowing growth in economic activity deeming it transitory and the committee has maintained their long term economic outlook. The FOMC has also detailed a plan for balance sheet reduction with consensus believing it should begin before the end of the year. Market Cap and Style: Large cap stocks outperformed mid and small-cap stocks while growth remained in favor relative to its value-style counterpart. Sector: Winning sectors for the quarter included healthcare (7.1%), industrials (4.7%), and financials (4.3%). Positive returns were largely supported by strong earnings and continued gridlock in Washington over healthcare reform. Losers for the quarter include energy (-6.4%) and telecom services (-7.1%). International Equity At a Glance: Risk assets continued to rally through the second quarter, with international equity markets taking the lead relative to the US. Improving global growth, sustained global trade and structural reforms including initiatives in India, Indonesia, Argentina and Brazil have helped drive markets upward. Attractive valuations relative to US markets has caused international investors to benefit from a strong technical bid this past quarter. Investors in developed international markets received 6.1% in Q2 led by Denmark, France, and Italy while emerging markets largely followed suit with Q2 returns of 6.4%. Euroskeptics Le Pen and Wilders lost in their respective elections and much of Europe has moved away from the populist movement which took over the markets earlier this year. German elections this fall have now turned into a non-event, as Merkel is expected to comfortably come out on top. Sector: In the taxable bond market, investors were more averse to risk and preferred high quality bonds over high yield. Investment grade corporate bonds and high yield bonds were among the strongest areas of the fixed income market returning 2.5% and 2.1% respectively. Leveraged loans and US TIPS lagged this quarter with spreads in the loan market coming to post-crisis lows and yields grinding tighter with a pickup in re-pricing. TIPS struggled this quarter as the market has grown skeptical of the reflation trade and inflation expectations falling to pre-election levels. Maturity and Credit Quality: Longer maturity bonds finished higher while shorter maturity bonds delivered small positive returns. Among credit, high quality outpaced high yield. Yield Curve: Treasury yields decreased this past quarter, leading to a flatter yield curve. This flattening, largely seen in the belly of the curve resulted in a slope of 89 basis points, measured by the 2s/10s spread. Municipal Bonds: Municipal bonds continued their momentum by posting 2.0% in Q2. The murky outlook for any significant tax reform combined with lower inflation and strong investor demand for yield has helped municipal bonds outperform taxable peers during the quarter and throughout the year. Robert W. Baird & Co. Member SIPC. 4 Markets at a Glance As of June 30, 2017 Trailing Returns (%) Asset Class Annual Returns (%) Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2016 2015 2014 Benchm ark Large Cap Value 1.3 4.7 15.5 7.4 13.9 5.6 17.3 (3.8) 13.5 Russell 1000® Value Large Cap Grow th 4.7 14.0 20.4 11.1 15.3 8.9 7.1 5.7 13.1 Russell 1000® Growth Mid Cap 2.7 8.0 16.5 7.7 14.7 7.7 13.8 (2.4) 13.2 Russell Midcap® Small Cap 2.5 5.0 24.6 7.4 13.7 6.9 21.3 (4.4) 4.9 Russell 2000® 6.1 13.8 20.3 1.2 8.7 1.0 1.0 (0.8) (4.9) Short-Term Taxable 0.3 0.7 0.4 1.0 1.0 2.3 1.3 0.7 0.8 BBgBarc 1-3 Yr Govt/Credit Intermediate-Term Taxable 0.9 1.7 (0.2) 1.9 1.8 3.9 2.1 1.1 3.1 BBgBarc Intermed. Govt/Credit Short-Term Municipal 0.3 1.2 0.5 0.8 0.9 2.1 0.2 0.8 0.7 BBgBarc 1-3 Yr Municipal Intermediate-Term Municipal 1.9 3.9 0.2 2.8 2.8 4.7 (0.5) 3.3 6.1 BBgBarc 7 Yr Municipal 0.2 0.4 0.6 0.3 0.2 0.5 0.3 0.1 0.0 Citi 3 Month T-bills High Yield 2.1 4.9 12.8 4.5 6.9 7.5 17.5 (4.6) 2.5 BofA/ML High Yield Master II Real Estate 2.6 5.9 1.4 8.3 9.3 5.2 7.6 2.1 27.2 DJ US REIT Commodities (3.0) (5.3) (6.5) (14.8) (9.3) (6.5) 11.8 (24.7) (17.0) Bloomberg Commodity 6.3 18.4 23.8 1.1 4.0 1.9 11.2 (14.9) (2.2) MSCI Emerging Mkts (Net) U.S. Stocks International Stocks Developed Markets MSCI EAFE (Net) Bonds Cash Cash/Cash Equivalents Satellite Emerging Markets 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. Robert W. Baird & Co. Member SIPC. 5 Returns by Asset Class As of June 30, 2017 Year-to-Date Performance of Various Asset Classes 35% Market Cap U.S. Sectors Emerging Markets International Markets Fixed Income 29% 30% 25% 25% 25% 22% 21% 19% 20% 17% 16% 18% 16% 15% 11% 10% 10% 9% 9% 9% 8% 10% 10% 8% 9% 9% 8% 7% 6% 5% 4% 5% 5% 4% 4% 4% 3% 2% 2% 2% 1% 0% -5% -10% -15% -11% -13% -14% -20% 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) Robert W. Baird & Co. Member SIPC. 6 S&P 500 Index As of June 30, 2017 Year-to-Date Performance of the S&P 500 Index 2,500 Q1: +6.1% Q2: +3.1% 2,450 Adjusted Closing Level 2,400 2,350 2,300 2,250 2,200 2,150 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 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. Robert W. Baird & Co. Member SIPC. 7 Economic Growth As of March 31, 2017 US GDP Growth 10 8 6 GDP Grow th (%) 4 2 0 -2 -4 -6 -8 -10 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Gross Domestic Product (GDP) Contribution to U.S. GDP Growth Contribution to GDP Grow th (%) 8 6 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. 4 2 0 -2 -4 -6 Personal Consumption Govt. Spending -8 -10 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Private Investment Next Exports Mar-16 Mar-17 Source: US Department of Commerce: Bureau of Economic Analysis (GDP Growth) Robert W. Baird & Co. Member SIPC. 8 Inflation Watch As of May 31, 2017 Historic CPI Level Year-Over-Year Change in CPI 6 Headline CPI Core CPI 4 2 0 -2 May-07 May-08 May-09 May-10 May-11 May-12 Headline CPI May-13 May-14 May-15 May-16 Core CPI: Headline less Food and Energy Com ponents Weight (%) 12-m o Change (%) Headline CPI 100 1.9 Housing 43 Transportation Com ponents Weight (%) 12-m o Change (%) Core CPI 79 1.7 3.1 Food 14 0.9 16 1.8 Energy 7 5.4 Food & Beverage 15 0.9 Medical Care 9 2.7 Education 7 (2.5) Recreation 6 0.9 Apparel/Clothing 2 (1.2) Other 3 2.4 May-17 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. Source: Bureau of Labor Statistics; Baird Analysis. CPI figures lag one month. Robert W. Baird & Co. Member SIPC. 9 Jobs Market As of May 31, 2017 Jobs Gained/Lost Unemployment and Underemployment Rates 18 800 600 15 Unemployment Rate (%) Change in Payroll (000s) 400 12 200 0 9 -200 -400 8.4 6 4.3 -600 3 -800 U-3 Unem ployment Ra te U-6 Underemploym ent Rate -1,000 May-07 May-09 May-11 May-13 May-15 0 May-07 May-17 Labor Force Participation May-09 May-11 May-13 May-15 May-17 Wage Growth (y/o/y%) 67 4 3 65 64 63 62.7 Wage Grrowth (%) Participation Rate (%) 66 2.6 2 62 1 61 60 May-07 May-09 May-11 May-13 May-15 May-17 0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 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. Robert W. Baird & Co. Member SIPC. 10 Housing Market As of May 31, 2017 S&P/Case Shiller Home Price Index (20 City) Average Selling Price of New and Existing Homes Median Price (New Homes) $37 5,0 00 240 Median Price (E xist ing) 220 $32 5,0 00 Index Level 200 $27 5,0 00 180 160 $22 5,0 00 140 $17 5,0 00 120 100 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Housing Affordability Index $12 5,0 00 May-07 220 Units (000s) Index Level 120 80 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-12 New Housing Starts Existing Hom e S ale s 6,000 5,500 5,000 4,500 4,000 100 May-11 7,500 6,500 140 May-10 8,000 7,000 200 160 May-09 Home Starts/Sales 240 180 May-08 May-13 May-14 May-15 May-16 May-17 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. 3,500 3,000 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Source: Standard & Poor’s, US Department of Commerce: Bureau of Economic Analysis. Robert W. Baird & Co. Member SIPC. 11 Consumer Health As of May 31, 2017 University of Michigan Consumer Sentiment Survey Consumer Spending Growth (y/o/y%) 100 8 Consumer Spending Growth (%) 95 90 85 Index Level 80 75 70 65 60 6 4 2 0 -2 55 50 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Personal Savings Rate -4 May-07 May-08 May-09 May-10 May-11 May-12 May-13 Personal Income Per Capita 12 Personal Savings Rate (%) May-15 May-16 May-17 $40 ,00 0 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. 10 $38 ,00 0 8 6 $36 ,00 0 4 $34 ,00 0 2 0 May-07 May-14 Consumer Price Index (CPI) May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 $32 ,00 0 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Source: Thomas Reuters/University of Michigan, US Department of Commerce: Bureau of Economic Analysis. Robert W. Baird & Co. Member SIPC. 12 Corporate Profitability As of March 31, 2017 S&P 500 Earnings Per Share (EPS) $1,400 $14 0 Earnings Per Sh (right ax is) Revenues Per S h (left axis) $1,200 $12 0 $1,000 $10 0 $80 0 $80 $60 0 $60 $40 0 $40 $20 0 $20 $0 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 $0 Mar-17 Corporate Profitability Corporate Profits (% of GDP) Corporate Profits /GDP 12% Earnings power ultimately drives long-term changes to stock prices. These two charts display how profitable US corporations are. The top chart measures earnings (top line growth) and revenue (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. 9% 6% 3% Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Source: BEA, Bloomberg, Standard & Poors, Baird analysis. Past performance is not a guarantee of future results. Robert W. Baird & Co. Member SIPC. 13 Market Volatility As of June 30, 2017 Historic VIX Level 90 80 70 VIX Level 60 50 40 30 20 10 0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 VIX (CBOE Volatility Index) Quarterly S&P 500 Trading Volatility 80% % of days up/down 2% or more Percent of Trading Days % of days up/down 1-2% 60% 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.” 40% 20% 0% Q2 201 7 Q1 201 7 Q4 201 6 Q3 201 6 Q2 201 6 Q1 201 6 Q4 201 5 Q3 201 5 Q2 201 5 Q1 201 5 Q4 201 4 Q3 201 4 Q2 201 4 Q1 201 4 Q4 201 3 Q3 201 3 Q2 201 3 Q1 201 3 Q4 201 2 Q3 201 2 Q2 201 2 Q1 201 2 Q4 201 1 Q3 201 1 Q2 201 1 Q1 201 1 Q4 201 0 Q3 201 0 Q2 201 0 Q1 201 0 Q4 200 9 Q3 200 9 Q2 200 9 Q1 200 9 Q4 200 8 Q3 200 8 Q2 200 8 Q1 200 8 Q4 200 7 Q3 200 7 Q2 200 7 Source: Standard & Poor’s; CBOE; Baird Analysis. Robert W. Baird & Co. Member SIPC. 14 Commodity Markets As of June 30, 2017 Year-to-Date Returns of Various Commodity Types (%) 18.3 20 12.3 15 10 6.3 11.4 7.0 6.3 7.4 3.1 5 2.4 0 -5 -10 -3.4 -5.3 -7.3 -15 -20 -20.0 -25 -18.5 -21.2 -24.8 -30 Oil Prices Gold Prices $16 0 $2,000 London PM Gold ($/oz) $14 0 WTI Oil Price ($/b) $12 0 $10 0 $80 $60 $40 $1,500 $1,242 $1,000 $50 0 $46.04 $20 $0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 $0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 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. Robert W. Baird & Co. Member SIPC. 15 Energy Markets As of June 30, 2017 Oil Prices (West Texas Intermediate) Natural Gas Prices (Henry Hub) $16 $16 0 $12 $10 $10 0 $80 $60 $40 $46.04 $20 $3.04 $4 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Tot al Oil Production 2,500 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 100 Global Over/Under Supply 4 Global Oil Supply 2,000 8,500 6,500 Jun-08 Global Oil Supply and Demand (LH) and Supply Imbalance (RH) Tot al Active Rig Count 7,500 $0 Jun-07 1,500 1,000 5,500 500 4,500 3,500 0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Global Oil De mand 3 95 2 90 1 0 85 -1 -2 80 -3 Supply / Demand Imbalances (MMbb/d) Jun-10 Oversupply Jun-09 Undersupply Jun-08 Baker Hughes Oil & Gas Rig Count Total U.S. Oil Production (mmbb/d) 9,500 $6 $2 Total U.S. Oil Production (LH) and Rig Count Index (RH) 10,500 $8 Global Oil Supply and Demand (MMbb/d) WTI Oil Price ($/b) $12 0 $0 Jun-07 Henry Hub Natural Gas Price ($/mmbtu) $14 $14 0 75 -4 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: U.S. Energy Information Administration; Bloomberg; Baird Analysis. Robert W. Baird & Co. Member SIPC. 16 Mutual Fund and ETF Flows As of May 31, 2017 Annual Mutual Fund and ETF Flows ($ millions) Calendar Year Net Flow s ($M) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Money Market 340,833 613,001 (60,745) 23,827 40,622 24,080 52,648 84,147 (71,307) Municipal Bond 14,353 12,758 75,969 16,043 (8,574) 54,251 (56,361) 32,748 21,822 33,533 14,625 Taxable Bond 112,649 61,001 333,826 246,664 190,178 329,181 34,920 110,193 29,820 199,509 170,426 Allocation 45,974 (21,999) 6,453 18,527 19,307 29,553 61,961 51,267 (20,669) (51,899) (7,333) US Equity 37,163 709 (33,563) (21,054) (45,395) (41,163) 175,444 127,309 (60,053) (8,997) 41,516 International Equity 174,946 (41,542) 63,246 91,729 19,051 61,056 200,740 153,487 209,444 12,420 105,713 Alternative 11,561 19,820 28,434 24,006 23,172 17,902 49,512 20,076 20,516 (296) 2,387 Com m odities 6,542 12,370 36,636 24,972 8,171 11,928 (32,890) (3,317) (1,526) 14,456 1,742 (290,490) (431,604) Annual Fund Flows Biggest % Gainers/Losers by Asset Class Top 10 In-Flow s (as a % of assets) Trailing 1-Year Grow th Rate Top 10 Out-Flow s (as a % of assets) Trailing 1-Year Grow th Rate Industrials 51.4% Prime Money Market -53.6% Money Market - Taxable 49.8% Money Market - Tax-Free -23.4% Bank Loan 34.4% Utilities -13.4% Financial 33.6% Consumer Cyclical -10.9% Ultrashort Bond 31.9% Europe Stock -10.4% Emerging Markets Bond 26.0% Long Government -10.0% Equity Precious Metals 21.7% Japan Stock -9.6% Preferred Stock 21.5% Allocation--85%+ Equity -9.5% Inflation-Protected Bond 18.7% World Allocation -8.9% Energy Limited Partnership 18.0% Health -8.6% 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. Source: Morningstar Direct; Baird Analysis. Asset classes with less than $25 billion invested were excluded from the analysis. Robert W. Baird & Co. Member SIPC. 17 Fund Flow Heat Map As of May 31, 2017 Mutual Fund and ETF Net Flow (YoY % Grow th) Asset Class 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD US Equity Large Cap Grow th -1.0% 0.0% -1.2% -2.3% -4.2% -3.1% -3.9% -1.6% -1.8% -8.2% Large Cap Blend 1.2% 2.6% 4.9% -0.9% -0.3% 0.7% 1.8% 6.5% 6.9% 0.6% 2.2% Large Cap Value 3.9% -0.3% -2.9% -5.2% -0.1% 0.0% 0.5% 5.4% 2.8% -1.8% -0.2% Mid Cap Grow th 0.4% 5.7% -5.6% -0.5% 0.5% -4.8% -4.3% 2.2% -3.6% -9.3% -1.1% Mid Cap Blend 4.3% 2.1% -3.7% 4.9% 3.6% -1.4% 2.5% 15.0% 6.2% -0.1% 2.9% Mid Cap Value 1.8% 1.2% -4.9% -1.4% 0.8% -1.0% -4.8% 8.6% 0.5% -6.2% -1.7% Small Cap Grow th -1.7% -1.4% -2.0% -2.1% 4.4% 0.0% -1.0% -3.8% 4.4% -7.4% -7.1% -1.1% Small Cap Blend 8.6% -2.8% 1.9% 4.6% 3.4% -3.6% -3.0% 10.0% 2.1% 0.0% 1.3% Small Cap Value 6.2% -2.3% 7.2% 4.2% 7.6% -3.4% -4.6% 4.4% -0.5% 1.1% 1.0% International Equity Internationl Grow th 16.3% 9.3% -2.9% 3.3% 0.3% -2.7% -2.1% 4.4% -0.7% -2.1% 0.5% International Blend 24.7% 19.9% 0.4% 6.9% 10.5% 5.2% 4.1% 17.8% 15.3% 6.4% 6.5% International Value 11.8% 10.0% -7.0% -5.2% 4.4% 5.6% 7.5% 10.2% 9.5% -1.5% 1.7% Emerging Markets 18.1% 19.5% 3.6% 32.6% 27.5% 7.4% 19.2% 9.4% 3.5% -0.3% 6.5% Global Equity 12.3% 8.8% -4.8% -5.3% -4.2% -5.4% -6.2% 5.2% 2.5% -5.0% -0.5% 3.9% Fixed Incom e Short-Term Bond -4.9% 2.4% 0.3% 70.3% 28.7% 7.8% 19.2% 12.5% 6.5% 2.0% Intermediate-Term Bond 11.6% 16.1% 2.3% 26.7% 9.8% 5.2% 12.8% -7.5% 4.8% 8.9% 4.6% 3.3% 2.7% 3.5% 28.3% 11.3% 12.0% 15.7% 2.0% -5.4% 3.6% -2.9% Bank Loan 29.5% -7.9% -26.9% 38.3% 78.0% 32.6% 24.0% 93.4% -14.3% 5.9% 14.7% TIPS -3.1% 6.7% 39.0% 55.5% 10.9% 11.6% 6.1% -23.9% -2.2% 6.9% 8.0% Short-Term Muni -5.6% 4.6% 27.4% 105.5% 10.2% 4.0% 11.7% 2.2% 7.4% 1.9% 2.3% 7.4% 8.8% 9.7% 22.9% 7.1% 2.0% 14.4% -9.5% 13.4% 8.7% 3.2% 25.5% 1.3% -5.7% 27.6% 5.0% -1.5% 22.6% -15.0% 17.1% 5.2% 6.2% 3% to 5% 3% to 0% High Yield Bond Intermediate-Term Muni High Yield Muni >10% 5% to 10% 0% to -3% -3% to -5% -5% to -10% <-10% Source: Morningstar Direct; Baird Analysis. Robert W. Baird & Co. Member SIPC. 18 Domestic Equity Q2 2017 Market ChartBook U.S. Stock Market Snapshot As of June 30, 2017 Trailing Returns (%) Last Qtr 2.0 YTD 3.0 1-Year 4.0 S&P 500 3.1 9.3 DJIA 4.0 9.4 Mega 2.6 Large 3.2 Mid Small Micro 5-Year Risk Stats 3-Year 5.0 5-Year 6.0 10-Year 7.0 Std. Dev. Max. Loss 8.0 9.0 17.9 9.6 14.6 7.2 9.6 22.1 11.0 13.5 7.6 10.1 9.3 16.9 10.2 13.5 6.8 9.8 18.7 9.9 14.6 7.2 2.7 8.0 16.5 7.7 14.7 2.5 5.0 24.6 7.4 13.7 3.8 4.2 27.6 6.7 Value 1.3 4.3 16.2 Core 3.0 8.9 Grow th 4.7 13.7 Consumer Discretionary 2.4 Consumer Staples 1.6 (6.4) Other Metrics Representative P/E 10.0 EPS Gr. 16.0 Div. Yld. 12.0 Benchm ark (8.4) 21.2 0.6 2.1 S&P 500 (9.0) 19.6 4.6 2.5 Dow Jones Industrial Avg. 9.9 (8.5) 21.4 2.3 2.2 Russell Top 50 9.6 (8.6) 21.0 5.3 2.1 Russell Top 200 7.7 10.4 (12.8) 22.0 5.9 1.6 Russell Midcap 6.9 13.9 (16.8) 20.7 4.4 1.5 Russell 2000 13.7 5.5 15.1 (21.0) 17.0 (2.1) 1.3 Russell Micro Cap 7.3 13.9 5.6 10.0 (10.4) 18.2 0.1 2.5 Russell 3000 Value 18.5 9.1 14.6 7.3 9.8 (8.8) 20.9 4.2 2.0 Russell 3000 20.7 10.8 15.2 8.8 10.2 (8.8) 24.3 10.0 1.7 Russell 3000 Growth 11.0 16.9 12.2 17.4 10.5 11.6 (8.0) 21.1 8.0 1.5 S&P 500/Cons. Disc. 8.0 3.1 10.2 12.6 10.5 10.2 (7.5) 21.2 2.7 2.7 S&P 500/Cons. Staples (12.6) (4.1) (10.5) 1.6 1.3 15.9 (38.7) 25.1 (21.3) 3.1 S&P 500/Energy Bellw ethers Market Cap Style S&P 500 Sectors Energy Financials 4.3 6.9 35.4 12.4 18.0 0.4 13.5 (15.2) 14.0 3.1 2.0 S&P 500/Financials Health Care 7.1 16.1 12.5 11.0 17.9 10.6 11.8 (13.1) 19.9 9.8 1.8 S&P 500/Health Care Industrials 4.7 9.5 22.3 10.2 16.1 7.7 11.2 (11.3) 19.6 0.4 2.2 S&P 500/Industrials Information Technology 4.1 17.2 33.9 16.0 17.2 10.7 12.8 (8.2) 23.2 2.7 1.4 S&P 500/Info. Tech. Materials Telecomm Utilities 3.2 9.2 18.6 4.7 11.1 5.4 14.4 (22.7) 19.3 (6.3) 2.2 S&P 500/Materials (7.1) (10.7) (11.7) 4.0 5.9 3.7 13.9 (12.6) 15.1 (0.7) 5.0 S&P 500/Telecomm 2.2 8.8 2.5 9.4 11.2 7.0 13.6 (12.8) 18.0 (3.1) 3.5 S&P 500/Utilities 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. Robert W. Baird & Co. Member SIPC. 20 Domestic Asset Class Performance As of June 30, 2017 Performance by Market Cap and Style 15 14.0 12 11.4 10.0 Return (%) 9.3 9 8.0 6 5.2 5.0 3.1 3 2.7 4.7 4.7 4.4 4.2 2.5 1.4 1.3 0.7 0.5 0 Large Cap Mid Cap Small Cap Large Value Last Quarter Large Growth Mid Value Mid Growth Small Value Small Growth Year-to-Date 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. Robert W. Baird & Co. Member SIPC. 21 Domestic Asset Class Performance As of June 30, 2017 S&P 500 Index: Performance by Sector (Latest Quarter) S&P 500 Sector Statistics Health Care P/E Ratio (TTM) P/E Ratio (NTM) Dividend Yield (%) EPS Grow th (%) S&P 500 Index 21.4 19.9 2.1 9.6 Consumer Discretionary 21.7 20.9 1.6 12.4 7.1 Industrials 4.7 Financials 4.3 Info. Tech. 4.1 Materia ls 3.2 Consumer Staples 21.6 21.6 2.8 8.2 S&P 500 3.1 Energy 33.0 26.2 3.1 17.8 Financials 15.9 14.9 1.8 9.0 Health Care 23.6 20.8 1.7 9.1 Industrials 22.0 19.8 2.2 9.6 Info. Tech. 22.9 21.6 1.5 10.9 Materials 23.1 19.7 2.2 8.7 Real Estate 33.3 39.5 3.6 7.3 Telecomm 17.2 14.7 5.1 3.6 Utilities 20.2 17.4 3.6 5.3 Real E state 2.8 Cons. Disc. 2.4 Utilitie s 2.2 Cons. Staple s 1.6 Energy -6.4 Tele comm -7.1 -10 -5 0 5 10 Return (%) S&P 500 Index: Performance by Sector (YTD) Info. Tech. 17.2 Health Care 16.1 Cons. Disc. 11.0 Industrials 9.5 S&P 500 9.3 Materia ls 9.2 Real E state 9.0 Utilitie s 8.8 Cons. Staple s 8.0 Financials 6.9 Tele comm -10.7 Energy -12.6 -20 -15 -10 -5 0 5 10 15 20 Return (%) 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. Robert W. Baird & Co. Member SIPC. 22 Investment Style Leadership As of June 30, 2017 Large Cap vs. Small Cap (Rolling 12-Month Periods) 20 Large Cap Outperforms 12-Mo Performance Differential (%) 15 10 5 0 -5 -10 -15 Small Cap Outperforms -20 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Value vs. Growth (Rolling 12-Month Periods) 12-Mo Performance Differential (%) 12-Mo Performance Differential (%) 15 10 5 0 -5 -10 -15 Growth Outperforms Jun-09 Jun-10 Jun-11 Jun-12 Jun-15 40 Value Outperforms Jun-08 Jun-14 Jun-16 Jun-17 Defensive vs. Cyclical (Rolling 12-Month Periods) 20 -20 Jun-07 Jun-13 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Defensive Outperforms 30 20 10 0 -10 -20 -30 -40 Jun-07 Cyclical Outperforms Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 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. Robert W. Baird & Co. Member SIPC. 23 Historical Market Cap Valuations As of June 30, 2017 S&P 500 Valuation History 25 21.2 P/E Ratio (TTM) 20 15 10 S&P 500 P/E Average +1 Std. Dev. 5 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Mid Cap Valuations History Jun-13 10-Year Average P/E Average -1 Std. Dev. Jun-14 Jun-15 Jun-16 Jun-17 Small Cap Valuation History 25 25 22.7 21.9 20 P/E Ratio (TTM) P/E Ratio (TTM) 20 15 10 5 Jun-07 15 10 Jun-08 Jun-09 Mid Ca p 10-Y ear Average P/E Average +1 Std. Dev. Average - 1 S td. Dev . Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 5 Jun-07 Jun-08 Jun-09 Sm all Cap 10-Y ear Average P/E Average +1 Std. Dev. Average - 1 S td. Dev . Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 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. Robert W. Baird & Co. Member SIPC. 24 Historical Sector Valuation and Growth Ranges As of June 30, 2017 S&P 500 Sectors: 10-Year P/E Valuation Range 50 45 P/E Ratio 40 35 LEGEND 30 10-Year High 25 25.1 21.1 20 23.2 21.2 19.8 15 19.6 19.3 18.0 15.1 14.0 10 Current 5 0 Cons. Disc. Cons. Staple s Energy Financials Health Care Industrials Info Te ch Materia ls Tele comm Utilitie s S&P 500 Sectors: 10-Year Earnings Growth Range 25 Average 21.1 LT Earnings Growth 20 15 12.0 10-Year Low 10.7 10 8.3 9.5 9.2 8.9 8.7 5.4 5 3.3 0 Cons. Disc. Cons. Staple s Energy Financials Health Care Industrials Info Te ch Materia ls Tele comm Utilitie s 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. Robert W. Baird & Co. Member SIPC. 25 Mutual Fund Over/Under Performance (Equity Funds) As of June 30, 2017 Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year) 100% Percent of Total 75% 50% % Underperform 62% 25% 58% % Outperform 63% 45% 41% 37% 41% Int'l Global Mutual Fund Performance 16% 0% Large Growth Large Value Mid Growth Mid Value Small Growth Small Value 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. Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years) 100% Percent of Total 75% 50% % Underperform % Outperform 25% 55% 46% 35% 23% 20% 24% Large Growth Large Value Mid Growth 34% 14% 0% Mid Value Small Growth Small Value Int'l Global This chart examines seven main assets classes, detailing what percentage of mutual fund managers overor under-performed in a given period. This provides useful context when assessing mutual funds that you may own. 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. Robert W. Baird & Co. Member SIPC. 26 International Equity Q2 2017 Market ChartBook Global Market Performance As of June 30, 2017 Year-to-Date Performance Europe 15.9% UK 10.0% Russia -14.0% Germany 16.0% Canada 3.5% France 17.9% S&P 500 9.3% China 25.0% Spain 24.2% Mexico 25.5% India 20.5% Japan 10.1% Hong Kong 21.6% Brazil 3.1% South Africa 8.4% Australia 9.0% 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. Robert W. Baird & Co. Member SIPC. 28 International Equity Snapshot As of June 30, 2017 Trailing Returns (%) Asset Class/Region Annual Returns (%) Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2016 2015 2014 Benchm ark Developed Markets (USD) 6.1 13.8 20.3 1.2 8.7 1.0 1.0 (0.8) (4.9) MSCI EAFE (Net) USD Developed Markets (Local Currency) 2.7 7.6 22.1 7.0 12.5 2.0 5.3 5.3 5.9 MSCI EAFE (Net) Local Currency Effect (USD - Local Returns) 3.4 6.3 (1.8) (5.9) (3.9) (1.0) (4.3) (6.1) (10.8) Emerging Markets 6.3 18.4 23.8 1.1 4.0 1.9 11.2 (14.9) (2.2) MSCI Emerging Markets (Net) BRIC 4.8 16.9 25.6 1.9 4.2 1.2 12.4 (13.3) (2.6) MSCI BRIC Value 4.8 11.1 25.0 (0.6) 8.1 (0.1) 5.0 (5.7) (5.4) MSCI EAFE Value Grow th 7.5 16.7 15.7 2.8 9.2 2.1 (3.0) 4.1 (4.4) MSCI EAFE Growth Large Cap 5.8 13.3 20.0 0.5 8.1 0.8 1.1 (2.1) (5.5) MSCI EAFE Large Cap Mid Cap 7.3 15.6 21.2 3.9 11.1 1.8 0.7 4.4 (2.1) MSCI EAFE Mid Cap Small Cap 8.1 16.7 23.2 5.6 12.9 3.4 2.2 9.6 (5.0) MSCI EAFE Small Cap Europe 7.7 15.9 21.8 0.3 9.4 1.2 0.2 (2.3) (5.7) MSCI Europe Japan 5.2 10.1 19.6 5.9 9.9 1.4 2.7 9.9 (3.7) MSCI Japan Pacific (ex Japan) 1.6 13.6 19.6 1.4 6.9 3.8 8.0 (8.4) (0.3) MSCI Pacific ex Japan Broad Developed Markets Broad Em erging Markets Returns by Style Returns by Region 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. Robert W. Baird & Co. Member SIPC. 29 International Country Performance As of June 30, 2017 Selected Country Performance (Latest Quarter) Selected Country Performance (Year to Date) Developed Markets Fra nce 24.2 Italy 9.6 Netherlands 20.3 Switzerland 9.4 Swe de n 19.9 Swe de n Switzerland 9.1 Spain 8.1 Netherlands 8.1 Germa ny Italy 4.7 China Japan 10.1 U.K. 10.0 South Korea 10.3 25.0 24.5 9.0 Mexico Indone sia 8.8 Taiw an Mexico 6.3 13.9 South Africa 8.4 Bra zil -6.6 Rus sia -9.8 -10 16.5 Malaysia 2.9 -15 18.4 Indone sia 3.6 India 20.5 MSCI Em. Mk ts 5.1 South Africa 21.8 India 7.3 Malaysia 28.9 China Taiw an MSCI Em. Mk ts 9.0 South Korea 10.7 Bra zil 16.0 13.8 Aus tra lia -1.8 Rus sia 16.4 MSCI EAFE 5.2 Aus tra lia 17.9 Germa ny 6.1 Japan 19.1 Fra nce 6.9 MSCI EAFE U.K. Emerging Markets Spain 9.9 -5 0 Return (%) 5 10 15 3.1 -14.0 -20 -10 0 10 20 30 40 Return (%) 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. Robert W. Baird & Co. Member SIPC. 30 International Economic Sector Performance As of June 30, 2017 MSCWI ACWI Ex U.S. Performance by Sector (Latest Quarter) Info. Tech. 12.9 Cons. Staple s 7.1 Utilitie s 5.2 Cons. Disc. Sector Weighting (%) of the MSCI ACWI Ex U.S. Index 5.6 Industrials 6.8 Health Care Utilities 3.2 7.2 Tele comm 4.0 MSCI ACWI e x US Telecomm 4.7 5.8 Financials Energy 6.9 5.7 Energy Financials 24.2 -2.9 Materia ls 1.7 -5 0 5 10 15 Materials 8.4 Return (%) MSCWI ACWI Ex U.S. Performance by Sector (Year to Date) Health Care 8.4 Info. Tech. Industrials 12.2 29.3 Cons. Staple s 16.3 Industrials Info. Tech. 10.0 16.9 Health Care 15.7 Utilitie s 13.9 MSCI ACWI E x US 14.1 Cons. Disc. Cons. Staples 10.2 Cons. Disc. 11.7 12.9 Tele comm 10.2 Financials 13.6 Materia ls 10.2 Energy -3.8 -10 -5 0 5 10 15 20 25 30 35 Return (%) 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. Robert W. Baird & Co. Member SIPC. 31 Investment Style Leadership As of June 30, 2017 U.S. vs. International (Rolling 12-Month Periods) 12-Mo Performance Differential (%) 30 U.S. Outperforms 20 10 0 -10 -20 Int’l Outperforms -30 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Developed vs. Emerging Markets (Rolling 12-Month Periods) Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Value vs. Growth (Rolling 12-Month Periods) 50 15 Value Outperforms Developed Outperforms 12-Mo Performance Differential (%) 40 12-Mo Performance Differential (%) Dec-12 30 20 10 0 -10 -20 -30 10 5 0 -5 -10 -40 Emg. Markets Outperforms -50 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Growth Outperforms -15 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 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. Robert W. Baird & Co. Member SIPC. 32 Global Stock Market Valuations As of June 30, 2017 Historical P/E Ratio 22 21.4 21.2 20 18.4 P/E Ratio (TTM) 18 16 14.8 14 12 10 8 S&P 500 6 4 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 MSCI EAFE Jun-14 Jun-15 MSCI EM Jun-16 Jun-17 Current P/E Ratio of Selected Countries Europe 26 Asia-Pacific Emerging Markets 24 21.7 22 19.2 20 18 P/E Ratio (TTM) 16 15.5 16.0 16.0 14.6 14.8 14.3 16.5 17.0 16.1 14.3 14 12.3 11.2 12 9.2 10 7.7 8 6 4 2 0 UK France Switzerland Germany Spain Japan Australia Hong Kong Singapore China S. Korea Brazil S. Africa India Mexico Russia 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. Robert W. Baird & Co. Member SIPC. 33 Country Valuation Ranges As of June 30, 2017 Developed Markets: 7-Year P/E Valuation Ranges 35 30 25 21.7 20.4 P/E Ratio 19.9 18.6 20 14.3 16.0 15.5 16.5 16.0 14.8 14.6 LEGEND 18.7 17.3 14.3 14.3 7-Year High 12.7 15 10 5 Current 0 Emerging Markets: 7-Year P/E Valuation Ranges Average 35 30 25 P/E Ratio 19.2 18.8 20 15 16.5 10 16.1 14.5 13.5 12.3 11.2 9.2 17.0 17.0 11.7 7.7 7-Year Low 5 0 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. Robert W. Baird & Co. Member SIPC. 34 Fixed Income Q2 2017 Market ChartBook Bond Market Snapshot As of June 30, 2017 Characteristics Bond Types Trailing Returns (%) Yield (%) Duration Last Qtr Annual Returns (%) YTD 1-Year 3-Year 5-Year 10-Year 2016 2015 2014 Benchm ark Broad Developed Markets U.S. Taxable Bonds 2.5 6.0 1.5 2.3 (0.3) 2.5 2.2 4.5 2.7 0.6 6.0 BBgBarc US Aggregate Bond U.S. Municipal Bonds 2.3 6.3 2.0 3.6 (0.5) 3.3 3.3 4.6 0.3 3.3 9.1 BBgBarc Municipal Bond International Bonds 0.8 7.9 3.6 6.1 (3.8) (2.4) (0.4) 3.1 1.5 (6.0) (3.1) 4.7 5.8 1.8 5.1 5.6 4.5 5.3 7.1 9.9 1.3 4.8 BBgBarc Emerging Markets Treasuries 1.9 6.2 1.2 1.9 (2.3) 2.0 1.3 4.1 1.0 0.8 5.1 BBgBarc US Treasury Agencies 1.9 6.1 1.2 1.9 (2.2) 2.0 1.3 3.9 1.1 0.9 4.9 BBgBarc US Government Mortgage-Backed 2.8 4.7 0.9 1.4 (0.1) 2.2 2.0 4.3 1.7 1.5 6.1 BBgBarc US MBS Inv-Grade Corporate 3.2 7.5 2.5 3.8 2.3 3.6 4.0 5.8 6.1 (0.7) 7.5 BBgBarc US Corporate IG High Yield Corporate 5.6 3.9 2.1 4.9 12.8 4.5 6.9 7.5 17.5 (4.6) 2.5 BofA/ML High Yield Master II Insured 2.2 6.2 1.7 3.2 0.6 3.5 3.6 4.7 0.7 2.9 10.3 BBgBarc Municipal Insured State GO 2.1 5.6 1.6 3.2 (0.6) 2.7 2.7 4.4 (0.4) 3.0 7.3 BBgBarc Municipal State GO Local GO 2.3 6.9 2.0 3.7 (0.8) 3.2 3.1 4.8 (0.1) 3.2 8.5 BBgBarc Municipal Local GO Revenue 2.4 6.7 2.2 3.9 (0.5) 3.7 3.6 4.7 0.4 3.6 10.1 BBgBarc Municipal Revenue High Yield 6.1 9.6 2.0 6.1 1.2 5.6 5.2 4.5 3.0 1.8 13.8 BBgBarc High Yield Muni BBgBarc Glbl Agg. Bond ex US Broad Em erging Markets Emerging Market Bonds Taxable Bond Categories Municipal Bond Categories 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. Robert W. Baird & Co. Member SIPC. 36 Performance by Maturity and Credit Quality As of June 30, 2017 Taxable Bonds 7 5.8 6 4.9 Return (%) 5 4.3 4.5 4.3 4 3.4 3.4 2.9 3 0.7 2.1 1.9 1.8 2 1 2.7 2.3 1.1 0.3 0 Short-Term Intermediate Long-Term AAA AA QTR A Baa Below Baa (High Yield) YTD Municipal Bonds 7 6.1 6 Return (%) 5 4 4.3 4.2 3.9 3.7 3.2 3.1 3 2.4 1.9 2 1 2.3 2.3 2.0 1.9 1.7 1.2 0.3 0 Short-Term Intermediate Long-Term AAA QTR AA YTD A Baa Below Baa (High Yield) 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. Robert W. Baird & Co. Member SIPC. 37 Yield and Volatility Characteristics of Various Bond Types As of June 30, 2017 The Relationship Between Yield and Volatility 8 HY Municipal 6 High Yield Yield (%) Bank Loans Emerging Mkts 4 Mortgage-Backed Corporate Broad Bond Market 2 Municipal Treasury International 0 0 2 4 6 8 10-Year Historical Volatility (Standard Deviation) 10 12 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. Robert W. Baird & Co. Member SIPC. 38 U.S. Treasury Bonds As of June 30, 2017 U.S. Treasury Yield Curve Historical U.S. Treasury Rates 10 3.0 9 10-Year U.S. Treasury Rate (%) 2.5 Yield (%) 2.0 1.5 1.0 06/30/17 Current Q tr 8 7 6 5 4 3 0.5 2 1 30 yr Maturity 20yr 10yr 5yr 2yr 3yr 0.0 6m o 06/30/16 Last Year Current U.S. Treasury Yields by Maturity 2.84 3 Yield (%) 2.31 1.89 2 1.55 1.38 1.03 1.14 1 0 3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr Source: U.S. Department of Treasury; Baird Analysis. See important disclosures and definitions included with this publication. Robert W. Baird & Co. Member SIPC. 39 U.S. Treasury Bonds As of June 30, 2017 U.S. Municipal and Treasury Yield Curve 3.0 2.5 Yield (%) 2.0 1.5 1.0 0.5 Maturity 30yr 3m o 6m o 5 yr 10yr 0.0 Municipal 20yr Treasury Yield Comparisons of Treasury and Municipal Bonds 5 4.6 Tre asury 4.4 Municipal 4 Yield (%) Tax-Equiv ale nt Yield 3.3 3 2.6 2.2 2 1.6 1.2 1.0 1 1.2 1.1 1.4 1.2 0.7 0.7 0.8 3mo 6mo 1yr 1.4 1.0 1.8 2.6 2.7 2.8 2.8 2.3 2.1 2.0 1.9 1.6 1.6 1.4 1.1 0 2yr 3yr 5yr 7yr 10y r 20y r 30y r 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. Robert W. Baird & Co. Member SIPC. 40 Corporate Bond Yields As of June 30, 2017 Investment Grade Bonds: Current Yield and Historic Default Rate 12 Effective Yield (%) 8 6 4 100 9 90 8 80 7 70 6 60 5 50 3 1 Jun-09 Jun-11 Jun-13 Jun-15 40 2.9 2.7 30 20 0.0 0.6 2.7 AAA AA A 6.0 10 0 Jun-17 High Yield Bonds: Historical Yields 0 BBB High Yield Bonds: Current Yield & Historic Default Rate 27 20 100 24 18 90 16 80 14 70 Effective Yield (%) 21 Effective Yield (%) 2.9 2 2 0 Jun-07 3.5 4 18 15 12 9 12 60 10.1 10 50 8 6 6 4 3 2 40 5.7 4.2 34.4 35.7 30 Average Default Rate (%) Effective Yield (%) 10 10 Av erage Def ault Rate (%) Investment Grade Bonds: Historical Yields 20 10 12.8 0 Jun-07 0 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 0 BB B CCC 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. Robert W. Baird & Co. Member SIPC. 41 Bond Spreads As of June 30, 2017 Average Option-Adjusted Spread: Max/Min/Avg 1,500 1,400 Average Current 1314 1,300 Spread over Treasury Bond (bps) 1,200 1,100 1,000 900 800 700 600 474 500 400 300 362 200 130 124 81 100 105 0 40 11 6 (100 ) High Y ield Corporate MBS Global Age nc ies Current/Historical Spreads (%) High Yield Corporate MBS Global Agencies High 1314 474 130 124 81 Average 611 188 49 64 29 Low 362 105 6 40 11 Current 364 109 32 40 15 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. Robert W. Baird & Co. Member SIPC. 42 Bond Sector Yields and Returns As of June 30, 2017 Sector Statistics Bond Sector Returns Avg. Maturity Avg. Yield Credit Quality YTD 1-Year Benchm ark U.S. Treasuries Short-Term 2.8 yrs. 1.5% AA+ 0.9% -0.5% BBgBarc US Treasury 1-5 Yr Intermediate-Term 7.0 2.1% AA+ 2.4% -2.8% BBgBarc US Treasury 5-10 Yr Long-Term 14.0 2.4% AA+ 3.5% -5.0% BBgBarc US Treasury 10-20 Yr TIPS 8.5 2.2% AA+ 1.0% -0.5% BBgBarc US Treasury US TIPS 8.3 yrs. 2.5% AA 2.4% -0.2% BBgBarc U.S. Aggregate Bond IG Corporates 10.9 3.2% AA+ 3.9% 2.4% BBgBarc U.S. Corporate IG HY Corporates 6.3 5.6% B 4.9% 13.0% BBgBarc U.S. High Yield - 2% Issuer Cap Floating Rates 2.6 1.6% A+ 1.2% 2.4% BBgBarc U.S. Floating Rate Notes MBS 7.0 2.8% AAA 1.5% 0.2% BBgBarc U.S. Mortgage Backed Securities ABS 2.4 1.9% AA+ 1.2% 0.7% BBgBarc Asset-Backed Securities Municipal 12.9 2.3% AA- 3.6% -0.5% BBgBarc Municipal Bond Broad Market Aggregate Bond Price Impact of a 1% Rise/Fall in Interest Rates 15% +1% 10% 5% -1% 6.7% 11.2% 8.2% 8.0% 6.2% 2.8% 2.3% 3.7% 4.4% 4.7% -6.2% -5.5% -6.1% MBS Municipals Tot al Bond Market 0.1% 0% -0.1% -5% -2.3% -2.7% -4.0% -6.2% -10% -7.5% -6.9% -9.8% -15% 1-5 Yr Tre asury 5-10 Y r Tre asury TIP S 10-2 0 Y r. Tre asury Floating Rate ABS HY Corporates IG Corporates 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. Robert W. Baird & Co. Member SIPC. 43 Mutual Fund Over/Under Performance (Bond Funds) As of June 30, 2017 Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year) 100% Percent of Total 75% % Underperform 50% 87% 83% % Outperform 25% 38% Mutual Fund Performance 10% 0% Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal 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. Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years) 100% Percent of Total 75% 50% 83% % Underperform 88% % Outperform 25% 38% 26% 0% Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal This chart examines four main assets classes, detailing what percentage of mutual fund managers overor under-performed in a given period. This provides useful context when assessing mutual funds that you may own. 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. Robert W. Baird & Co. Member SIPC. 44 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-toearnings 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 floatadjusted 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. 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. 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. Disclosures MSCI International Equity Benchmarks Fixed Income 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. Barclays Aggregate Bond Index: is an unmanaged index that tracks domestic investment-grade bonds, including corporate, government, and mortgage-backed securities. 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. Barclays 1-3 Yr Government/Credit Bond Index: Includes bonds covered by the Government/Credit Index, with maturities from 1 up to (but not including) 3 years. Barclays 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 semiannually and performance is calculated quarterly. 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.