Download Economy - ncpers

Out of Recession But Out of Sync:
Risks and Opportunities
in the Global Recovery
David Kelly,
Chief Market Strategist,
JP Morgan Funds
Highlights
The U.S. Outlook: From Recovery to Expansion
The Global Outlook: Out of Recession but Out of Sync
Risks
Opportunities
1
14
Economic Growth and the Composition of GDP
Components of GDP
Real GDP
Billions, USD
% chg at annual rate
20-yr avg. 1Q11
10%
Economy
Real GDP:
2.5%
$16,000
1.8%
8%
$14,000
6%
$12,000
$554 bn of
output lost
4%
2.2% Housing
10.2% Investment ex-housing
20.2%
Gov’t Spending
$10,000
2%
$8,000
0%
$6,000
-2%
$629 bn of
output
recovered
-4%
71.2%
Consumption
$4,000
$2,000
-6%
$0
- 3.8% Net Exports
-8%
'02
'04
'06
'08
'10
-$2,000
Source: BEA, FactSet, J.P. Morgan Asset Management.
Data reflect most recently available as of 5/05/11. GDP values shown in legend are % change vs. prior quarter annualized and reflect revised 1Q11 GDP.
2
15
Cyclical Sectors
Light Vehicle Sales
Change in Private Inventories
Millions, seasonally adjusted annual rate
Billions of 2005 dollars, seasonally adjusted annual rate
24
150
22
100
20
1Q11:
43.8
50
18
0
Economy
16
-50
14
Average: 14.6
-150
Apr. 2011: 13.2
10
8
'85
'90
'95
'00
'05
Average: 25.4
-100
12
'10
-200
'70
'75
'80
'85
'90
'95
'00
'05
'10
Real Capital Goods Orders
Housing Starts
Non-defense capital goods orders ex. aircraft, $ bn, seasonally adjusted
Thousands, seasonally adjusted annual rate
75
2,400
70
2,000
65
1,600
60
Average: 1,469
1,200
Average: 57.6
55
800
50
400
0
'75
Mar. 2011: 549
45
Mar. 2011: 59.6
40
'80
'85
'90
'95
'00
'05
'10
'98
'00
'02
'04
'06
'08
'10
Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) BEA, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau, FactSet, J.P. Morgan
Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.
Data reflect most recently available as of 5/05/11.
3
19
Employment
Civilian Unemployment Rate
Employment – Total Private Payroll
Seasonally adjusted
Total job gain/loss (thousands)
12%
600
11%
400
Economy
10%
200
8.8mm jobs lost
Apr. 2011: 9.0%
9%
0
8%
2.1mm
jobs
gained
-200
7%
-400
6%
-600
5%
50-yr. avg.: 6.0%
-800
4%
3%
-1,000
'70
4
'80
'90
'00
'10
'01
'02
'03
'04
'05
'06
Source: BLS, J.P. Morgan Asset Management.
Source: BLS, J.P. Morgan Asset Management.
Data reflect most recently available as of 5/05/11.
Data reflect most recently available as of 5/05/11.
'07
'08
'09
'10
22
Corporate Profits
S&P 500 Earnings Per Share
Adjusted After-Tax Corporate Profits (% of GDP)
Operating basis, quarterly
2Q07: $24.06
$26
Most recent:
$22.73*
Includes inventory and capital consumption adjustments
9%
4Q10:
8.4%
$23
8%
Economy
$20
$17
7%
$14
50-yr. avg.: 6.0%
6%
$11
$8
5%
$5
4%
$2
-$1
'00
'02
'04
'06
'10
3%
'65
'70
'75
'80
'85
'90
Source: Standard & Poor’s, J.P. Morgan Asset Management.
Source: BEA, FactSet, J.P. Morgan Asset Management.
EPS levels are based on operating earnings per share. Data reflect most recently available
as of 5/05/11.
Data are as of 5/05/11.
Most recently available is a 1Q11 90% complete estimate.
5
'08
'95
'00
'05
'10
23
Consumer Price Index
CPI and Core CPI
% chg vs. prior year, seasonally adjusted
50-yr. Avg.
15%
Mar. 2011
Headline CPI:
4.1%
2.7%
Core CPI:
4.1%
1.2%
Economy
12%
9%
6%
CPI
Components
Weight in
CPI
12-month
Change
Food & Bev.
14.8%
2.8%
Housing
41.5%
0.8%
Apparel
3.6%
-0.6%
Transportation
17.3%
9.9%
Medical Care
6.6%
2.7%
Recreation
6.3%
-0.1%
Educ. & Comm.
6.4%
1.1%
Other
3.5%
1.8%
100.0%
2.7%
Energy
9.1%
15.5%
Food
13.7%
2.9%
Core CPI
77.2%
1.2%
3%
Headline CPI
Less:
0%
-3%
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
Source: BLS, J.P. Morgan Asset Management.
Data reflect most recently available as of 5/05/11. CPI values shown are % change vs. 1 year ago and reflect March
2011 CPI data. CPI component weights are as of Feb. 2011 and 12-month change reflects data through March
2011. Core CPI is defined as CPI excluding food and energy prices.
6
29
The Federal Reserve
Fed Funds Target Rate and 10-Year Treasury Yields
12%
Federal Reserve Balance Sheet
U.S. Federal Reserve, total reserve bank credit, $ trillions
$3.0
$2.5
10%
Long-term
$2.0
Short-term
$1.5
$1.0
8%
Fixed Income
$0.5
$0.0
'05
6%
10-year Treasuries:
3.32%
'06
'07
'08
'09
'10
Money Supply Growth
Year-over-year growth in M2
14%
12%
4%
10%
8%
2%
6%
4%
Fed Funds Target:
0.0% to 0.25%
0%
'88
7
'90
'92
'94
'96
'98
'00
'02
'04
2%
'06
'08
'10
Mar. 2011: 4.6%
0%
'82
'84
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.
Data are as of 5/05/11.
Data are as of 5/05/11.
'06
'08
'10
38
Global Economic Growth
Developed Market Countries Real GDP Growth
Annualized Averages
14%
’81-’85 ’86-’90 ’91-’95 ’96-’00 ’01-’05 ’06-’10
12%
2010
10%
8%
6%
4%
2%
0%
Japan
Germany
Australia
Canada
United States
United Kingdom
France
Italy
Spain
-2%
Emerging Market Countries Real GDP Growth
14%
Annualized Averages
12%
International
’81-’85 ’86-’90 ’91-’95 ’96-’00 ’01-’05 ’06-’10
2010
10%
8%
6%
4%
2%
0%
China
India
Turkey
-2%
Source: IMF, J.P. Morgan Asset Management.
2010 data are estimates as provided by the IMF.
Data are as of 3/31/11.
8
Brazil
Korea
Indonesia
Mexico
Russia
Poland
South Africa
Risks
Downside Risks
Oil
Emerging Market/Commodity Bubbles
Sovereign Debt
Upside Risks
Confidence
9
25
Oil and the Economy
WTI Crude Oil & Retail Gasoline Prices
Economic Drag of Oil Prices
$4.50
$4.00
$160
Gas
Oil
Gas
$3.50
12/31/2000
$26.72
$1.41
4/30/2011
$113.93
$3.88
Oil
$140
U.S. Petroleum Imports as a % of GDP
3Q08: 3.8%
4%
$120
Economy
3%
$3.00
$100
$2.50
$80
$2.00
$60
$1.50
$40
$1.00
$20
$0.50
'94
$0
'96
'98
'00
'02
'04
'06
'08
'10
2%
1%
1Q10: 3.0%
0%
'70
'75
'80
'85
'90
'95
'00
'05
'10
OPEC Spare Capacity – Crude Oil
World Oil Consumption
Percentage change, barrels
Millions of barrels per day
10%
8
8%
7
6
6%
Average: 3.0 mm bbl/day
5
4%
4
2%
3
0%
2
-2%
1
-4%
0
'70
'74
'78
'82
'86
'90
'94
'98
'02
'06
'10
Source: U.S. Department of Energy, FactSet, J.P. Morgan Asset Management.
2011 and 2012 world oil consumption based on estimates from U.S. Department of
Energy.*Gasoline price based on weekly series; data are as of 4/1/11.
10
Data reflect most recently available as of 4/30/11.
'94
'96
'98
'00
'02
'04
'06
'08
'10
Source: (Top) BEA, J.P. Morgan Asset Management. (Bottom) OPEC, J.P. Morgan
Asset Management.
Data reflect most recently available as of 4/30/11.
39
Global Monetary Policy
Real GDP Growth Rates – Quarterly Year-over-Year
Real Policy Rates – Quarterly
10%
4%
8%
3%
6%
2%
4%
2%
1%
0%
0%
Developed Markets
-2%
Emerging Markets
-4%
Developed Markets
-1%
Emerging Markets
-6%
-2%
'02
'03
'04
'05
'06
'07
'08
'09
'10
Country Level Monetary Policy and Inflation
'02
'03
Target Policy Rate
12%
'04
'05
'06
'07
Inflation Rate
'08
'09
'10
Real Policy Rate
9%
3%
0%
Developed Markets
11
Emerging Markets
Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.
(Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J.P. Morgan
Global Economics Research. (Bottom chart) Key policy rates are the short-term target interest rates set by central banks. Inflation rates shown
represent year-over-year quarterly rates for 4Q10. Real policy rates are short-term target interest rates set by central banks minus year-over-year
inflation.
Data are as of 3/31/11.
Brazil
South Africa
China
Poland
Taiwan
Indonesia
Mexico
Thailand
Korea
Turkey
Argentina
India
Russia
Australia
Japan
U.S.
Euro area
Canada
-6%
Hong Kong
-3%
U.K.
International
6%
43
Sovereign Debt Vulnerability
Structural
Current
Net
Govt.
Acct.
Govt. Debt
Deficit
Balance
% of projected 2011 GDP
10-year Sovereign Debt Interest Rates
Yields %
0%
2%
4%
6%
8%
10%
Greece
12.8%
Ireland
10.0%
Portugal
8.3%
Spain
5.3%
Italy
France
International
United Kingdom
United States
Canada
Germany
Japan
12%
4.8%
14%
2010
-5.3
117.2
-7.7
72.4
7.8 years
Ireland
-6.8
63.0
-1.1
58.7
7.0
Portugal
-4.0
82.9
-9.2
72.1
6.7
Spain
-5.3
60.9
-4.8
49.0
6.9
Italy
-2.8
100.1
-2.7
46.9
7.8
France
-3.7
77.9
-1.8
61.0
7.3
United Kingdom
-6.2
74.0
-2.0
24.1
13.8
United States
-7.1
72.7
-2.6
28.8
5.5
Canada
-2.0
33.5
-2.7
17.1
6.3
Germany
-2.9
60.4
5.8
50.2
6.2
Japan
-7.2
129.5
2.3
5.1
6.4
3.7%
3.6%
3.5%
3.3%
3.3%
1.3%
The Structural Deficit represents what the deficit would be if the economy were operating at its potential. Net government debt is equal to gross
government debt less government assets.
Data are as of 3/31/11.
Weighted
Average
Maturity
Greece
Source: FactSet, IMF’s October 2010 Global Financial Stability Report, IMF’s October 2010 World Economic Outlook, J.P. Morgan Asset
Management.
12
% Govt.
Debt Held
Abroad
26
Consumer Confidence
Consumer Sentiment Index – University of Michigan
130
Impact on Consumer Sentiment from a…*
10% y-o-y rise in gasoline prices
-1.6 points
10% y-o-y rise in home prices
+6.4
10% y-o-y rise in the S&P 500
+2.7
1% y-o-y rise in the unemployment rate
-4.5
120
110
Economy
Sentiment Cycle Low and subsequent 12-month
S&P 500 Index return
100
90
Average: 85.8
80
Mar. 2003
+31.4%
70
Feb. 1975
+25.1%
50
Current:
67.5
Oct. 1990
+36.5%
60
Nov. 2008
+21.6%
May 1980
+13.6%
40
'72
'74
'76
'78
'80
'82
'84
'86
Source: University of Michigan, FactSet, J.P. Morgan Asset Management.
*Based on regression analysis of monthly data from Jan. 1998 to Feb. 2011.
Data are as of 5/05/11.
13
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
9
Earnings Estimates and Valuation Drivers
S&P 500 Operating Earnings Estimates
S&P 500 Index: Forward P/E Ratio
Consensus estimates of the next twelve months’ rolling earnings
28x
1Q11: $100.93
Equities
$120
24x
$100
$80
20x
Average: 16.5x
$60
16x
$40
12x
$20
Apr. 2011: 13.1x
8x
'94
'96
'98
'00
'02
'04
'06
'08
$0
'10
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
Multiple Expansion and Contraction
Forward P/E based on consensus EPS estimates
Correlation Coefficient: 0.72
120
Consumer Sentiment
Forward P/E
24x
100
20x
80
16x
12x
60
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
Source: (Top left) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. (Top right) Standard & Poor’s, Compustat, FactSet, J.P.
Morgan Asset Management. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Actual reported are annual
operating earnings reported by Standard and Poor’s. (Bottom) Standard & Poor’s, FactSet, University of Michigan, J.P. Morgan Asset Management.
Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months.
14
Data are as of 5/05/11.
'10
7
Investment Style Valuations
Russell 1000 Growth P/E divided by Russell 1000 Value P/E
Current P/E vs. 20-year avg. P/E
2.5x
14.8
13.1
1.13x*
2.0x
Mid
Most recent:
R1000 Growth
R1000 Value
Growth / Value
3.0x
Large
Value
Small
Equities
3.5x
1.5x
20-yr. average: 1.47x
13.1
Blend
13.9
14.1
15.0
14.8
16.9
16.3
14.0
15.7
Growth
21.2
17.9
16.3
17.7
14.2
22.0
19.6
17.1
21.4
1.0x
'98
'00
'02
'04
'06
'08
'10
Russell 2000 P/E divided by Russell 1000 P/E
Current P/E as % of 20-year avg. P/E
E.g.: Large Cap Blend stocks are 17.3%
cheaper than their historical average.
1.3x
Value
Blend
Growth
Large
'96
92.7%
82.7%
70.1%
Mid
'94
106.9%
99.7%
81.4%
Small
'92
111.0%
103.7%
91.9%
1.2x
20-yr. average: 1.03x
1.1x
1.0x
Most recent:
R2000
R1000
Small / Large
0.9x
0.8x
17.7
13.9
1.27x*
0.7x
'92
15
'94
'96
'98
'00
'02
'04
'06
'08
'10
Source: Russell Investment Group, IBES, FactSet, J.P. Morgan Asset Management.
P/E ratios are calculated and provided by Russell based on IBES consensus estimates of earnings over the next twelve months. *Represents the
Russell 1000 Growth Index P/E ratio divided by the Russell 1000 Value Index P/E ratio (top) and Russell 2000 Index P/E ratio divided by the Russell
1000 Index P/E ratio (bottom). Data is most recent as of 3/31/11. Data reflect P/Es as provided by Russell based on IBES estimates of next twelve
months’ earnings.
Data are as of 5/05/11.
31
Treasury Yields and Inflation
Real 10-Year Treasury Yields
Nominal 10-Year Yields: Treasuries & TIPS
16%
Sep. 30, 1981:
15.84%
14%
10-Year Treasury Yields minus Core CPI
As of Apr. 30, 2011:
10-year Treasuries
3.32%
10-year TIPS
0.75%
Implied Expected Inflation 2.57%
6%
As of Apr. 30, 2011:
10-year Treasuries
3.32%
Core CPI
1.19%
Real 10-year yield
2.13%
5%
12%
4%
Fixed Income
10%
Mar. 31, 2011:
2.13%
3%
8%
6%
10-year Treasuries:
3.32%
2%
20-yr. average: 2.77%
4%
1%
2%
0%
'80
10-year TIPS: 0.75%
'85
'90
'95
'00
'05
Source: St. Louis Fed, Federal Reserve, J.P. Morgan Asset Management.
Treasury Inflation-Protected Securities were first introduced in 1997.
Data are as of 5/05/11.
16
'10
0%
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
Source: FRB, BLS, J.P. Morgan Asset Management. Chart is the 10-year Treasury
yield less Core CPI (inflation excluding food and energy, year-over-year).
Data are as of 5/05/11.
33
High Yield Bonds
High Yield Spreads and Defaults
20%
Average
5.9%
4.4%
HY Spreads
HY Defaults
15%
Latest
5.2%
0.8%
Spreads
Default Rates
10%
Fixed Income
5%
0%
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
Historical High Yield Recovery Rates
High yield bonds, cents on the dollar
70¢
60¢
61¢
60¢
46¢
50¢
40¢
39¢
43¢
46¢
49¢
43¢
49¢
44¢
42¢
32¢
32¢
26¢
30¢
21¢
23¢
'98
'00
23¢
41¢
39¢
Average: 38.4¢
36¢
35¢
28¢
26¢
20¢
10¢
0¢
'88
'90
'92
'94
'96
'02
'04
'06
'08
'10
Source (Top chart): U.S. Treasury, J.P. Morgan, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 50%
of par value and include any chapter 11 filing, prepackaged filing or missed interest payments.
(Bottom chart): J.P Morgan High Yield & Leveraged Loan Strategy, Moody’s, J.P. Morgan Asset Management.
Spreads indicated are benchmark rates over comparable Treasury yields.
17
Data are as of 5/05/11.
36
International Returns: Local Currency vs. U.S. Dollars
1Q11
Country / Region
Local
Regions / Broad Indexes
USA (S&P 500)
2010
USD
Local
Weights in MSCI All Country World Index
USD
5.9
-
15.1
EAFE
1.1
3.4
5.3
8.2
Europe ex-U.K.
2.7
7.9
5.1
2.4
Pacific ex-Japan
2.0
2.8
6.1
17.1
Emerging Markets
0.7
2.1
14.4
19.2
United Kingdom
1.4
3.8
12.2
8.8
France
4.5
10.6
3.5
-3.2
Germany
1.7
7.6
16.9
9.3
Japan
-2.8
-4.9
0.7
15.6
China
2.9
2.9
5.1
4.8
India
-5.4
-5.1
16.2
20.9
Brazil
0.6
2.6
1.7
6.8
Russia
9.5
16.3
20.3
19.4
International
MSCI: Selected Countries
Source: J.P. Morgan Asset Management, FactSet, MSCI Inc., Standard & Poor’s.
All return values are MSCI Gross Index (official) data. Returns are as of 3/31/11. MSCI ACWI weights as of 3/31/11.
International investing involves a greater degree of risk and volatility. Changes in currency exchange rate and political and
economic climate can raise or lower returns. Past performance is not indicative of future results. Europe and Pacific regions
exclude Emerging Markets, which are shown separately. Europe excludes U.K. and Pacific excludes Japan.
18
Data are as of 3/31/11.
U.K.: 8%
United
States:
43%
Emerging: 14%
Pacific: 5%
-
Europe: 17%
France:
4%
Germany: 3%
Switzer.: 3%
Spain:
1%
Other:
6%
Korea:
Brazil:
Russia:
India:
China:
Other:
2%
2%
1%
1%
2%
6%
24
Returns in Different Inflation Environments – 40 years
Rising inflation scenarios
Falling inflation scenarios
High and Rising Inflation
High and Falling Inflation
Occurred 13 times since 1971
Occurred 7 times since 1971
25%
25%
20%
15%
Economy
10%
10%
7%
6%
5%
15%
8%
10%
5%
1%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
Bonds
Equities
Cash
Commodities
Bonds
Equities
Low and Falling Inflation
Occurred 7 times since 1971
Occurred 13 times since 1971
22%
20%
20%
15%
15%
10%
6%
3%
5%
12%
8%
0%
0%
-5%
-5%
-10%
-10%
6%
4%
5%
-15%
-12%
Commodities
25%
20%
10%
Cash
-15%
Bonds
Equities
Cash
Commodities
Bonds
Equities
Cash
Commodities
Source: BLS, Barclays Capital, Robert Shiller, Federal Reserve, Strategas/Ibbotson, Standard and Poor’s, FactSet, J.P. Morgan Asset Management.
High or low inflation distinction is relative to median CPI-U inflation for the period 1971 to 2010. Rising or falling inflation distinction is relative to
previous year CPI-U inflation rate. Bond returns are based on the Barclays U.S. Aggregate index since its inception in 1976 and a composite bond
index prior to that. Equity returns based on S&P 500 price return and annual dividend yield. Cash returns are based on the Barclays 1-3 Month T-Bill
index since its inception in 1992 and 3-month T-Bill rates prior to that. Commodities returns based on GSCI.
19
For illustrative purposes only. Past performance is not indicative of comparable future returns. Data reflect most recently available as of 3/31/11.
Median
Inflation:
3.4%
Below median
Low and Rising Inflation
25%
Above median
20%
22%
17%
48
Mutual Fund Flows
Billions, USD
AUM
Fund Flows
YTD 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Domestic Equity
4,432
16
(96)
(39)
(152) (48)
11
32
112
130
(23)
54
256
176
World Equity
1,568
19
59
31
(83)
138
148
104
66
22
(4)
(22)
53
11
Taxable Bond
2,202
37
230
307
19
98
46
26
3
39
124
76
(36)
8
Tax-exempt Bond
452
(19)
11
69
8
11
15
5
(14)
(7)
16
12
(14)
(12)
Hybrid
789
17
23
23
(18)
24
7
25
42
32
7
9
(31)
(14)
2,727
(78)
654
245
62
375
159
194
Money Market
(525) (539) 637
Difference Between Flows Into Stock and Bond Funds
Billions, USD, U.S. and international funds, monthly
U.S. Equity Fund Flows and Market Performance
Billions USD, U.S. equity funds, quarterly
$120
Equity Flows
S&P 500
$100
1600
$40
1400
$20
$80
1200
$60
$40
Bond flows exceeded equity
flows by $9 billion in Mar. 2011
$0
1000
-$20
$20
800
$0
Asset Class
(157) (263) (46)
-$40
-$20
600
-$40
-$60
400
-$60
-$80
200
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
-$80
Aug '07
Feb '08
Aug '08
Feb '09
Aug '09
Feb '10
Source: Investment Company Institute, J.P. Morgan Asset Management.
Data include flows through February 2011 and exclude ETFs. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging
market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows.
Data are as of 5/05/11.
20
Aug '10
Feb '11
46
Asset Class
Asset Class Returns
21
2000
2001
REITs
REITs
26.4%
2002
2003
13.9%
DJ UBS
Cmdty
23.9%
M SCI
EM E
56.3%
DJ UBS
Cmdty
24.2%
M arket
Neutral
9.3%
Barclays
Agg
10.3%
M arket
Neutral
15.0%
Barclays
Agg
8.4%
Barclays
Agg
11.6%
Russell
2000
2.5%
Asset
Alloc.
0.6%
2004
2005
2006
1Q11
10-yrs
'01 - '10
Russell
2000
7.9%
M SCI
EM E
350.0%
REITs
REITs
7.5%
178.0%
28.0%
M SCI
EM E
19.2%
S&P
500
5.9%
Russell
2000
84.8%
2007
2008
2009
35.1%
M SCI
EM E
39.8%
Barclays
Agg
5.2%
M SCI
EM E
79.0%
M SCI
EAFE
32.5%
2010
31.6%
M SCI
EM E
34.5%
Russell
2000
47.3%
M SCI
EM E
26.0%
DJ UBS
Cmdty
17.6%
M SCI
EM E
32.6%
M SCI
EAFE
11.6%
M arket
Neutral
1.1%*
M arket
Neutral
7.4%
M SCI
EAFE
39.2%
M SCI
EAFE
20.7%
M SCI
EAFE
14.0%
M SCI
EAFE
26.9%
DJ UBS
Cmdty
11.1%
Asset
Alloc.
-23.8%
REITs
REITs
3.8%
37.1%
Russell
2000
18.3%
12.2%
Russell
2000
18.4%
M arket
Neutral
9.3%
Russell
2000
-33.8%
Russell
2000
27.2%
DJ UBS
Cmdty
16.7%
DJ UBS
Cmdty
4.4%
Asset
Alloc.
80.2%
M SCI
EM E
-2.4%
Asset
Alloc.
-5.4%
S&P
500
28.7%
Asset
Alloc.
12.5%
Asset
Alloc.
8.0%
S&P
500
15.8%
Asset
Alloc.
7.3%
DJ UBS
Cmdty
-36.6%
S&P
500
26.5%
S&P
500
15.1%
Asset
Alloc.
3.7%
M arket
Neutral
. 76.9%
Russell
2000
-3.0%
Asset
Alloc.
-3.4%
M SCI
EM E
-6.0%
Asset
Alloc.
25.2%
S&P
500
10.9%
M arket
Neutral
6.1%
Asset
Alloc.
14.9%
Barclays
Agg
7.0%
S&P
500
-37.0%
Asset
Alloc.
22.5%
Asset
Alloc.
12.7%
M SCI
EAFE
3.5%
Barclays
Agg
76.3%
S&P
500
-9.1%
S&P
500
-11.9%
M SCI
EAFE
-15.7%
DJ UBS
Cmdty
22.7%
DJ UBS
Cmdty
7.6%
S&P
500
4.9%
M arket
Neutral
11.2%
S&P
500
5.5%
-37.7%
DJ UBS
Cmdty
18.7%
M SCI
EAFE
8.2%
M arket
Neutral
2.3%
M SCI
EAFE
47.1%
M SCI
EAFE
-14.0%
M SCI
EAFE
-21.2%
Russell
2000
-20.5%
M arket
Neutral
7.1%
M arket
Neutral
6.5%
Russell
2000
4.6%
Barclays
Agg
4.3%
Russell
2000
-1.6%
M SCI
EAFE
-43.1%
Barclays
Agg
5.9%
Barclays
Agg
6.5%
M SCI
EM E
2.1%
DJ UBS
Cmdty
41.7%
REITs
REITs
REITs
REITs
REITs
REITs
28.0%
Russell
2000
26.9%
M SCI
DJ UBS
S&P
Barclays Barclays Barclays DJ UBS
M SCI
M arket
M arket
Barclays
S&P
REITs
EM E
Cmdty
500
Agg
Agg
Agg
Cmdty
EM E
Neutral
Neutral
Agg
500
-30.6%
-22.3%
-22.1%
4.1%
4.3%
2.4%
-2.7%
-15.7%
-53.2%
4.1%
-2.5%
0.4%
15.1%
Source: Russell, MSCI Inc., Dow Jones, Standard and Poor’s, Barclays Capital, NAREIT, J.P. Morgan Asset Management.
The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI,
30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity
REIT Index. Balanced portfolio assumes annual rebalancing. All data except commodities represent total return for stated period. Past performance is not
indicative of future returns. Data are as of 3/31/11, except for the CS/Tremont Equity Market Neutral Index, which reflects data through
2/28/11. “10-yrs” returns represent cumulative total return and are not annualized. These returns reflect the period from 1/1/01 – 12/31/10.
Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures.
Data are as of 3/31/11.
Disclosures
This material is intended to report solely on the investment strategies and opportunities identified by J.P. Morgan Asset Management. Additional information is
available upon request. Information herein is believed to be reliable but J.P. Morgan Asset Management does not warrant its completeness or accuracy. Opinions and
estimates constitute our judgment and are subject to change without notice. The material is not intended as an offer or solicitation for the purchase or sale of any
financial instrument. J.P. Morgan Asset Management and/or its affiliates and employees may hold a position or act as market maker in the financial instruments of any
issuer discussed herein or act as underwriter, placement agent, advisor or lender to such issuer. The investments and strategies discussed herein may not be suitable
for all investors; if you have any doubts you should consult your J.P. Morgan Asset Management Client Adviser, Broker or Portfolio Manager. The material is not
intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. You should consult your tax or legal adviser
about the issues discussed herein. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of
exchange may have an adverse effect on the value, price or income of investments. Past performance is no guarantee of comparable future results.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. The price of equity securities may rise, or fall because of changes in the
broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual
companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock
market risk” meaning that stock prices in general may decline over short or extended periods of time. Real estate investments may be subject to a higher degree of
market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to,
declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults
by borrower. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and
taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and
other nations. Investments in emerging markets can be more volatile. As mentioned above, the normal risks of investing in foreign countries are heightened when
investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased
volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property. Investments in commodities may
have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments
may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity,
such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged
commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss. Derivatives may be riskier than
other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in
losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies
may reduce investment returns. There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock
market movements, capitalization, sector swings or other risk factors. Investing using long and short selling strategies may have higher portfolio turnover rates. Short
selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.
J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not
limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.
22