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OUTLOOK2017
PASSING
THE BATON
PASSING THE BATON
RiverFront’s 2017 Economic Scenarios
and Market Forecasts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Asset Allocation Themes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
US Equity Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
International Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Fixed Income Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Published December 23, 2016
RIVERFRONT INVESTMENT GROUP
OUTLOOK 2017
HIGHLIGHTS
THE ECONOMY: In 2017, we anticipate a series of changing economic and market drivers
—baton passes—across the global economy. Monetary stimulus (i.e. central banks, money
printing, low interest rates) has been the primary support for the global economy over the past six
years as gridlock in Washington and debt burdens internationally precluded other stimulus efforts.
In 2017, we believe that monetary policy will pass the baton to both structural (i.e. tax and regulatory
reforms) and fiscal (i.e. Congressional budgets) stimulus policies from the new Trump administration
and in Japan. Europe is expected to benefit from more modest fiscal stimuli, while China continues
to pull every stimulus lever available. We predict that corporate tax cuts and fiscal stimulus could
produce strong earnings growth in the US; however, these growth drivers are likely to be partially
offset by a stronger dollar and shifts in political momentum from globalism to populism/
protectionism. Our baseline forecast, therefore, assumes higher growth, higher inflation, and higher
interest rates in the US.
US EQUITIES: RiverFront sees a positive environment for US equities in 2017, with tax
reform, deregulation, and fiscal stimulus supporting corporate earnings. That said, US
stocks have risen sharply since the election and so we believe this good news is largely priced into US
equity markets. We, therefore, expect US stock returns to be positive, but below the long-term real
average of 6.4%, with accelerating earnings growth being somewhat offset by higher interest rates
and the resulting pressure on equity market valuations. Within US stocks, we see a baton pass from
defensive sectors to more cyclical ones. We believe that financials stand to benefit from faster loan
growth, potentially improving profit margins, and a more favorable regulatory environment under the
incoming administration. We also think smaller and more domestically focused companies will benefit
from a strengthening domestic economy. We are cautious on those companies that we call “safety
stocks,” which have done well in an environment of falling interest rates and investor caution. Many of
these are in the consumer staples, healthcare, utilities and telecommunication sectors.
INTERNATIONAL: Developed international equities remains the most attractive
equity asset class based on our Price Matters® valuation metrics, and its poor performance
in 2016 has increased its relative undervaluation. Based on investor outflows, 2016 may be
regarded as the year that investors “threw in the towel” on Europe. And yet, despite its political
backdrop, the Eurozone generated positive economic momentum in 2016, with unemployment,
though still elevated by pre-crisis standards, continuing to hit multi-year lows and manufacturing
surveys recently hitting multi-year highs. We think the disconnect between economics and
political sentiment presents an opportunity, and that corporate earnings and share prices could
surprise to the upside in 2017. We are less optimistic about the UK, where we think the benefits of
a weak currency are already widely recognized, but the reality of Brexit has yet to be felt.
Navigating Japan was challenging in 2016, and the local market, which responds favorably to a
weaker yen, fluctuated with a volatile currency. This price volatility masked steady progress in
corporate return on equity (ROE) and other positive structural reforms. We believe the Bank of
Japan has regained credibility and control over the yen; as a result, we are increasingly optimistic
about Japan’s equity market prospects.
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RIVERFRONT INVESTMENT GROUP
The first three quarters of 2016 offered a brief respite from the emerging world’s five-year bear
market. Ultimately, however, rising interest rates over the summer followed by an unexpected US
election result and dollar strength once again sparked emerging market weakness. We think
emerging markets offer the potential for good long-term value but also for high near-term volatility,
depending on China’s economic trajectory in the era of “Trumponomics.” We start 2017 underweight
emerging market stocks relative to composite benchmarks, but will be watching policy, interest rates
and currency fluctuation in both the US and China for clues for when to reengage.
FIXED INCOME: The global bond market’s transition from fear of deflation to fear of inflation
is the final baton pass we believe could occur in 2017. We believe that the US bond market is
likely to face substantial stimuli in an economy already close to full employment, a year-over-year
increase in energy prices, bank deregulation that could increase the velocity of money, and
potentially inflationary import restrictions. Candidate Trump called for more aggressive Federal
Reserve interest rate hikes and, if inflation increases as we expect, President Trump may get his
wish. Against this backdrop, we recognize that when Treasury yields rise, all fixed income assets
struggle. We, therefore, favor shorter maturities, to mitigate the effect of rising rates, and high
yield corporate bonds, in which default risk could benefit from an improving economy.
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OUTLOOK 2017
RiverFront’s 2017 Economic Scenarios
and Market Forecasts
PESSIMISTIC
BASELINE
OPTIMISTIC
The Downside .
of Populism
Higher Growth, Inflation
and Interest Rates
Unlocking Gridlock
PROBABILITY
20%
50%
30%
OIL PRICES
$30 to $45
$40 to $60
$45 to $65
POLICY OUTCOME US
Trade war with China,
NAFTA undermined
Structural & fiscal
stimuli boost growth,
trade disputes
contained but still
increase inflation and
interest rates
Structural & fiscal
stimuli plus smooth
resolution of trade
disputes
POLICY OUTCOME
EUROPEAN UNION
Populist candidates
win in France & Italy
Incremental reform &
reduced political
uncertainty
Effective reform in
France & Spain
POLICY OUTCOME
EMERGING MARKETS
(EM)
Trade war with the US
China partially fills the
void left by the US
China stimulus, smooth
resolution of trade
disputes
US GDP
1% to 2%
2% to 3%
3% to 4%
US INFLATION RANGE
3%+
2% to 3%
2% to 3%
LOCAL CURRENCY
STOCK MARKET RANGE
-10%+
5% to 10%
10%+
US 10-YEAR BOND
YIELDS
2%
2.5% to 3.5%
3.0% to 4.0%
DOLLAR
Euro breaks parity
Yen 95 to 105
EM currencies down
hard
Euro 100 to 115
Yen 110 to 125
EM currencies down
modestly
Euro 100 to 115
Yen 110 to 140
EM currencies up
modestly
Source: RiverFront Investment Group
The table above depicts RiverFront’s predictions for 2017 using three scenarios (Baseline, Optimistic, and Pessimistic). Our
assessment of each scenario’s probability is also shown. Please note that these predictions reflect RiverFront’s views as of the date
of publication shown on page 24. These views are subject to change and are not intended as investment recommendations.
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RIVERFRONT INVESTMENT GROUP
Our Outlook for 2017 is premised on a series of
batons being passed across the global economy.
Monetary stimulus has been the primary support for the global economy over the past six years as
gridlock in Washington and debt burdens internationally precluded other stimulus efforts. In 2017,
we believe that monetary policy will pass the baton to both structural and fiscal stimulus policies
from the new Trump administration and in Japan. Europe is expected to benefit from more modest
fiscal stimuli, while China continues to pull every stimulus lever available.
BASELINE FORECAST: Higher Growth, Inflation and Interest Rates (50% probability)
In our baseline forecast, structural and fiscal stimulus efforts are combined with strong earnings
growth in the US. In this scenario, we predict that these growth drivers are likely to be partially
offset as political momentum shifts from globalism to populism/protectionism. In our view,
structural stimuli are likely to include corporate tax reform (including the ability to repatriate
overseas profits without double taxation), rollback of Dodd/Frank banking regulations, and
reform/repeal of Obamacare. The level of fiscal stimuli could be hotly debated in light of deficit
concerns, but we think that taxes are likely to be cut and infrastructure and defense spending is
likely to be increased.
These structural and fiscal stimulus efforts would hit a US economy that is already enjoying
accelerating momentum, as the oil shock fades and low unemployment lifts wages and consumer
spending. We believe that globalism has been a powerful force keeping inflation and interest rates
low—China’s excess capacity and excess savings have depressed both global prices and global
interest rates. Significant restrictions on imports could fuel inflationary pressure and force interest
rates higher. In our baseline forecast, populist trade impulses are resolved without devolving into
an outright trade war. Equity market appreciation is nonetheless muted due to uncertainty over
the resolution of NAFTA negotiations and upward pressure on interest rates.
In 2017, we believe Europe will transition from the pervasive political uncertainty that characterized
2016 (Brexit, deadlocked elections in Spain, Italian referendum) to a somewhat more predictable
environment (for better or worse). Our baseline forecast assumes that Europe gets the political
outcomes necessary for continued growth and improving financial markets (good in Germany and
France, mixed in Italy). Simply knowing the outcomes of these pivotal elections could improve
market sentiment and allow earnings growth to translate into equity markets’ appreciation.
The Bank of Japan fumbled a baton pass between quantitative easing and negative rates in 2016
but is attempting a recovery by offering unlimited support for a 0% cap on the 10-year Japanese
government bond. Japan faces significantly less political uncertainty than Europe now that
Prime Minister Abe has secured a large majority in both houses of the Diet. Our baseline scenario
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THE ART & SCIENCE OF DYNAMIC INVESTING.
RIVERFRONT INVESTMENT GROUP
OUTLOOK 2017
assumes that the Bank of Japan’s renewed credibility and control over the yen are accompanied
by continued fundamental reforms and modest fiscal stimuli. Effective monetary, structural and
fiscal stimuli could allow Japanese equities to lead global equity markets higher, in our view.
Extraordinary stimulus and renewed Chinese growth, along with stabilizing commodity prices,
drove emerging market equities higher throughout most of 2016. These economies are unlikely to
enjoy the same tailwinds in 2017. Emerging economies have been big beneficiaries of globalism
and may be negatively impacted by political decisions and trade policies enacted by the Trump
administration. Our baseline scenario does not assume an outright trade war, which would be the
biggest downside risk for export-dependent economies in Asia and Mexico; however, China could
potentially face either increased export restrictions or a forced retreat from its “China First”
restrictions on imports, either of which could slow Chinese growth (at least initially) and have
negative impacts across all emerging economies.
We project a narrow range for oil prices across all three of our scenarios based on our view of the
oil market’s supply dynamics. OPEC has agreed to output restrictions that will support oil prices in
2017. However, we believe that prices much above $50 per barrel would entice US producers to
bring some of their estimated 5000 drilled but uncompleted oil wells (DUCs) online. OPEC will not
want to see their production cuts offset by increasing US oil production and their agreement to
cut production is likely to fray if oil prices break above $60, in our view.
We think it is equally unlikely that oil prices will fall much below $40. US oil companies are unlikely
to bring DUCs into production for $40 oil. Existing fracked wells will continue to run dry (fracked
well production falls significantly after about 24 months) and we believe falling US production
combined with existing OPEC production cuts would limit further price declines.
The global bond market’s transition from fear of deflation to fear of inflation is the final baton pass we
see in 2017. We believe the US bond market will likely face substantial stimuli in an economy already
close to full employment. The inflationary potential of these policies will add to price pressures from a
year over year increase in energy prices, bank deregulation that could increase the velocity of money,
and potentially inflationary import restrictions. Candidate Trump called for more aggressive Federal
Reserve interest rate hikes and, if inflation increases as we expect, President Trump may get his wish.
We place a 50% probability on our baseline scenario. This recognizes that populist sentiment has
repeatedly exceeded market expectations, while the economic and market response from
unexpected populist outcomes (e.g. Brexit, Trump’s election, the Italian referendum) has similarly
defied predictions of doom and gloom. Thus, events could follow many potential paths and still
achieve our modestly bullish baseline market forecast.
PESSIMISTIC SCENARIO: The Downside of Populism (20% probability)
In our Pessimistic scenario, populist sentiment reaches a tipping point from which financial
markets cannot quickly recover. In the US, Trump could overplay his hand with China and our
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RIVERFRONT INVESTMENT GROUP
NAFTA trading partners, precipitating a global trade war. In this scenario, we predict that the US
economy is likely to survive a trade war with China, since we export much less to China than we
import from them. However, nearly 50% of the S&P 500’s profits come from overseas, and NAFTA
governs the trading relationship with our top two export markets, Canada and Mexico. Extended
disruption of our trading relationships with Canada and Mexico could have a big impact on 2017
earnings expectations and economic growth, in our view.
With major elections in France, Germany and potentially Italy in 2017, populist risks are highest in
Europe. Although we think Angela Merkel will likely return for a fourth term as German Chancellor,
the French and Italian elections are more uncertain. Current polls suggest that French conservative
candidate Francois Fillon is expected to easily beat Marine Le Pen (the populist anti-euro
candidate), but pollsters’ recent track record has been poor. Le Pen’s extreme right wing party is
unpopular among the majority of French voters, but her “free lunch” campaign platform promises
that leaving the euro lessens the need for tough economic reforms. If that message resonates with
voters, Europe could endure another round of uncertainty about the fate of the euro.
Fears of a bond bear market arose twice over the past eight years but disappeared due to the 2010
European financial crisis and the 2014 collapse of oil prices. Populist sentiments and associated
economic policies tend to be inflationary and bond market unfriendly. However, if anti-euro parties
gain power in Italy, France or even Germany, then we think the risk of a euro bloc breakup could
create a flight to safety in US Treasury bonds. This could overwhelm the upward pressure on
interest rates we discussed in our baseline forecast and push 10-year Treasury rates below 2%.
We place a 20% probability on our pessimistic scenario because we think that the probability of
outright trade war is low — everyone has too much to lose. Furthermore, the consequences of populist
electoral victories in Greece, the UK, the US and Italy have thus far proven less than initially feared.
OPTIMISTIC SCENARIO: Unlocking Gridlock (30% probability)
Our optimistic scenario represents a “dare to dream” combination of events that we believe are
more likely than those in our pessimistic scenario. Although a novice to politics and diplomacy,
Trump has a reputation as a formidable business negotiator. He might be able to wrest concessions
from China and our NAFTA trading partners that improve US growth prospects and avoid
extended trade disputes.
In France, Fillon is currently leading Le Pen by nearly a 2 to 1 margin. This is a far more
commanding lead than polls showed for the Brexit vote or the US presidential election. Fillon
pledges to slash public spending, raise the retirement age, extend the working week and reduce
taxes. If France embraces this reform platform, then Europe’s second largest economy could
receive the boost in growth that Spain has enjoyed since adopting similar reforms. Fiscal and
structural stimulus in the US and Japan, reasonable resolution of trade disputes, and a reform
agenda for France could be the recipe for a long awaited acceleration in global growth.
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RIVERFRONT INVESTMENT GROUP
OUTLOOK 2017
Asset Allocation Themes
RiverFront sees a positive environment for US equities in 2017, with tax reform, deregulation, and
fiscal stimuli supporting corporate earnings. The only problem is that this good news is currently
largely priced into US equity markets, in our view.
RiverFront’s Price Matters® valuation framework suggests US large cap equities are 0% to 5%
overvalued. That said, such levels of overvaluation do not necessarily preclude further market
gains (markets can become extremely overvalued before they peak) and are still well below the
overvaluation of 1999/2000 or 2007. However, based on our analysis shown below, periods that begin
0% to 5% overvalued have historically tended to be followed by slightly below-average returns.
Past performance is no guarantee of future results.
Source: RiverFront Investment
Group, calculated based on
data from CRSP 1925 US Indices
Database ©2016 Center for
Research in Security Prices
(CRSP®), Booth School of
Business, The University of
Chicago. Data from Jan 1926
through Nov 2016. Past
performance is no guarantee of
future results. It is not possible
to invest directly in an index.
Expected performance for asset
classes is not indicative of
RiverFront performance. Please
see Disclosures for asset class
definitions beginning on page 22.
The Real Rate of Return is the
rate of return on an investment
after adjusting for inflation.
RiverFront’s Price Matters®
discipline compares inflationadjusted current prices relative
to their long-term trend to help
identify extremes in valuation.
Please see Disclosures for asset
We expect US large cap stock real returns to be slightly below their 6.4% historical average.
Although there are a few times that large caps have started at similar levels of overvaluation and
managed to generate double-digit returns, those periods benefited from a subsequent bubble in
equity prices. The conditions that we believe tend to produce equity market bubbles—low debt
levels that are beginning to rise and high inflation that is beginning to fall—are not in place. Thus,
we believe the odds are low that US equities produce above-average returns over the next five to
ten years.
class definitions beginning on
page 22.
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RIVERFRONT INVESTMENT GROUP
US small and mid-cap stocks are currently between 10% and 15% above their long-term trend,
which is slightly more overvalued than large caps, based on Price Matters® valuation metrics. In
our view, this modest level of relative overvaluation is not enough to dissuade us from exposure,
especially since small and mid-cap companies could be beneficiaries of President-Elect Trump’s
proposed tax reforms.
Generally speaking, large cap companies tend to be more likely than small or mid-cap companies
to have the global operations and staffs of lawyers and accountants to help them take advantage
of the current tax code’s complexities. We think that if the corporate tax code is reformed, with
lower tax rates offset by fewer loopholes and deductions, then a portion of the tax burden could
potentially shift from smaller to larger companies.
Source: RiverFront Investment
Group, calculated based on
data from CRSP 1925 US Indices
Database ©2016 Center for
Research in Security Prices
(CRSP®), Booth School of
Business, The University of
Chicago. Data from Jan 1926
through Nov 2016. Past
performance is no guarantee of
future results. It is not possible
to invest directly in an index.
Small cap companies may be
hindered as a result of limited
resources or less diverse
products or services and have
therefore historically been more
volatile than the stocks of
larger, more established
companies. Please see
Disclosures for asset class
Developed international equities remains the most attractive equity asset class based on
Price Matters® valuation metrics, and its poor performance in 2016 has increased its relative
undervaluation. In 2015, aggressive monetary stimulus produced substantial outperformance for
international equity markets on a currency-hedged basis. In 2016, political instability in Europe and
monetary mistakes in Japan erased these gains.
We think that our Price Matters® discipline is likely to continue to favor developed international
equities. We believe the Bank of Japan has regained credibility and control over the yen, and we
are increasingly optimistic about Japan’s equity market prospects. Europe has several pivotal
elections in 2017 that could determine whether the euro bloc will remain intact. Economic and
earnings recoveries are underway in Europe, but more clarity on the political front is needed before
European equities can begin to close the current valuation gap, in our view.
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THE ART & SCIENCE OF DYNAMIC INVESTING.
definitions beginning on
page 22.
RIVERFRONT INVESTMENT GROUP
OUTLOOK 2017
Source: RiverFront Investment
Group, MSCI. Data from Jan
1970 through Nov 2016. Past
performance is no guarantee of
future results. It is not possible
to invest directly in an index.
Investments in international and
emerging markets securities
include exposure to risks
including currency fluctuations,
foreign taxes and regulations,
and the potential for illiquid
markets and political instability.
The MSCI EAFE Index is an
equity index that captures large
and mid-cap representation
across developed markets
countries around the world,
excluding the US and Canada.
MSCI presents the data for this
index in terms of US dollars and
in terms of local currencies. The
chart to the right reflects index
data in terms of US dollars.
Emerging market equities are also undervalued in our Price Matters® framework. However,
because of their shorter history and extreme volatility, we place a wider margin of error on our
emerging market return estimates. This, combined with the current challenges facing Chinese
equity markets will likely keep us underweight emerging market equities.
Source: RiverFront Investment
Group, MSCI. Data from
January 1988 through
November 2016. Past
performance is no guarantee of
future results. It is not possible
to invest directly in an index.
Investments in international and
emerging markets securities
include exposure to risks
including currency fluctuations,
foreign taxes and regulations,
and the potential for illiquid
markets and political instability.
The MSCI Emerging Markets
Index measures equity market
performance of emerging
markets. The Index consists of
23 emerging market country
indices.
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RIVERFRONT INVESTMENT GROUP
Our research indicates that an investment grade corporate bond’s yield when it is purchased
primarily determines that bond’s total return over the subsequent five years (see Chart below).
While current Treasury bond yields are close to late 2015/early 2016 levels, yields for investment
grade and high yield corporates are much lower. Lower yields suggest lower potential returns, and
we can modify our positioning in longer duration five to ten-year investment grade corporate bonds
by reducing allocation and/or shortening the maturity. We believe that inflation-protected bonds
can potentially help shelter portfolios from volatile equity markets while lowering interest rate risk.
The BofA Merrill Lynch 5-10 Year
US Corporate Index is a subset
of The BofA Merrill Lynch US
Corporate Index including all
securities with a remaining term
to final maturity greater than
or equal to 5 years and less than
10 years. It is not possible to
invest directly in an index. Past
performance is no guarantee of
future results.
We remain overweight short maturity high yield bonds relative to portfolios’ composite
benchmarks, even though their yields have fallen substantially. Yields are now around 6%,
and we estimate potential returns (adjusted for defaults) of between 4% and 5%. While modest by
historical standards, we think 4% to 5% cash flow returns are attractive compared to traditional
fixed income and even some equity alternatives.
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OUTLOOK 2017
US Equity Outlook: The Nature of the US Bull
Market Will Change
We anticipate a number of baton passes for US equities in 2017. US stocks have rallied since the US
presidential election, reacting to economic improvements around the world and the pro-business
agenda promoted by President-Elect Trump. While we do not think this strength is misplaced, we
think that sentiment could be overly optimistic regarding new government programs and/or
potential repeals or revisions of already enacted legislation.
To potentially mitigate the risk of overestimating what the new administration can actually
accomplish, we believe a conservative strategy for portfolio adjustments is prudent, as our
baseline scenario calls for muted US equity gains in 2017.
US EQUITY BATON PASSES:
1
Passing the baton from passive strategies to active strategies: We anticipate a transition of leadership from equity
strategies that favor broad market exposure to those that favor more selective exposure. Historically, this has been a normal
transition that occurs as a bull market matures. Essentially, in the early stages of a bull market, “a rising tide lifts all boats,”
making investment strategies that emphasis broad indexes, like the S&P 500, difficult to beat. We believe this stage of the
current bull market was extended several years beyond normal by three successive quantitative easing (QE) programs that
created an abnormally high tide. As we enter the ninth year of this bull market and money printing is becoming a more distant
memory, we believe the baton of investment success will be passed to more selective strategies that differentiate among
sectors, industries and stocks.
2 Optimism to take the baton from skepticism: The second macro baton pass we predict in the US is from the
companies that benefit from skeptical market participants to those that benefit from optimistic market participants. We believe
investors will begin paying more for the future instead of simply paying for the present as evidence mounts that the US
economy is on sound footing and employment and wages are on a sustained upward path.
3 Micro Baton Passes: We anticipate that the two macro baton passes will have a number of investment implications at
the micro level. We separate these micro opportunities into two categories: those in which we have high confidence and
those in which we have low confidence.
High Confidence Micro Transitions
• We believe that Financials could benefit from renewed optimism and the incoming administration:
The earnings of financial companies have been under pressure since the end of the Financial Crisis for multiple reasons. First, loan demand has been underwhelming given the slow trajectory of the US economic recovery. Second, loan profitability has been under pressure due to abnormally low interest rates and higher capital requirements. Finally, the expenses of many financial companies have risen significantly due to increased regulatory and legal costs. Going forward, we see that these headwinds could turn to tailwinds as loan growth accelerates from increased economic activity, profitability rises with higher interest rates and expenses decline with regulatory relief.
•Small-caps could benefit from renewed optimism and be least effected by potential protectionist policies: US small caps rely less on international trade than their large cap peers, and thus would likely be less impacted by any retaliatory trade restrictions or a strong dollar.
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RIVERFRONT INVESTMENT GROUP
• Reduced skepticism makes investors less willing to pay a premium for safety stocks:
A bull market built on skepticism can lead to a market composition where companies that offer
earnings predictability are valued more highly than companies that do not, despite the relative
differences in their prospects for growth. This can be most clearly seen in the 30+%
overvaluation of low volatility companies in the S&P 500 based on our Price Matters® valuation
framework, relative to the 12% undervaluation of those companies in the S&P 500’s highest
volatility bracket (see charts to the right). We do not anticipate the valuation premium for safety
stocks to be sustainable in a market environment where skepticism is declining. Furthermore,
these safety stocks tend to underperform in a rising interest rate environment. For this reason,
we are cautious on the SHUT stocks (staples, healthcare, utilities, and telecommunication).
• We believe energy prices will transition from volatile to range-bound in 2017: We project
a fairly narrow range for oil prices in 2017. We do not anticipate oil rising much above $50 a
barrel, since such prices would likely entice US oil companies to bring some of their idled
capacity, represented by the 5,000+ drilled but uncompleted (DUCs) wells, into production.
On the downside, we do not expect prices to fall much below $40 per barrel, as these idled
wells will likely remain on the sidelines if the price of oil falls below that range. With energy
prices contained in a narrow range, we believe the slow and steady earnings power of the
master limited partnerships (MLPs) will outshine the shares of traditional energy companies.
This is because MLPs have historically not required rising oil prices to perform well, and
instead are more reliant on the quantity of crude oil and refined products being stored or
transported in the US. Past performance is no guarantee of future results.
Lower Confidence Micro Implications: We would prefer to see additional evidence before
making significant portfolio transitions in the following areas:
• Technology could benefit from renewed optimism, but could suffer from a strong
dollar, higher rates and protectionist policies: Tech stocks appear undervalued from a
number of perspectives. The most compelling reason is that the market has historically
afforded a valuation premium to tech stocks because of their higher-than-average growth and
relatively simple balance sheets. Currently, tech stocks trade at roughly an S&P 500 market
multiple (17 times 2017 price-to-earnings ratio based on current Thomson Reuters I/B/E/S
estimates), despite earnings growth that has historically been substantially greater. They are
also the companies most likely to benefit from any new legislation allowing repatriation given
that, according to Credit Suisse, they hold over 50% of the US’ overseas cash. These
positives, however, may be potentially offset by a few new negatives that cause us to want to
take a “wait-and-see” approach. First, technology companies are more global and thus
negatively impacted by a strong US dollar, which makes their products less competitive
overseas. Second, nationalist policies such as limitations on immigration and/or protectionist
trade policies could hurt the technology sector more than other sectors. Finally, technology
stocks have tended to be moderately interest rate sensitive, and it is unclear how they will be
affected if rates continue to rise.
• Industrials and materials could benefit from infrastructure spending, but also face
challenges: Fiscal stimulus for infrastructure projects can be expected to reignite typical early
cycle industries like industrials and materials. However, with infrastructure spending relatively
muted in the US over the past few decades, many of these companies have become
increasingly reliant on emerging markets for growth. In this light, the clear positives from
infrastructure spending may be largely offset by the potential trade wars with emerging
economies like China and Latin America. These companies are also very sensitive to a rising
dollar, since their products are often sold in very price competitive markets.
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OUTLOOK 2017
• A repeal/redrawing of Obamacare may not be universally positive for all healthcare
companies: Despite the initial positive stock reaction to speculation that the Affordable
Care Act may be repealed, we are not yet ready to become more constructive on the
healthcare sector. Dismantling or reforming healthcare policy in America will take time, and
we are not convinced that the new administration is looking to reverse all aspects of the
ACA. For example, in the days following his election, President-Elect Trump indicated he
was likely to keep parts of the act that allowed individuals with pre-existing conditions to
obtain affordable insurance coverage. Furthermore, we expect the incoming administration
to continue to pressure pharmaceutical, biotech and device companies to review their
pricing policies on new and existing drugs and therapies. For these reasons, we continue to
favor the stocks of healthcare service companies over pharmaceutical companies. We think
that if the number of covered Americans does not significantly change and improvements to
the Affordable Care Act begin to contain escalating healthcare costs, healthcare service
companies could benefit.
Source: RiverFront Investment
Group, calculated based on
data from CRSP 1925 US Indices
Database ©2016Center for
Research in Security Prices
(CRSP®), Booth School of
Business, The University of
Chicago. Data from Feb 1927
through Nov 2016. Past
performance is no guarantee of
future results. It is not possible
to invest directly in an index.
Please see Disclosures for Index
definitions beginning on page 22.
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RIVERFRONT INVESTMENT GROUP
International: Overweight Japan and Eurozone,
Underweight UK in Developed World; China
Remains the Biggest X-factor in Emerging Markets
We are overweight the Eurozone and Japan despite uncertain political outcomes and investor
pessimism. This is based on our long-term Price Matters® analysis (see page 9) and our belief that
rising US interest rates, a strengthening US dollar, and renewed fiscal stimulus in the US will be
positive for the earnings of developed international equities. Reasonable valuation and decreased
investor expectations, as well as monetary and fiscal stimulus overseas, should offset some of the
volatility likely in 2017. We expect positive earnings growth in both Japan and the Eurozone. We
expect most major developed currencies to weaken relative to the US dollar in 2017. Our view is
dependent on political events and central bank policies in both the US and overseas.
1 Overweight Eurozone. 2016 may be regarded as the year that investors “threw in the
towel” on Europe; Ned Davis Research data suggests roughly $30B in net flows out of European
ETFs year-to-date, including 11 straight months of outflows through November. This negative
sentiment is understandable in a year that saw two major European leaders ousted by
referendum. We think that 2017 will be another volatile year for European politics and markets.
This past year proved the difficulty of predicting market reaction to political outcomes, so we won’t
waste ink attempting it here.
Instead, we point out that the Eurozone generated positive economic momentum in 2016 despite
its political backdrop, with unemployment continuing to hit multi-year lows, though still elevated by
pre-crisis standards, and the Markit manufacturing PMI recently hitting multi-year highs. We think
this disconnect between economics and political sentiment is overlooked by investors with regard
to its impact on corporate earnings in 2017. We expect the European Central Bank (ECB) to remain
accommodative, as reflected by their recent decision to extend their QE program. In addition, a
shift from austerity to fiscal stimulus is starting in both the UK and the Eurozone. We think western
populism in its current form is likely to be inherently inflationary...bad for bonds but good for
European equities (see chart on page 15).
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OUTLOOK 2017
German bond yields and relative strength of Eurozone stocks vs US stocks highly
correlated in recent years...bodes well for Euro equities if rates continue to rise.
We remain focused on higher quality, dividend-paying Eurozone exporters, which are currently
trading at a discount to US peers based on trailing earnings, despite higher dividend yields.
However, rising US interest rates may disproportionately benefit earnings in cyclical sectors such
as financials and commodity producers, two sectors where European earnings were the most
negative in 2016. We have adjusted our portfolio weightings accordingly, employing a more
balanced sector strategy for 2017.
2
Underweight United Kingdom. We believe that the UK economy will start to struggle
under the weight of post-Brexit uncertainty. The British pound fell by more than 17% following the
Brexit vote, while the economy held up better than expected. This was an unexpected positive for
corporate earnings revisions, and stocks subsequently reached new
multi-year highs in local currency terms in the second half of 2016.
However, we think 2017 might be tougher for the UK, as much of the earnings boost from the weak
pound is now priced into the valuations of large UK exporters and we think most of pound’s
weakness has already occurred. The prospects for a soft Brexit have perhaps increased since the
US election, supporting the pound, but we believe there are still some plot twists to come. We expect
positive returns for UK equities in 2017 but we see better prospects in Japan and the Eurozone.
3 Overweight Japan. Japan in 2016 was a tale of two halves. In the first, the yen rose by
more than 17% versus the US dollar, driven by confusion surrounding the Bank of Japan’s
negative rate policy and by global risk-off sentiment. Late in the second half of the year, the Bank
of Japan regained some credibility via their innovative yield targeting program, while rising global
growth and inflation helped weaken the yen and boost Japanese markets strongly.
15
RIVERFRONT INVESTMENT GROUP
Japan’s stock market during Prime Minister Abe’s tenure has not yet been able to effectively
decouple from its currency (see chart below). However, we think all of the noise surrounding policy
and currency fluctuation obscures Japan’s bigger picture—a rapidly aging world power with
diminished regional influence, clawing its way back via small, consistent economic and corporate
reforms under its first stable political regime in decades. Since Abe took office in late 2012,
corporate return on equity (ROE) has increased, wages and unemployment have dropped, real
estate prices have risen, female labor participation has increased and GDP has grown. These
factors, along with Japan’s improving earnings and cheap relative valuation, are why we expect
Japanese stocks to have a relatively good year vs. other world equity markets.
Japanese equity performance and the yen continue to demonstrate high inverse
correlation in the ‘Abenomics’ era.
If the yen stays in its current range or weakens further, we think double-digit earnings growth is
likely. Japan is the only major market in the past five years whose earnings have grown faster than
their price-to-earnings ratio (PE), making stocks appear cheaper. Indeed, Japan’s trailing PE
relative to the global stock market is near record lows (see chart on page 17). We currently prefer
broad sector exposure but have a slight tilt towards small caps to take advantage of burgeoning
domestic reflation driven by rising wages and a tight labor market.
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THE ART & SCIENCE OF DYNAMIC INVESTING.
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OUTLOOK 2017
Since 1974, Japanese trailing price-to-earnings multiples have rarely been cheaper relative
to the U.S.
Data through December 2,
2016. Past performance is no
guarantee of future results.
4 Emerging Markets (EM): Underweight for now. Value story intact, but on hold
awaiting clarity around Trumponomics. China remains the biggest X-factor.
The first three quarters of 2016 offered a brief respite from the emerging world’s 5-year bear
market; however, rising interest rates last summer followed by a surprise US election result and
dollar strength once again sparked EM weakness. We think EM offers the potential for good longterm value, but also for high near-term volatility, depending on China’s economic trajectory in the
era of Trumponomics. We start 2017 underweight emerging market stocks but will be watching
policy, interest rates and currency fluctuation in both the US and China for clues for when to
reengage. For now, we prefer to instead gain cyclical commodity exposure from developed
commodity net-exporting nations such as Australia and Norway.
Rising US interest rates and a strong dollar have not historically, alone, been negative for EMs;
they actually tend to be positive drivers if they are accompanied by global economic growth and
reflation. However, the dollar’s rapid rise since November, combined with Trump’s protectionist
rhetoric directed at China and Latin America, has depressed EM currencies. This is noteworthy
given the large amount of US-dollar denominated debt on EM balance sheets. EM countries in
2016 are in better shape with respect to foreign currency reserves, foreign currency valuation, and
trade balances than in the pre-crisis late 1990s, or even during the Taper Tantrum of 2013, but are
still sensitive to risk factors given their growing debt burden.
China remains surrounded by great uncertainty. Every few quarters, concerns over China’s
spiraling debt burden and stagnant economic trajectory seem to hit financial markets. We view the
China risk as more subtle and longer term in nature than a Lehman-style crisis (see the Strategic
View, 9/20/2016, available at www.riverfrontig.com, for more on our long-term view of China).
However, we think China fears will likely resurface sometime in 2017, especially now that
protectionist rhetoric from President-Elect Trump adds to the list of worries.
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RIVERFRONT INVESTMENT GROUP
Fixed Income Market Outlook – Fighting
Headwinds of Higher Growth, Inflation and
Interest Rates
RiverFront’s 2017 baseline scenario predicts higher economic growth, inflation, and interest
rates. Unfortunately, none of these are bond-market friendly. Therefore, we predict that 2017
will be more about capital preservation and relative returns, rather than absolute. In this bondhostile environment, we have implemented the following strategies within our portfolios that
have both equity and fixed income components (balanced portfolios).
1
Underweight higher quality fixed income assets. In our balanced portfolios, we believe
the first line of defense is underweighting the asset class that is likely to face the strongest
headwinds and provide the weakest returns. If, as we expect, Treasury yields increase moderately,
then all fixed income assets would likely struggle. This is because US Treasury yields are the
benchmark for pricing most fixed income assets—with an additional yield spread added to
compensate for credit risk, liquidity risk, etc.
2 Favor shorter maturity bonds. We expect both short and long-term interest rates to rise
during 2017. Shorter term rates would be more impacted by the pace of the Federal Reserve’s rate
increases, while inflation expectations have more impact on longer term rates. We expect the Fed
to raise short-term rates another three to four times during 2017, and our baseline scenario
forecasts inflation to increase to around 2.5% from 1.6% as of October 31, 2016. As a result, we
have lowered our bond portfolios’ durations and may continue this process by favoring both shortterm high yield and corporate bonds. Longer maturity bonds are much more sensitive to interest
rate increases; e.g., the 30-year Treasury bond’s price fell by about 19% since July 8, 2016, as
rates rose about 1%. The chart below shows that the 10-year US Treasury yield is still very low
based on history, despite being up about 1% from its all-time low. Our baseline forecast is for the
10-year Treasury yield to end 2017 between 2.5% to 3.5%.
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THE ART & SCIENCE OF DYNAMIC INVESTING.
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OUTLOOK 2017
3 Overweight high yield bonds. Stronger economic growth is generally positive for equity
markets; thus, we like bonds that have an equity component to them, as do high yield bonds. High
yield bonds’ large yield spread (risk premium) is primarily to compensate investors for the risk of
default. Solid economic growth and growing corporate earnings and cash flow should enable high
yield bond defaults to continue receding from their currently inflated level of 4.7% towards their
longer-term average of around 3%. Defaults are currently above average because of the spike in
defaults in the energy and commodities sectors. These defaults were a result of the precipitous
drop in oil and metal prices from mid-2014 to early 2016. During this period, oil prices fell from
around $107/barrel to a low of $26/barrel in February 2016. Oil prices have since risen to over $50,
and as long prices remain near their current level, we think energy defaults should continue to
decline. Excluding the energy and commodities sectors, the default rate is currently less than 1%.
Our biggest concerns for the high yield sector during 2017 are higher interest rates and starting
valuations. The charts below show the spread and yield of the short-term high yield sector (1-5
years). The spread is the difference in yield above the US Treasury curve for like maturities in the
stated asset class. The current spread is around 500 basis points (bps), below its long-term
average of near 650 bps but well above its all-time low of less than 200 bps in 1997. In a
constructive environment of stronger economic growth and declining defaults, we believe that
spreads can tighten further, but that will be largely due to rising Treasury yields rather than high
yield bond yields declining much further. That is because the current yield on short-term high yield
bonds has fallen to less than 6.5% from over 11.5% in February 2016. We believe that yields may
have a hard time declining much below 6% if Treasury yields rise moderately. If we are correct,
short-term high yield bonds could produce mid single digit returns next year, significantly less than
in 2016 but still attractive in a challenging bond environment.
US HIGH YIELD OPTION ADJUSTED SPREAD TO US TREASURY CURVE
Source: The Bank of America
Merrill Lynch High Yield Master
2200.00
the performance of US dollar
denominated below investment
grade rated corporate debt
publicly issued in the US
domestic market. Index
constituents are capitalizationweighted based on their current
amount outstanding times the
market price plus accrued
interest. Data through
December 9, 2016
Option Adjusted Spread (in basis points )
II Index (Total Return) tracks
2000.00
1800.00
1600.00
1400.00
1200.00
1000.00
800.00
600.00
400.00
200.00
12/31/1996
12/31/1999
12/31/2002
12/31/2005
Date
12/31/2008
12/31/2011
12/31/2014
BofA Merrill Lynch US High Yield Master II Index (200 basis points = 2.0%)
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RIVERFRONT INVESTMENT GROUP
Source: The Bank of America
US HIGH YIELD “YIELD TO WORST”
Yield to Worst (see page 23 for definition)
Merrill Lynch High Yield Master
II Index (Total Return) tracks
22.00
the performance of US dollar
20.00
denominated below investment
18.00
grade rated corporate debt
16.00
publicly issued in the US
domestic market. Index
14.00
constituents are capitalization-
12.00
weighted based on their current
amount outstanding times the
10.00
market price plus accrued
8.00
interest. Data through
December 9, 2016
6.00
4.00
12/31/1996
12/31/1999
12/31/2002
12/31/2005
12/31/2008
Date
12/31/2011
12/31/2014
BofA Merrill Lynch US High Yield Master II Index
4
Overweight corporate bonds. Corporate bonds remain our favorite sector in the
investment grade portion of the bond market. We think that corporate bonds stand to benefit
from the same factors as high yield bonds—stronger economic growth and corporate earnings.
However, they are more likely to be negatively impacted by rising Treasury yields, due to their
slimmer spread cushion. The chart below shows that corporate bond spreads have declined to
about 130 bps, below their long-term average of about 160 bps but above their all-time low of
around 70 bps. We believe spreads could tighten further, but will be unable to absorb the full rise
in Treasury yields that we foresee during 2017. Given corporate bonds’ current yield of around
3.4% and our base case Treasury yield forecast, returns could range from low single digits to
slightly negative—still better than what we see for US Treasuries.
US CORPORATE OPTION ADJUSTED SPREAD TO US TREASURY CURVE
Source: The BofA Merrill Lynch
US Corporate Index tracks the
performance of US dollar
Option Adjusted Spread (in basis points )
600.00
denominated investment grade
corporate debt publicly issued in
500.00
the US domestic market.
Qualifying securities must have
400.00
an investment grade rating
(based on an average of
300.00
Moody’s, S&P and Fitch), at
least 18 months to final maturity
200.00
at the time of issuance, at least
one year remaining term to
100.00
final maturity as of the
rebalancing date, a fixed
12/31/1996
12/31/1999
12/31/2002
12/31/2005
Date
12/31/2008
BofA Merrill Lynch U.S. Corporate Master Index (100 basis points = 1.0%)
12/31/2011
12/31/2014
coupon schedule and a
minimum amount outstanding
of $250 million. Data through
December 9, 2016
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OUTLOOK 2017
CONCLUSION
We believe that the global economy in 2017 will feel appreciably stronger
than the sluggish recovery seen for much of the past eight years. Expected
stimulus efforts in the US and Japan will land on a global economy already
enjoying relatively low unemployment, rising cost pressures from wages, and
a recovering oil market. Growth around the globe will face potential
headwinds from rising interest rates and potential protectionist measures,
but we believe that existing economic momentum combined with new
stimulus efforts will be more than sufficient to overcome these obstacles.
Political risks remain, but the market shrugged off unforeseen populist
triumphs in 2016 and will continue to do so in 2017, in our view.
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RIVERFRONT INVESTMENT GROUP
INDEX DEFINITIONS
It is not possible to invest directly in an index.
Market Cap Index Definitions: Market Cap index information calculated based on data from CRSP 1925
US Indices Database ©2016 Center for Research in Security Prices (CRSP®), Booth School of Business,
The University of Chicago. Used as a source for cap-based portfolio research appearing in publications,
and by practitioners for benchmarking, the CRSP Cap-Based Portfolio Indices Product data tracks micro
cap, small cap, mid cap and large cap stocks on monthly and quarterly frequencies. This product is used
to track and analyze performance differentials between size-relative portfolios. CRSP ranks all NYSE
companies by market capitalization and divides them into ten equally populated portfolios. Alternext and
NASDAQ stocks are then placed into the deciles determined by the NYSE breakpoints, based on market
capitalization. The series of 10 indices are identified as CRSP 1 through CRSP 10, where CRSP 10 has
the largest population and smallest market-capitalization. CRSP portfolios 1–2 represent large cap
stocks, portfolios 3–5 represent mid caps and portfolios 6–10 represent small caps.
High Volatility Index: Attempts to replicate the S&P 500 ® High Beta Index, using the CRSP Daily
Historical Returns Series and Historical S&P Series. Beta measures volatility relative to a benchmark.
The index is constructed by beta weighting the 100 highest beta stocks in the S&P 500 (meaning the
highest beta stocks get the highest weights in the index). From 1926-1957, CRSP deciles 1-4 are used
for the universe of stocks from which the index is constructed. From 1957 on, the S&P 500’s historical
holdings are used. A result greater than 1.0 implies that a security is more volatile than the benchmark;
a result less than 1.0 suggests that the security is less volatile than the benchmark. Betas may change
over time.
Low Volatility Index: Attempts to replicate the S&P 500 ® Low Volatility Index, using the CRSP Daily
Historical Returns Series and Historical S&P Series. It is constructed by inverse volatility weighting the
100 least volatile stocks in the S&P 500 (meaning the least volatile stocks get the highest weights in the
index). From 1926-1957, CRSP deciles 1-4 are used for the universe of stocks from which the index is
constructed. From 1957 on, the S&P 500’s historical holdings are used. It is not possible to invest directly
in an index.
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THE ART & SCIENCE OF DYNAMIC INVESTING.
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OUTLOOK 2017
IMPORTANT DISCLOSURE INFORMATION
Past results are no guarantee of future results and no
representation is made that a client will or is likely to achieve
positive returns, avoid losses, or experience returns similar to those
shown or experienced in the past. The information provided in this
document is intended for informational purposes only and not
intended as an investment recommendation.
RiverFront’s expectations and outlook discussed in this piece are
based on information that is currently available to us, and in no way
are a guarantee of how our strategies, the markets, or specific
securities will perform in the future.
When referring to being “overweight” or “underweight” relative to
a market or asset class, RiverFront is referring to our current
portfolios’ weightings compared with the composite benchmarks for
each portfolio. Contact your Financial Advisor for more information
on RiverFront portfolios and benchmarks.
Dividends are not guaranteed and are subject to change or
elimination.
RiverFront’s Price Matters discipline compares inflation-adjusted
current prices relative to their long-term trend to help identify
extremes in valuation.
®
Strategies seeking higher returns generally have a greater
allocation to equities. These strategies also carry higher risks and
are subject to a greater degree of market volatility.
Duration is a measure of the sensitivity of the price of a fixed
income investment to a change in interest rates. Duration is
expressed as a number of years. Rising interest rates mean falling
bond prices, while declining interest rates mean rising bond prices.
Equities/Stocks represent partial ownership of a corporation. If the
corporation does well, its value increases, and investors share in
the appreciation. However, if it goes bankrupt, or performs poorly,
investors can lose their entire initial investment (i.e., the stock price
can go to zero). Fixed Income/Bonds represent a loan made by an
investor to a corporation or government. As such, the investor gets
a guaranteed interest rate for a specific period of time and expects
to get their original investment back at the end of that time period,
along with the interest earned. Investment risk is repayment of the
principal (amount invested). In the event of a bankruptcy or other
corporate disruption, bonds are senior to stocks. Investors should
be aware of these differences prior to investing.
Yield to worst is calculated on all possible call dates. It is assumed
that prepayment occurs if the bond has call or put provisions and
the issuer can offer a lower coupon rate based on current market
rates. If market rates are higher than the current yield of a bond,
the yield to worst calculation will assume no prepayments are made,
and yield to worst will equal the yield to maturity. The assumption is
made that prevailing rates are static when making the calculation.
The yield to worst will be the lowest of yield to maturity or yield to
call (if the bond has prepayment provisions); yield to worst may be
the same as yield to maturity but never higher.
RiverFront Investment Group, LLC (“RiverFront”) is owned primarily
by its employees through RiverFront Investment Holding Group,
LLC, the holding company for RiverFront. Baird Financial
Corporation (BFC) is also a minority owner of RiverFront Investment
Holding Group, LLC and therefore an indirect owner of RiverFront.
BFC is the parent company of Robert W. Baird & Co. Incorporated
(“Baird”), a registered broker/dealer and investment adviser.
RiverFront Investment Group, LLC, is an investment adviser
registered with the Securities Exchange Commission under the
Investment Advisers Act of 1940. The company manages a variety
of portfolios utilizing stocks, bonds, and exchange-traded funds
(ETFs). RiverFront also serves as sub-advisor to a series of mutual
funds and ETFs. Opinions expressed are current as of the date
shown and are subject to change. They are not intended as
investment recommendations.
PRINCIPAL RISKS
Diversification does not guarantee a profit or eliminate the risk of loss.
Small, mid, and micro cap companies may be hindered as a result
of limited resources or less diverse products or services and have
therefore historically been more volatile than the stocks of larger,
more established companies.
Master Limited Partnerships (MLP) investing includes risks such as
equity- and commodity-like volatility. Also, distribution payouts
sometimes include the return of principal and, in these instances,
references to these payouts as “dividends” or “yields” may be
inaccurate and may overstate the profitability/success of the MLP.
Additionally, there are potentially complex and adverse tax
consequences associated with investing in MLPs. This is largely
dependent on how the MLPs are structured and the vehicle used to
invest in the MLPs. It is strongly recommended that an investor
consider and understand these characteristics of MLPs and consult
with a financial and tax professional prior to investment.
There are special risks associated with an investment in real estate
and Real Estate Investment Trusts (REITs), including credit risk,
interest rate fluctuations and the impact of varied economic conditions.
Investing in foreign companies poses additional risks since political
and economic events unique to a country or region may affect those
markets and their issuers. In addition to such general international
risks, the portfolio may also be exposed to currency fluctuation risks
and emerging markets risks as described further below.
Changes in the value of foreign currencies compared to the U.S.
dollar may affect (positively or negatively) the value of the portfolio’s
investments. Such currency movements may occur separately from,
and/or in response to, events that do not otherwise affect the value
of the security in the issuer’s home country. Also, the value of the
portfolio may be influenced by currency exchange control
regulations. The currencies of emerging market countries may
experience significant declines against the U.S. dollar, and
devaluation may occur subsequent to investments in these
currencies by the portfolio.
Foreign investments, especially investments in emerging markets,
can be riskier and more volatile than investments in the U.S. and
are considered speculative and subject to heightened risks in
addition to the general risks of investing in non-U.S. securities. Also,
inflation and rapid fluctuations in inflation rates have had, and may
continue to have, negative effects on the economies and securities
markets of certain emerging market countries.
Using a currency hedge or a currency hedged product does not
insulate the portfolio against losses.
In a rising interest rate environment, the value of fixed-income
securities generally declines.
High yield bonds, also known as junk bonds, are subject to greater
risk of loss of principal and interest, including default risk, than
higher-rated bonds.
23
RIVERFRONT INVESTMENT GROUP
IMPORTANT DISCLOSURE INFORMATION
CONTINUED
Technology and Internet-related stocks, especially of smaller,
less-seasoned companies, tend to be more volatile than the overall
market.
Technical analysis is based on the study of historical price
movements and past trend patterns. There are no assurances that
movements or trends can or will be duplicated in the future.
Buying commodities allows for a source of diversification for those
sophisticated persons who wish to add this asset class to their
portfolios and who are prepared to assume the risks inherent in
the commodities market. Any commodity purchase represents a
transaction in a non-income-producing asset and is highly
speculative. Therefore, commodities should not represent a
significant portion of an individual’s portfolio.
ETFs are subject to substantially the same risks as those
associated with the direct ownership of the securities comprising
the index on which the ETF is based. Additionally, the value of the
investment will fluctuate in response to the performance of the
underlying index or securities. ETFs typically incur fees that are
separate from those fees charged by RiverFront. Therefore,
investments in ETFs will result in the layering of expenses.
Exchange-traded funds (ETFs) are sold by prospectus.
Please consider the investment objectives, risk, charges
and expenses carefully before investing. The prospectus
and summary prospectus, which contains this and other
information, can be obtained by calling your financial advisor.
Published on December 23, 2016. © RiverFront Investment
Group, LLC. All Rights Reserved. Past performance is no
guarantee of future results.
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THE ART & SCIENCE OF DYNAMIC INVESTING.
RIVERFRONT INVESTMENT GROUP
The art & science of dynamic investing
INVESTMENTS
SALES & MARKETING
TECHNOLOGY & INNOVATION
Tia Abrams
Kate Atwood
Bruce Batson
Tim Anderson, CFA®
Elizabeth Barrett
Marc Cheatham
Rebecca Felton
Bart Farinholt
Shane McNamee
Rob Glownia, CFA®
[email protected]
Tyler Finney, CIPM®
[email protected]
ADMINISTRATION
Adam Grossman, CFA®
Brian Gaertner, CIMA®
Karen Basalay
Scott Hays
Brian Glavin
Heather Houser
Michael Jones, CFA®
Beth Johnson
Diane Mann, CPA
Chris Konstantinos, CFA®
Jim Martin, CIMA®
Pete Quinn
Deva Meenakshisundaram, FRM
Stuart Porterfield
Wendy Smailes, SPHR,
SHRM-SCP
Kevin Nicholson, CFA®
Sean Quigley, CIMA®
Bill Ryder, CFA®, CMTTM
Allie Thorndike
Doug Sandler, CFA®
Brad Wear, CDFA®, CFS®
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Lora Scott
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Karrie Southall, CIPM®
[email protected]
[email protected]
[email protected]
Brad Williams
[email protected]
OPERATIONS & TRADING
Willene Bellamy
[email protected]
Alex Goodstein
[email protected]
Rod Smyth
[email protected]
[email protected]
COMPLIANCE
Ellie Johnson
Will Wall
[email protected]
[email protected]
1214 East Cary Street, Richmond, Virginia 23219 TEL 804) 549-4800 TOLL FREE 866) 583-0744
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