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OUTLOOK2017 PASSING THE BATON PASSING THE BATON RiverFront’s 2017 Economic Scenarios and Market Forecasts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 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. 1 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. 2 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 3 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 4 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 5 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. 6 THE ART & SCIENCE OF DYNAMIC INVESTING. 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. 7 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. 8 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. 9 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. 10 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 11 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. 12 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 13 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). 14 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 16 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 17 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%. 18 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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%) 19 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 20 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 21 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. 22 THE ART & SCIENCE OF DYNAMIC INVESTING. RIVERFRONT INVESTMENT GROUP 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. 24 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 RIVERFRONTIG.COM | http://linkd.in/1oF5kER | @RiverFrontIG