a division of dcm advisors, llca division of dcm advisors, llc february 5, 2019 heckman global...

Heckman Global Advisors A Division of DCM Advisors, LLC February 5, 2019

Heckman Global Advisors [email protected] 917.386.6261

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Global Investment Outlook February 2019

Summary: We have become much closer to a marketweight in Developed Asia, and our allocation to Australia has decreased to an underweight. For Continental Europe, although GDP forecasts continue to be revised downward for many markets, our allocations have increased in several markets. Spain has become an overweight with inexpensive valuations and relatively strong upward company earnings revisions. We have a contrarian overweight position on the U.K. It is a relatively cheap market with a dividend yield of 4.7% and forecasted P/E of 12x.

In North America, the U.S. remains an underweight The U.S. market is underweighted based on expensive valuation ratios and some unfavorable risk

measures. Under risk, the market’s negatives include a high beta, a high rate of credit growth, and a

6% overvalued real exchange rate. On the other hand, it looks relatively attractive on growth with

stable GDP 2019 forecasts and upward company revisions higher than many other markets.

Our allocation in Developed Asian markets is somewhat mixed We have become much closer to a marketweight in Developed Asia. Our allocation to Australia has

decreased to an underweight due to a negative terms-of-trade trend (stemming from weak commodity

prices) and weak upward company revisions. Japan is still an overweight with attractive valuations

where its trailing P/E at 12x is 7 units below its 10-year average. We have trimmed our overweight in

Singapore which is attractive on valuation with a forecasted 2019 P/E of 12x. Moreover, its GDP

forecasts for 2019 have been downgraded and upward company revisions are weak. Hong Kong

continues as an underweight where valuations are not particularly cheap and the real exchange rate is

overvalued.

We have increased our weight in Continental Europe; continues to be a mixed picture Although GDP forecasts continue to be revised downward for many markets, we have increased our

allocations in several. Spain has become an overweight with inexpensive valuations and relatively

strong upward company earnings revisions. Sweden continues to be overweighted with attractive

valuations, an undervalued exchange rate and a declining sovereign spreads trend over the last 24

months. With the price of oil increasing last month and thus with improving terms-of-trade, we have

increased our weightings in Norway. Most other markets are underweighted.

We are overweight the U.K. In spite of uncertainties over Brexit, we have a contrarian position on the U.K. It is relatively cheap

with a dividend yield of 4.7% and forecasted 2019 P/E of 12x. Other positives include its low beta

relative to world returns and negative domestic credit growth over the last 5 years. On the negative

side, it has a large current account deficit/GDP and weak upward company revisions.

This publication is provided by Heckman Global Advisors (“HGA”), which is not an independent entity but is a Division of DCM Advisors, LLC, a registered investment

adviser. The region and sector allocations recommended herein are solely those of HGA and may differ from those of other business units of DCM Advisors, LLC. Nothing

contained herein constitutes an offer to sell or a solicitation of an offer to buy any security or any interest in DCM Advisors, LLC vehicle(s). The information contained herein

has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. The comments contained herein are opinions and

may not represent the opinions of DCM Advisors, LLC and are subject to change without notice. All investments are subject to the risk of loss, including the potential for

significant loss, and it should not be assumed that any models or opinions incorporated herein will be profitable or will equal past performance. Copyright © 2018 DCM

Advisors, LLC. All Rights Reserved. These materials are the exclusive property of DCM Advisors, LLC. Unless otherwise expressly permitted by DCM Advisors, LLC in

writing, please do not distribute, reproduce or use these materials for any purpose other than internal business purposes solely in connection with the management of investment

funds or investment products that are sponsored or advised by you. This publication is not considered a Research report under FINRA Rule 2241(a)(11) and related rules.

Leila Heckman, Ph.D. | [email protected] | 917-386-6261 John Mullin, Ph.D. | jmullin@ dcmadvisors.com | 917-386-6262 Allison Hay | [email protected] | 917-386-6264

A Disciplined Approach to Developed Market Equity Allocation



Overview of the Global Investment Outlook

Purpose The Global Investment Outlook summarizes the country allocation recommendations of our Model for

developed markets. The goal is to enhance the dollar returns of unhedged, long-only developed market

equity portfolios.

Coverage Unless otherwise noted, all return data are from the MSCI indices. Our passive benchmark is composed of

the same 23 markets under coverage, and approximates the performance of the MSCI World Index.

The Model Our model is built on a scoring mechanism. Each month it compares the markets under coverage on the basis

of quantitative investment factors that have been shown to convey information about future equity returns in

research by academics and practitioners, including ourselves. These include indicators of valuation, growth,

risk, interest rate trends, and sentiment/momentum. The factors are shown below. Each month statistical

scores are computed for each factor, and a total score is computed for each country as the weighted average of

the individual factor scores. The weights on each factor are determined by the strength and reliability of each

factor in back tests. Each country then gets an allocation relative to the benchmark that is roughly in

proportion to its total score, with restrictions on the maximum allocation possible to each market to avoid

unrealistically large exposures. The model is updated each month and the performance of the hypothetical

portfolio compared with the benchmark.

Quantitative Factors 2B

Valuation Price-to-Earnings Ratio (Forecast) (Page 8)

Price-to-Earnings Minus 10 Year Average Price-to-Earnings (Page 10)

Dividend Yield (Page 12)

Growth

6-Month Change in GDP Forecasts (Page 14)

One-Month Upward Company Revision Ratio (Page 16)

Terms-of-Trade Trend (Page 18)

Risk

Beta (Page 20)

Real Exchange Rate Overvaluation (Page 22)

Current Account (Page 24)

Domestic Credit (Page 26)

Change in Sovereign Spreads (Page 28)

Monetary Policy Nominal Interest Rate Trend (Page 30)

Momentum

Year-over-Year Price Momentum (Page 32)



Investment Factor Definitions:

VALUATION - Forecasted Price-to-Earnings: The forecasted price-to-earnings ratio is calculated by dividing the aggregate

market capitalization of a country’s MSCI constituents by the aggregate of their forecast earnings,

aggregated from FactSet Estimates company-level data by Heckman Global Advisors. Source: FactSet

Research Systems, Heckman Global Advisors

Price-to-Earnings Minus its 10-Year Average: The Price-to-earnings ratio is calculated by dividing the

aggregate market capitalization of a country’s MSCI constituents by the aggregate of their recently reported

12 months of earnings. This ratio is compared with its average over the last 10 years. Source: MSCI,

Heckman Global Advisors

Dividend Yield: The ratio of the total dividend payout to the marketcap of a country index. Source: MSCI

GROWTH 6-Month Change in GDP Forecasts: The 6-month change of GDP forecasts measures the difference

between the forecasted GDP growth rate and the forecasted GDP growth rate as of 6-months ago. Source:

Bloomberg

One Month Upward Company Revision Ratio: The one month upward company revision ratio is computed

as the number of companies with upward revisions to earnings forecasts divided by the total number of

companies with revisions over the last month. Source: FactSet Research Systems

Terms-of-Trade Trend: A country’s terms of trade is a measure of its aggregate export price index relative

to its aggregate import price index. The model’s proprietary measure of the terms-of-trade change over the

past 18 months is based on the interaction of (a) global fuel, mineral, agricultural, and manufacturing price

movements, and (b) the varying import and export structures of the markets in the model’s universe.

Source: International Monetary Fund (IMF), World Trade Organization, U.S. Bureau of Economic

Analysis, Heckman Global Advisors

RISK Beta: Beta measures the combination of volatility and correlation for each market relative to world returns

based on the last 18 months of returns. Source: MSCI, Heckman Global Advisors

Real Exchange Rate Overvaluation: The real effective exchange rate is a measure of the local-currency cost

of the local consumption basket relative to the local-currency cost of a trade weighted basket of foreign

consumption baskets. The model’s measure of overvaluation is the percent deviation between the current

real effective exchange rate and it 6-year moving average. Source: Bloomberg, IMF, Heckman Global

Advisors

Current Account/GDP: Current Account Balance is measured relative to GDP. Source: Bloomberg,


Excess Domestic Credit Growth: Excess domestic credit growth is defined as the change in the ratio of

domestic credit to GDP (DC/GDP) over the last five years. Source: World Bank and Heckman Global

Advisors

Change in Sovereign Spreads: Sovereign spreads are barometers for measuring investor risk aversion. A

declining spread implies a decline in risk aversion. The indicator included in the model is based on the

decline of the spread over the previous 24 months. Source: JP Morgan, Bloomberg

MONETARY POLICY Nominal Interest Rate Trend: Nominal interest rate changes are measured as differences between short-

term rates and their 24-month averages. Source: Bloomberg, Heckman Global Advisors

MOMENTUM (Higher Values Preferred) Price Momentum: The price momentum factor is defined as the one-year percentage change in each

market’s local currency price index. Source: MSCI

VALUE-TRAP MARKETS Value-trap markets are those that score in the first quartile according to valuation indicators but in the

bottom quartile according to the non-valuation indicators. For these markets, we neutralize valuation scores

by setting them equal to the global average country valuation score. This has the effect of lowering the

overall scores of value-trap markets.



Recommended Country Allocation: February 2019

Developed Market Rankings

Overall Rank

Previous Rank

Valuation Rank

Growth Rank

Risk Rank

Interest Rate Rank

Momentum Rank

Spain 1 8 2 5 9 5 17

Norway 2 20 14 2 12 16 4

Austria 3 3 1 8 18 7 23

UK 4 4 3 9 11 19 12

Israel 5 16 18 1 17 14 1

Sweden 6 5 9 13 8 20 8

Japan 7 2 6 11 7 4 18

Netherlands 8 11 17 3 6 13 13

Singapore 9 6 4 16 5 22 16

Portugal 10 9 13 22 1 2 10

Australia 11 14 5 21 13 18 5

Ireland 12 7 10 15 2 7 21

Canada 13 17 15 7 15 21 6

Germany 14 10 7 10 10 17 20

Switzerland 15 18 20 17 4 11 7

France 16 15 11 12 20 12 14

Hong Kong 17 19 16 14 16 10 11

Denmark 18 13 21 18 3 3 15

Belgium 19 21 8 6 22 6 22

Finland 20 12 19 19 21 7 2

Italy* 21 1 12 20 19 15 19

USA 22 22 22 4 23 23 9

New Zealand 23 23 23 23 14 1 3

Source: MSCI, Heckman Global Advisors

*Value traps: markets with attractive valuation indicators but generally poor growth, risk, and momentum/sentiment indicators. These markets are

assigned the global average valuation score, which causes a decline in their value ranks, overall ranks, and recommended allocations.



Recommended Country Allocation: February 2019

Country

MSCI World Benchmark

Weight1

(%)

HGA Recommended World Weight

(%)

MSCI EAFE®

Benchmark

Weight1

(%)

HGA

Recommended

EAFE Weight

(%)

United States 61.9% 54.2% N/A N/A

Canada 3.5% 2.3% N/A N/A

North America 65.4% 56.5% N/A N/A

Japan 8.5% 11.2% 24.7% 27.0%

Australia 2.4% 1.7% 6.9% 6.0%

Hong Kong 1.4% 0.0% 3.9% 1.6%

New Zealand 0.1% 0.0% 0.2% 0.0%

Singapore 0.5% 1.8% 1.4% 2.3%

Pacific 12.8% 14.7% 37.1% 36.8%

Austria 0.1% 2.8% 0.2% 2.6%

Belgium 0.3% 0.0% 1.0% 0.0%

Denmark 0.6% 0.0% 1.7% 0.0%

Finland 0.4% 0.0% 1.1% 0.0%

France 3.8% 1.6% 11.0% 8.5%

Germany 3.0% 2.4% 8.8% 7.9%

Ireland 0.2% 0.3% 0.5% 0.3%

Italy* 0.8% 2.2% 2.3% 3.3%

Netherlands 1.2% 1.7% 3.4% 3.6%

Norway 0.3% 1.0% 0.7% 1.1%

Portugal 0.1% 0.5% 0.2% 0.2%

Spain 1.1% 2.4% 3.1% 4.1%

Sweden 0.9% 3.3% 2.7% 4.7%

Switzerland 3.0% 1.3% 8.6% 6.6%

Continental Europe

15.7% 19.3% 45.3% 42.9%

United Kingdom 5.9% 8.0% 17.0% 18.7%

Europe 21.5% 27.3% 62.3% 61.7%

Israel 0.2% 1.5% 0.6% 1.5%

(1) Source for benchmark weight: Morgan Stanley Capital International (MSCI) Index. MSCI EAFE® is a registered trademark of Morgan Stanley.

* Value traps



Performance of Model

The following describes the performance of a portfolio weighted using the investment factors and weights

described on page two.

Figure 1. Performance of Model Portfolio

Source: MSCI, Heckman Global Advisors. See Important Disclosures on page 32.



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Valuation: 2019 Price-to-Earnings Ratio – Forecast

Since future cash flows to investors are tied to future earnings, it is appealing to value markets based on P/E

ratios that encompass analysts’ forecasts of future earnings. Whereas, the cyclicality of earnings poses

problems for a strict reliance on trailing P/E ratios to measure country valuations, forecast P/E ratios help

account for the possibility of earnings changes. The forecast P/E ratio is defined as total country market

capitalization divided by total forecast earnings. Forecast earnings are aggregated from consensus

company-level earnings data.

Figure 9. Performance using Forecast P/E Factor

Source: FactSet Research Systems, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Figure 10. Returns on Cap-Weighted vs. Forecast P/E-Based Portfolios

Annualized Returns (US$) Benchmark Return (%)

Performance of Forecast P/E Factor

Gross Return (%) Net Return (%)

1989 – 2018 7.1 8.1 7.8

YTD 7.8 7.8 7.8

2018 -8.2 -10.4 -10.5

2017 23.1 26.3 26.1

2016 8.2 6.8 6.5

2015 -0.3 0.1 -0.2

2014 5.5 4.1 3.9

2013 27.4 27.3 27.0

2012 16.5 17.0 16.7

2011 -5.0 -12.3 -12.4

2010 12.4 3.1 2.8

2009 30.8 37.5 37.0

2008 -40.3 -48.8 -49.0

2007 9.6 8.1 7.9

2006 20.7 26.2 25.9

2005 10.0 9.6 9.3

2004 15.2 22.9 22.5

2003 33.8 39.1 38.8

2002 -19.5 -16.8 -17.1

2001 -15.6 -12.3 -12.6

2000 -13.0 -11.4 -11.6

1999 25.1 22.2 22.0

1998 25.1 18.7 18.4

1997 17.3 14.7 14.4

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: FactSet, Heckman

Global Advisors



Valuation: 2019 Price-to-Earnings Ratio – Forecast (Cont’d)

The 23 developed markets are ranked based on their 2019 FactSet forecast price-to-earnings (P/E) ratios.

Markets with low forecasted P/E ratios are ranked above those with high ratios. US’s forecasted 2019 P/E is

16x, Continental Europe’s forecasted 2019 P/E is 13x, the U.K.’s forecasted P/E is 12x, and Japan’s

forecasted P/E is 12x.

Figure 11. Valuation: 2019 Price-to-Earnings Ratio (Forecast)

Source: FactSet Research Systems, Heckman Global Advisors



Valuation: Price-to-Earnings minus its 10-Year Average

Some markets persistently trade at relatively high trailing price-to-earnings ratios, while others tend to trade

at relatively low ratios. Over the past ten years, for example, trailing price-to-earnings ratios averaged 20x

in Denmark and 19x in Ireland. In contrast, trailing price-to-earnings ratios averaged a mere 13x in Spain

and 12x in Norway. To deal with these tendencies, we have introduced a relative valuation measure: A

country’s trailing price-to-earnings ratio relative its own 10-year average.

Figure 6. Performance Using P/E minus its 10 year average Factor


Figure 7. Returns on Cap-Weighted vs. Trailing P/E-Based Portfolios


Performance using P/E minus avg. Factor


1989 – 2018 7.1 7.6 7.3

YTD 7.8 7.5 7.5

2018 -8.2 -10.3 -10.5

2017 23.1 25.8 25.5

2016 8.2 7.8 7.6

2015 -0.3 0.4 0.2

2014 5.5 4.7 4.5

2013 27.4 26.5 26.1

2012 16.5 17.6 17.2

2011 -5.0 -9.1 -9.4

2010 12.4 4.0 3.7

2009 30.8 40.6 40.1

2008 -40.3 -43.5 -43.8

2007 9.6 7.3 7.2

2006 20.7 20.9 20.7

2005 10.0 12.2 11.9

2004 15.2 17.7 17.2

2003 33.8 38.2 37.7

2002 -19.5 -13.9 -14.3

2001 -15.6 -16.9 -17.2

2000 -13.0 -8.0 -8.4

1999 25.1 25.1 24.9

1998 25.1 17.8 17.5

Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI,




Valuation: Price-to-Earnings minus its 10-Year Average (Cont’d)

Ireland’s trailing price-to-earnings ratio is almost 10 units lower than its 10-year average. In contrast, New

Zealand is the most expensive market relative to its own history: Its trailing price-to-earnings ratio is 11

units higher than its 10-year average.

Figure 8. Valuation: Price-to-Earnings minus its 10-Year Average




Valuation: Dividend Yield

In the country allocation process, systematically allocating to countries with high dividend yield tends to

lead to outperformance. Dividend Yield in this context is defined as the ratio of the total US dollar dividend

payout over the previous 12 months to the total US dollar market cap of the country’s index. A high yield

can be considered as evidence that a market is undervalued. Additionally, it has been empirically shown that

the compounding effect of dividend on a country’s total return can be material over long periods.

Figure 12. Performance using DY Factor


Figure 13. Returns on Cap-Weighted vs. DY-Based Portfolios


Performance of DY Factor


1989 – 2018 7.1 8.1 8.0

YTD 7.8 7.4 7.4

2018 -8.2 -10.1 -10.2

2017 23.1 24.4 24.2

2016 8.2 7.3 7.2

2015 -0.3 -4.4 -4.5

2014 5.5 1.3 1.1

2013 27.4 26.0 25.7

2012 16.5 16.1 15.9

2011 -5.0 -11.3 -11.5

2010 12.4 5.7 5.6

2009 30.8 43.8 43.2

2008 -40.3 -47.4 -47.5

2007 9.6 13.1 12.9

2006 20.7 28.5 28.4

2005 10.0 9.8 9.6

2004 15.2 22.3 22.0

2003 33.8 38.8 38.5

2002 -19.5 -15.0 -15.2

2001 -15.6 -11.0 -11.2

2000 -13.0 -12.8 -13.0

1999 25.1 23.3 23.1

1998 25.1 23.2 23.0

1997 17.3 13.7 13.5





Valuation: Dividend Yield (Cont’d)

The 23 developed markets are ranked based on the relative attractiveness of dividend yields. Markets with

high dividend yields are ranked above those with low yields. Japan has a dividend yield of 2.4%, US has a

dividend yield of 2.1%, Continental Europe 3.7% and UK 4.7%.

Figure 14. Valuation: Dividend Yield (%)




Growth: 6-Month Change in GDP Forecasts

Gross Domestic Product (GDP) encompasses a country’s consumption, business investment,

government spending and net exports. Changes in forecasts of GDP relative to the forecasts six-

months ago tend to be a better indicator for country allocation than the absolute level of GDP

growth. This measure takes the current forecast GDP growth rate minus the forecast GDP growth

rate six months ago. Higher scores are assigned to those markets where GDP forecasts are being

upgraded the most.

Figure 15. Performance using the GDP Factor

Source: Consensus Economics, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Figure 16. Returns on Cap-Weighted vs. GDP-based Portfolios


Performance using the GDP Factor

Gross Return (%) Net Return (%) 1989 – 2018 7.1 7.4 6.8

YTD 7.8 8.1 8.0

2018 -8.2 -8.5 -9.0

2017 23.1 23.3 22.5

2016 8.2 5.5 5.0

2015 -0.3 -1.5 -2.1

2014 5.5 1.0 0.5

2013 27.4 26.4 25.7

2012 16.5 17.2 16.5

2011 -5.0 -9.7 -10.5

2010 12.4 9.1 8.3

2009 30.8 34.2 33.4

2008 -40.3 -43.7 -44.1

2007 9.6 15.2 14.3

2006 20.7 23.9 22.9

2005 10.0 15.2 14.4

2004 15.2 18.1 17.5

2003 33.8 32.7 32.1

2002 -19.5 -20.0 -20.4

2001 -15.6 -13.9 -14.4

2000 -13.0 -14.4 -14.8

1999 25.1 24.8 24.1

1998 25.1 31.9 31.4

1997 17.3 19.9 19.2

1996 13.9 14.2 13.5 Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source:

Bloomberg, Heckman Global Advisors



Growth: 6-Month Change in GDP Forecasts (Cont’d)

The 23 developed markets are ranked from highest to lowest based on the changes to the year

ahead GDP growth forecasts made over the last six months. Currently, the global economy appears

to be slowing with more markets with downward in GDP growth forecasts over the past six months

than markets with upgrades.

Figure 17. Growth: Changes to Forecasted GDP Growth (%)

Source: Bloomberg, Heckman Global Advisors



Growth: One-Month Upward Company Revision Ratio

Portfolio managers in the U.S. have successfully incorporated earnings forecast revisions into their stock

selection processes. We have incorporated this into our country model by computing the number of

companies with upward earnings forecast revisions over one month divided by the total number of

companies with revisions. A number in excess of 50% implies that upgrades have exceeded downgrades.

Figure 30. One-Month Company Revision Ratio


Figure 31. Returns on Cap-Weighted vs. One-Month Upward Company Revision Ratio Portfolios


Performance using Upward Company Revision Ratio Factor

Gross Return (%) Net Return1 (%)

1989 – 2018 7.1 7.9 7.2

YTD 7.8 8.1 8.0

2018 -8.2 -8.0 -8.6

2017 23.1 25.5 24.7

2016 8.2 6.1 5.4

2015 -0.3 3.2 2.6

2014 5.5 7.9 7.3

2013 27.4 25.2 24.5

2012 16.5 17.1 16.2

2011 -5.0 -7.1 -7.8

2010 12.4 15.0 14.2

2009 30.8 28.8 27.9

2008 -40.3 -40.5 -40.9

2007 9.6 9.4 8.6

2006 20.7 23.9 22.9

2005 10.0 12.7 11.9

2004 15.2 17.8 16.9

2003 33.8 32.6 31.9

2002 -19.5 -20.4 -21.0

2001 -15.6 -16.7 -17.4

2000 -13.0 -15.2 -15.7

1999 25.1 16.8 16.0

1998 25.1 30.8 30.0

1997 17.3 19.9 19.3


FactSet, Heckman Global Advisors



Growth: One-Month Upward Company Revision Ratio (Cont’d)

In the chart below, a countries’ one-month upward company revision ratios are ranked against the

developed-world average. Markets with high one-month upward company revision ratios are attractive

relative to those markets with low one-month upward company revision ratios. The average upward

company revision ratio is 37% this month.

Figure 32. Growth: One-Month Upward Company Revision Ratio




Growth: Terms-of-Trade Trend

A country’s terms of trade is defined as the ratio of its export price index to its import price index. An

increase in the ratio improves a country’s real income, which tends to stimulate domestic demand.

Conversely, a decrease in the ratio hurts a country’s real income and thereby tends to dampen domestic

demand. The import and export price indexes used in the model are proprietary measures based on

weighted averages of the global prices of agricultural products, energy, materials, and manufactures. For

each country, the price weights are based on import and export composition data. The terms of trade trend is

defined as the percentage change of the terms of trade over the previous 18 months.

Figure 18. Performance Using Terms of Trade Factor


Figure 19. Returns on Cap-Weighted vs. Terms of Trade-based Portfolios


Performance Using Terms of Trade Factor


1989 – 2018 7.1 7.7 7.4

YTD 7.8 7.7 7.6

2018 -8.2 -8.5 -8.7

2017 23.1 21.7 21.3

2016 8.2 5.5 5.0

2015 -0.3 3.2 3.2

2014 5.5 5.0 4.2

2013 27.4 30.9 30.5

2012 16.5 17.3 16.8

2011 -5.0 -8.4 -8.5

2010 12.4 14.1 13.7

2009 30.8 22.5 22.3

2008 -40.3 -43.2 -43.4

2007 9.6 14.6 14.3

2006 20.7 23.0 22.9

2005 10.0 12.8 12.7

2004 15.2 20.6 20.4

2003 33.8 38.3 38.0

2002 -19.5 -17.8 -18.1

2001 -15.6 -16.5 -16.8

2000 -13.0 -10.5 -10.6

1999 25.1 27.0 26.6

1998 25.1 25.9 25.7 Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: MSCI, Heckman Global Advisors



Growth: Terms-of-Trade Trend (Cont’d)

In the chart below, an individual country’s terms of trade is ranked against the developed world’s average.

Markets with higher terms-of-trade trends (as measured by the 18-month change in export prices relative to

import prices) are attractive relative to those markets with low or negative terms-of-trade trends. The price

of oil recovered somewhat in January and the terms of trade for Norway reversed and became positive.

Figure 20 Growth: Terms-of-Trade Trend




Risk: Beta

Beta measures both the volatility and correlation of each market relative to world returns based on the last

18 months of returns. If a market is more volatile than the global index and has a high correlation with

global index returns, it has a high beta. Conversely, if a market is less volatile than the global index and has

a low correlation with global index returns, it has a low beta. Low beta markets have historically been

associated with outperformance. This is a finding at odds with at least some versions of efficient market

theory in which higher returns come from riskier investments. Our model assigns higher scores to low beta

markets.

Figure 21. Performance Using the Beta Factor


Figure 22. Returns on Cap-Weighted vs. Beta-based Portfolios


Performance Using the Beta Factor


1989 – 2018 7.1 8.0 7.8

YTD 7.8 6.9 6.8

2018 -8.2 -8.1 -8.2

2017 23.1 24.3 23.8

2016 8.2 4.0 3.8

2015 -0.3 3.0 2.7

2014 5.5 7.9 7.7

2013 27.4 28.8 28.5

2012 16.5 14.8 14.6

2011 -5.0 -6.8 -7.0

2010 12.4 14.8 14.5

2009 30.8 25.0 24.8

2008 -40.3 -38.0 -38.2

2007 9.6 7.6 7.4

2006 20.7 20.3 20.1

2005 10.0 9.3 9.0

2004 15.2 18.6 18.3

2003 33.8 36.8 36.4

2002 -19.5 -17.2 -17.4

2001 -15.6 -14.7 -15.0

2000 -13.0 -11.2 -11.5


MSCI, Heckman Global Advisors



Risk: Beta (Cont’d)

Japan and other Asian markets are among the low beta markets based on the last 18 months of returns.

Many European markets and the U.S. continue to be high beta markets.

Figure 23. Risk: Beta




Risk: Real Exchange Rate Overvaluation

A country’s real effective exchange rate measures the local currency cost of domestically produced goods

relative to the local currency price of a trade-weighted basket of foreign goods. The real effective exchange

rate tends to appreciate when a country’s domestic prices increase relative to those of its trading partners, or

when its nominal exchange rate appreciates. Excessive real exchange rate appreciation puts foreign equity

investors at risk. Our studies have demonstrated the effectiveness of this indicator for country allocation.

This factor has high cross-market correlation with equity market returns for both developed & emerging

markets.

Figure 24. Performance Using the Real Exchange Rate Factor

Source: Bloomberg, MSCI, Heckman Global Advisors. See Important Disclosures on page 37.

Figure 25. Returns on Cap-Weighted vs. Real Exchange Rate-based Portfolios


Performance Using the Real FX Rate Factor


1989 – 2018 7.1 8.2 8.0

YTD 7.8 7.9 7.8

2018 -8.2 -10.3 -10.6

2017 23.1 22.3 22.0

2016 8.1 7.9 5.3

2015 -0.3 -2.0 -2.2

2014 5.5 2.5 2.2

2013 27.4 30.2 29.8

2012 16.5 18.2 18.0

2011 -5.0 -2.6 -2.7

2010 12.4 14.2 14.0

2009 30.8 41.2 40.8

2008 -40.3 -38.9 -39.1

2007 9.6 7.1 7.0

2006 20.7 17.7 17.5

2005 10.0 11.6 11.4

2004 15.2 15.0 14.7

2003 33.8 35.3 35.0

2002 -19.5 -17.5 -17.8

2001 -15.6 -14.4 -14.6

2000 -13.0 -11.8 -11.9





Risk: Real Exchange Rate Overvaluation (Cont’d)

Our measure of real exchange rate valuation compares the most recent level of a country’s real exchange

rate with its six-year moving average. An individual country’s real exchange rate trend is compared with the

developed-world average real exchange rate trend. A number of currencies continue to be undervalued,

including commodity-based Loonie and A$. The U.S. dollar continues to be overvalued in real terms.

Figure 26. Risk: Real Exchange Rate Overvaluation (Undervaluation)




Risk: Current Account as a percentage of GDP

A country’s current account balance is the difference between its income and its spending on consumption

and investment. By definition, therefore, a country with a current account deficit spends in excess of its

income. Of course, this is not always a bad thing, particularly if the excess spending is comprised of

investments with attractive return prospects. However, substantial current account deficits are often

associated with spending excesses that are not so benign. Consequently, we look at current account deficits

as a warning sign, and we assign relatively low scores to those markets with the largest deficits (and,

conversely, relatively high scores to those with the largest surpluses).

Figure 24. Performance Using the Current Account Factor


Figure 25. Returns on Cap-Weighted vs. Current Account-based Portfolios


Performance Using the Current Account Factor


1989 – 2018 7.1 7.5 7.4

YTD 7.8 6.9 6.9

2018 -8.2 -11.1 -11.2

2017 23.1 25.4 25.3

2016 8.2 2.9 2.8

2015 -0.3 0.9 0.8

2014 5.5 1.4 1.4

2013 27.4 27.3 27.2

2012 16.5 21.2 21.1

2011 -5.0 -9.2 -9.3

2010 12.4 14.9 14.8

2009 30.8 34.0 33.9

2008 -40.3 -43.2 -43.2

2007 9.6 15.2 15.1

2006 20.7 25.4 25.3

2005 10.0 13.5 13.4

2004 15.2 19.6 19.5

2003 33.8 36.2 36.0

2002 -19.5 -17.3 -17.4

2001 -15.6 -18.5 -18.6

2000 -13.0 -12.7 -12.8





Risk: Current Account as a percentage of GDP (Cont’d)

The table below ranks the markets by their current account surpluses relative to GDP. Singapore is an

outlier, with a massive current account surplus relative to GDP. Many European markets have surpluses,

especially Switzerland, the Netherlands, Germany, Denmark, Ireland, Sweden, and Norway. In contrast,

the United Kingdom is running a current account deficit relative to GDP

Figure 26. Risk: Current Account/GDP




Risk: Excess Domestic Credit Growth

We define excess domestic credit growth as the 5-year change in domestic credit relative to GDP. Our

research has shown that markets with the highest previous excess domestic credit growth are relatively risky

and subsequently deliver the lowest relative returns. Consequently, markets with the highest relative

DC/GDP growth are assigned the lowest scores (and vice-versa).

Figure 24. Performance Using the Excess Domestic Credit Growth Factor


Figure 25. Returns on Cap-Weighted vs. Excess Domestic Credit Growth-based Portfolios


Performance Using the Domestic Credit Factor


1989 – 2018 7.1 7.8 7.6

YTD 7.8 7.3 7.3

2018 -8.2 -11.6 -11.6

2017 23.1 24.6 24.5

2016 8.2 4.1 4.0

2015 -0.3 0.3 0.3

2014 5.5 4.6 4.5

2013 27.4 30.9 30.7

2012 16.5 15.9 15.8

2011 -5.0 -8.2 -8.3

2010 12.4 14.4 14.3

2009 30.8 34.8 34.6

2008 -40.3 -44.2 -44.3

2007 9.6 8.8 8.6

2006 20.7 17.5 17.4

2005 10.0 14.3 14.2

2004 15.2 15.3 15.2

2003 33.8 35.2 35.1

2002 -19.5 -20.7 -20.8

2001 -15.6 -17.3 -17.4

2000 -13.0 -8.2 -8.4

1999 25.1 25.4 25.2





Risk: Excess Domestic Credit Growth (Cont’d)

The contrarian nature of our excess credit growth indicator is highlighted by the fact that Ireland and

Spain—which have had negative domestic credit growth over the past five year—are currently the most

attractive markets according to the indicator. This, of course, has not always been the case. In the prelude to

the European debt crisis, these countries had the highest domestic credit growth rates among developed

markets. Their current negative credit growth rates reflect the difficult adjustments caused by the crisis.

Figure 26. Risk: Excess Domestic Credit Growth (%)




Risk: Change in Sovereign Spreads

Sovereign spreads are used as a barometer for measuring investor risk aversion to a country. A declining

spread implies a decline in risk aversion. The indicator included in the model is based on the decline of the

spread over the previous 24 months. For the Euro based markets, the spread being used is sovereign spreads

relative to German Bunds.

Figure 27. Performance of Sovereign Yield Spreads Factor


Figure 28. Returns on Cap-Weighted vs. Sovereign Yield Spreads -Based Portfolios

Annualized Returns (US$)

Benchmark Return (%)

Sovereign Yield Spread Portfolios

Gross Return

(%) Net Return

(%)

2000 – 2018 4.3 4.4 4.1

YTD 7.8 7.6 7.5

2018 -8.2 -8.9 -9.2

2017 23.1 21.7 21.2

2016 8.2 5.6 5.2

2015 -0.3 0.9 0.7

2014 5.5 3.8 3.7

2013 27.4 31.3 30.9

2012 16.5 16.8 16.4

2011 -5.0 -5.0 -5.3

2010 12.4 13.6 13.2

2009 30.8 30.0 29.7

2008 -40.3 -39.7 -39.8

2007 9.6 9.0 8.7

2006 20.7 21.5 21.2

2005 10.0 10.3 10.0

2004 15.2 14.3 14.2

2003 33.8 35.1 34.9

2002 -19.5 -19.2 -19.3

2001 -15.6 -16.0 -16.1

2000 -13.0 -13.0 -13.0 Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs.




Risk: Change in Sovereign Spreads (Cont’d)

Our Sovereign Spread change is the difference between the current spread and its 24-month moving

average. Italian spreads have widened substantially in relation to bunds, while Portuguese spreads continue

to be narrower than their 24-month average.

Figure 29. Risk: Sovereign Spreads (Basis Points)




Monetary Policy: Nominal Interest Rate Trend

Changes in monetary policy are typically associated with changes in short-term policy rates (such as the

Federal Funds rate in the U.S.). Rate increases are typically prompted by signs of overheating. Conversely,

rate declines are prompted by signs of economic weakness. Changes in monetary policy impact economies

with (as Milton Friedman observed) long and variable lags. However, when they ultimately arrive, the

impacts are often powerful. Empirically, we have found a tendency for equities in countries with declining

short-term interest rates to subsequently outperform equities in countries with increasing interest rates.

Figure 30. Nominal Interest Rate Change


Figure 31. Returns on Cap-Weighted vs. Nominal Interest Rate Trend Portfolios


Nominal Interest Rate Trend Portfolios

Gross Return (%) Net Return1 (%)

1989 – 2018 7.1 7.9 7.7

YTD 7.8 7.2 7.2

2018 -8.2 -9.4 -9.7

2017 23.1 21.8 21.6

2016 8.2 10.2 10.0

2015 -0.3 0.0 -0.2

2014 5.5 7.1 6.9

2013 27.4 24.7 24.3

2012 16.5 18.7 18.2

2011 -5.0 -2.0 -2.2

2010 12.4 7.6 7.4

2009 30.8 36.2 35.8

2008 -40.3 -40.4 -40.5

2007 9.6 10.6 10.2

2006 20.7 23.0 22.7

2005 10.0 12.2 12.0

2004 15.2 20.7 20.5

2003 33.8 35.0 34.7

2002 -19.5 -20.5 -20.6

2001 -15.6 -13.6 -13.8

2000 -13.0 -17.1 -17.3

1999 25.1 20.1 19.9

1998 25.1 27.3 26.9

1997 17.3 18.2 17.8

1996 7.6 8.6 8.3 Returns are rounded to the nearest decimal and net returns are adjusted for transactions costs. Source: FactSet, Heckman Global Advisors



Monetary Policy: Nominal Interest Rate Trend (Cont’d)

We measure to nominal interest rate changes as the difference between current short-term interest rates and

their 24-month moving average. The United States has had the largest short-term interest rate increase

relative to its average over the last 24 months.

Figure 32. Monetary Policy: Nominal Interest Rate Trend (Percentage Points)




Momentum: Year-Over-Year Price Momentum

Price momentum is included in our model as a counterbalance to the value factors. Since the attractiveness

of valuation ratios tends to decline as prices rise, a price momentum factor might help balance investors’

outlook on a market. The price momentum factor might have kept portfolio managers more exposed to the

market than if they only had valuation factors to consider. Our strategy is simple: we compute the one-year

local price return for each market index. The market with the highest one-year return receives the highest

score, and vice-versa.

Figure 33. Performance Using Price Momentum Factor


Figure 34. Returns on Cap-Weighted vs. Price Momentum-based Portfolios


Performance Using Price Momentum Factor


1989 – 2018 7.1 8.9 8.5

YTD 7.8 8.0 8.0

2018 -8.2 -8.1 -8.5

2017 23.1 21.9 21.4

2016 8.2 5.8 5.3

2015 -0.3 2.6 2.2

2014 5.5 3.3 3.0

2013 27.4 27.9 27.4

2012 16.5 18.2 17.8

2011 -5.0 -4.2 -4.5

2010 12.4 12.5 12.0

2009 30.8 38.4 37.8

2008 -40.3 -44.1 -44.4

2007 9.6 14.9 14.3

2006 20.7 19.1 18.4

2005 10.0 11.9 11.3

2004 15.2 20.7 19.9

2003 33.8 33.4 33.0

2002 -19.5 -17.9 -18.1

2001 -15.6 -14.6 -15.0

2000 -13.0 -14.2 -14.5

1999 25.1 29.6 29.1

1998 25.1 33.5 33.1

1997 17.3 23.7 23.2





Momentum: Year-Over-Year Price Momentum (Cont’d)

An individual country’s price momentum is ranked against the developed world’s average price momentum.

Markets with high price momentum (as measured by year-over-year price changes in local indices) are

attractive relative to those markets with low or negative price momentum. Israel, Finland and New Zealand

have positive price momentums for this year.

Figure 35. Momentum: Year-over-Year Price Momentum




Figure 36. Data Summary: February 2019

Source: Heckman Global Advisors, FactSet Research Systems, MSCI, Bloomberg, OECD

All data is rounded to the nearest decimal or whole number.

*Earnings Growth Forecasts are capped at a maximum of 30% and a minimum of -30%.

6-Month Change in Upward Company

GDP Forecast, % Revisions

Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month

U.S. 16 14 1 0 2.1 2.2 0.0 0.2 46% 46% 0% 0%

Canada 14 12 -1 -2 3.2 3.5 0.0 0.0 39% 46% 0% -2%

Japan 12 11 -7 -7 2.4 2.6 -0.1 -0.1 34% 42% 0% 4%

Australia 15 14 -2 -2 4.7 4.9 -0.1 0.0 38% 39% -2% -6%

Hong Kong 15 13 -2 -3 2.8 3.1 -0.2 -0.2 32% 42% 0% 1%

New Zealand 24 22 11 10 2.6 2.6 -0.2 -0.2 20% 30% -4% -7%

Singapore 12 11 -1 -1 4.2 4.4 -0.2 -0.1 33% 37% 0% 1%

Austria 9 8 -4 -4 3.4 3.7 0.0 0.0 38% 30% 0% 1%

Belgium 15 13 -3 -5 3.9 4.2 -0.2 -0.1 46% 50% 0% 0%

Denmark 18 16 -2 -3 2.4 2.5 0.1 0.1 24% 53% 0% -1%

Finland 16 14 6 5 4.2 4.6 -0.2 -0.1 29% 55% 0% 1%

France 13 12 -1 -1 3.4 3.6 -0.3 -0.2 44% 44% 0% 0%

Germany 12 11 -2 -2 3.3 3.5 -0.5 -0.3 47% 45% 0% 1%

Ireland 13 12 -11 -10 2.2 2.2 0.2 0.3 21% 33% 0% 1%

Italy 10 9 -4 -5 4.3 4.8 -0.5 -0.3 32% 55% 0% 2%

Netherlands 15 14 -1 -2 2.9 3.1 -0.2 0.0 58% 48% 0% 0%

Norway 13 12 2 2 4.2 4.4 0.0 0.1 36% 23% 2% -5%

Portugal 14 13 3 2 5.1 5.4 -0.2 -0.2 2% 8% 0% 1%

Spain 11 10 -1 -1 4.5 4.7 -0.1 -0.1 50% 32% -1% 0%

Sweden 13 13 -1 -3 4.0 4.3 -0.2 -0.2 32% 41% 0% 0%

Switzerland 16 14 1 -1 3.2 3.4 -0.2 -0.1 30% 26% 0% 1%

U.K. 12 11 0 -1 4.7 5.0 0.0 0.0 33% 40% 0% 0%

Israel 11 11 0 -1 1.9 2.1 -0.1 0.0 80% 20% 0% 2%

Cont. Europe Avg 13 12 -1 0 3.7 3.9 -0.2 -0.1 35% 39% 0% 0%

Developed Avg 13 12 -1 0 3.5 3.7 -0.1 -0.1 37% 38% 0% 0%

GROWTHVALUATION

Forecast 2019 P/E P/E minus 10 yr avg P/E Dividend Yield

(higher is preferred)(higher is preferred)

Terms-of-Trade

(higher is preferred)(lower is preferred)

Trend(higher is preferred)(lower is preferred)



Figure 37. Data Summary: February 2019

Source: Heckman Global Advisors, FactSet Research Systems, MSCI, Bloomberg, OECD

All data is rounded to the nearest decimal or whole number.

Beta Real Exch. Rate Current Account Sovereign Spread Price Momentum

Change, bps (YoY)

Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month Curr Month Prev Month

U.S. 1.2 1.2 6% 9% -3% -2% 14 14 -2 -1 1.0 1.0 -4% -6%

Canada 0.8 0.8 -7% -10% -2% -3% NA NA 0 2 0.6 0.6 -3% -12%

Japan 0.4 0.5 -1% 0% 3% 4% 2 2 -5 -1 0.0 -0.1 -14% -17%

Australia 0.6 0.6 -8% -10% -3% -2% 19 19 0 5 0.2 0.3 -3% -6%

Hong Kong 0.6 0.6 4% 7% 3% 4% 2 2 3 3 0.0 1.3 -8% -10%

New Zealand 0.5 0.5 -3% -3% -3% -3% NA NA 1 1 -0.3 -0.1 2% -1%

Singapore 0.6 0.5 -2% -2% 18% 19% 14 14 0 2 0.6 0.6 -11% -12%

Austria 0.9 0.9 2% 1% 2% 2% -10 -10 0 4 0.0 0.0 -25% -26%

Belgium 0.7 0.7 1% 2% 0% 0% 12 12 10 18 0.0 0.0 -19% -25%

Denmark 0.6 0.6 0% 1% 6% 6% -17 -17 -3 -3 -0.1 0.0 -9% -12%

Finland 0.8 0.8 0% 2% 0% -1% 2 2 11 16 0.0 0.0 3% -2%

France 0.8 0.8 -1% 0% -1% -1% 5 5 4 9 0.1 -0.2 -8% -10%

Germany 0.9 0.9 1% 2% 7% 8% -6 -6 0 1 0.2 -0.1 -17% -20%

Ireland 0.7 0.7 -4% -4% 10% 11% -67 -67 25 19 0.0 0.0 -18% -23%

Italy 0.8 0.8 -2% -1% 2% 3% -13 -13 46 55 0.2 0.3 -16% -16%

Netherlands 0.8 0.8 -1% 0% 10% 10% -7 -7 -4 1 0.1 -0.1 -8% -11%

Norway 0.8 0.8 -3% -5% 7% 7% 23 23 -2 -2 0.2 0.2 -3% -6%

Portugal 0.6 0.6 -1% -1% 0% 0% -49 -49 -43 -51 -0.1 -0.2 -6% -10%

Spain 0.8 0.8 0% 1% 1% 1% -51 -51 -4 8 0.0 0.0 -13% -14%

Sweden 0.9 0.9 -7% -5% 4% 4% 2 2 -3 -2 0.3 0.2 -4% -9%

Switzerland 0.6 0.6 -3% -1% 10% 10% 15 15 -5 -5 0.0 0.0 -3% -10%

U.K. 0.7 0.7 -3% -5% -3% -3% -27 -27 11 15 0.3 0.3 -8% -13%

Israel 0.9 0.9 -1% -3% 2% 2% -3 -3 0 4 0.1 0.2 4% -2%

Cont. Europe Avg 0.8 0.8 -1% -1% 4% 4% -11 -11 2 5 0.2 0.2 -10% -14%

Developed Avg 0.7 0.7 -1% -1% 3% 3% -7 -7 2 4 0.1 0.0 -8% -12%

Credit Growth, %(higher is preferred)

Excess Domestic

(lower is preferred)

Overvaluation(lower is preferred)

MONETARY POLICY MOMENTUM

Nom. Interest Rate

minus 2 year avg.(lower is preferred) (lower is preferred) (lower is preferred) (higher is preferred)

as a % of GDP

RISK



26BForecast P/E Ratio and Earnings Growth Rate

Earnings Earnings Earnings

P/E P/E P/E Growth (%) Growth (%) Growth (%)

Country 2018 2019 2020 2018 2019 2020

Argentina 15 9 6 -14 59 44

Australia 16 15 14 9 4 4

Austria 9 9 9 5 1 6

Belgium 16 15 13 3 11 8

Brazil 15 13 11 42 19 11

Canada 15 14 12 12 7 10

Chile 18 16 14 16 16 11

China 11 10 9 5 12 13

Colombia 13 12 10 35 10 17

Czech Rep. 15 14 12 -12 5 12

Denmark 18 18 16 0 4 11

Egypt 10 9 8 18 12 12

Finland 18 16 14 1 13 12

France 14 13 12 8 7 9

Germany 12 12 11 -4 7 9

Greece 15 12 10 12 20 23

Hong Kong 16 15 14 4 7 7

Hungary 10 10 9 0 3 14

India 22 17 15 6 24 18

Indonesia 17 16 14 11 12 11

Ireland 14 13 12 6 4 9

Israel 13 11 10 13 14 11

Italy 11 10 9 15 12 8

Japan 12 12 11 2 2 5

Japan X-Financials 13 13 12 3 2 5

Korea 9 10 9 2 -8 14

Malaysia 17 16 15 3 3 7

Mexico 16 14 12 11 16 13

Morocco 19 18 16 -2 6 8

Netherlands 16 15 13 3 5 11

New Zealand 36 24 22 -20 53 9

Norway 14 13 12 18 9 12

Pakistan 11 8 6 16 47 19

Peru 17 15 13 22 15 16

Philippines 19 17 15 5 12 12

Poland 12 11 10 1 10 9

Portugal 17 14 13 1 17 8

Qatar 14 14 13 15 5 8

Russia 5 5 5 57 -4 5

Singapore 13 12 11 11 5 7

South Africa 17 14 12 18 20 15

Spain 12 11 10 1 8 7

Sweden 16 13 14 5 20 -4

Switzerland 17 16 14 29 11 9

Taiwan 13 14 13 -1 -4 11

Thailand 15 15 14 4 2 8

Turkey 7 7 6 18 -2 30

UAE 10 9 9 5 6 4

United Kingdom 13 12 11 10 4 8

United States 17 16 15 24 6 11

EAFE (Mkt. Wgt.) 13 13 12 7 6 7

EAFE (Equal Wgt.) 14 13 12 6 10 9

Emerging Mkts(Mkt. Wgt.) 12 11 10 9 6 12

Emerging Mkts(Eq. Wgt.) 13 12 11 9 8 12

Global (Mkt. Wgt) 15 15 13 15 6 10

Global (Equal. Wgt) 13 12 11 8 10 11

Data Sources and Methodology: These data are aggregates built from company-level data supplied by FactSet Research Systems and MSCI. According to FactSet Research System,

FactSet Research System EPS estimates are reported in local currency for most markets, where not available we have converted USD EPS into local terms. The P/E ratios and

earnings growth rates are earnings-weighted aggregates of all companies covered by FactSet Research System estimates. We calendarize the data by assigning fiscal years

ending during January-May to the previous calendar year. Growth rate and P/E calculations may include different sets of companies depending on data availability.



Important Disclosures

This material has been prepared and issued by DCM Advisors, LLC. for distribution to market professionals and institutional investor clients only. This document has been prepared for informational purposes only and is not a solicitation of any offer to buy or sell any security, commodity, futures contract

or instrument or related derivative (hereinafter "instrument") or to participate in any trading strategy. Any such offer would be made only after a

prospective participant had completed its own independent investigation of the instrument or trading strategy and received all information it required to make its own investment decision, including, where applicable, a review of any prospectus, prospectus supplement, offering circular or memorandum

describing such instrument or trading strategy. This material does not provide individually tailored investment advice or offer tax, regulatory, accounting

or legal advice. The securities discussed in this material may not be suitable or appropriate for all investors. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and

merits, as well as the legal, regulatory and accounting characteristics and consequences of the transaction. You should consider this material among other

factors in making an investment decision. This information is not intended to be provided and may not be used by any person or entity in any jurisdiction where the provision or use thereof would be contrary to applicable laws, rules or regulations. Any securities referred to in this material may not have

been registered under the U.S. Securities Act of 1933, as amended, and, if not, may not be offered or sold absent an exemption therefrom.

All investments are subject to the risk of loss, including the potential for significant loss, and it should not be assumed that any models or opinions

incorporated herein will be profitable or will equal past performance. Further, the models do not represent actual trading, and interim volatility may be

materially different within the time frame reflected in the charts.

The performance figures represent outputs from a global allocation model, not an actual portfolio. The “performance” reflects the hypothetical

performance of the model. The performance calculations do not represent the results of actual trading but were achieved by means of the retroactive application of the model designed with the benefit of hindsight. The model’s factor weightings are revised from time to time. The hypothetical results

are then rerun to reflect the revised weightings. Therefore, the hypothetical calculations reflect the results that would have been realized if the model were to have been run according to current weightings. Hypothetical performance results have inherent limitations. There often are large differences

between hypothetical performance and actual performance results. The actual performance results that could have been achieved by any investor in

reliance on the model could be significantly different than the hypothetical performance shown, especially as the model does not indicate which securities to purchase or sell, nor does it include management and trading fees. The performance of the model assumes the recommended country

weightings times the MSCI index return for each country (gross dividends). Past hypothetical performance should be not being taken as an indication or

guarantee of future performance and no representation or warranty, expressed or implied, is made regarding future performance.

Source: MSCI. The MSCI sourced information is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this

information and any other MSCI Intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and

any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy,

completeness, merchantability or fitness for a particular purpose with respect to any information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any

kind. MSCI and the MSCI Indexes are services marks of MSCI and its affiliates.

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