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Legg Mason MetLife QS Multi Asset
February 2018
MetLife QS Multi AssetAsset
Confidential – for internal use only
Founded in 1899, Legg Mason is one of the world’s largest global asset managers.
Designed around nine independent investment managers, we bring you expertise across
equities, fixed income and alternatives.
About Legg Mason Global Asset Management
Source: Legg Mason, as at 31 December 2017. 2
Global presence with approximately 3,300 employees,
including 360 investment professionals in 40 offices.
AUM breakdown
Assets under management of $767
billion as of 31 December 2017.
Confidential – for internal use only
Global listed
infrastructure
investing
Global value
investing
Global Alternative
Asset Manager
Real estate
investment
specialists
Active equity
specialists
Small-cap equity
Systematic
investment solutions
Global Value Fixed
income
Quality-focused
equity
Legg Mason Investment Family
Confidential – for internal use only
QS Investors – Legg Mason’s Asset allocation experts: Deep resources, experienced professionals
DIVERSIFIED
SYSTEMATIC
ADAPTIVE
• Build advanced solutions
for Multi-Asset and
Equity portfolios
• US$22.5 Billion in AUM *
• 50 investment
professionals, 73
employees
• Formed in 1999, based
in New York and Boston
* As at 30 September 2017
Confidential – for internal use only
Why multi-asset?
Confidential – for internal use only
Why asset allocation? No crystal ball, only smart diversification
• No one can predict
which asset class will
come out on top each
year.
• The worst-performing
investment one year
can be the best the
next, and vice versa.
• Asset classes
typically perform
differently due to the
macro environment
and risk tolerances.
Confidential – for internal use only
Benefits of Dividends: 21st Century Important Contributor to Total Return
Source: QS Investors Analysis; MSCI.
*Price return history available starting from January 1, 2001. Please refer to important disclosure information at the end of this presentation.
0.5% 0.4% 2.1% 3.5% 11.0%
3.6% 2.2%
2.0%
2.7%
1.4%
21st Century:January 2000 - July
2017
21st Century:January 2000 - July
2017
21st Century:January 2000 - July
2017
21st Century:January 2001 - July
2017*
21st Century:January 2001 - July
2017*
UK Dividends
Germany Dividends
Australia Dividends
Taiwan Dividends
South Korea Dividends
Dividends
Price
Return
Europe Dividends
AC Asia Pac
ex Japan Dividends
89% of
Total Return
84% of
Total Return
0.2%
3.7% 3.3%
3.2%
21st Century:January 2000 - July
2017
21st Century:January 2000 - July
2017
47% of
Total Return
95% of
Total Return
49% of
Total Return
44% of
Total Return
12% of
Total Return
Dividends
Price
Return
1 - Have been the main contributors to total return in equity investments
2 – Provide a strong compounding effect and dollar cost averaging
Confidential – for internal use only
The power of numbers: importance of limiting downside
Preserving capital during down markets; enhancing returns over long run
Source: Legg Mason, for illustrative purpose only and not representative of an actual portfolio.
70
80
90
100
Period 1 Period 2 Period 3
$ $100
$90
$80
$100
B
Portfolio When portfolio falls 20%
Has to rise 25% to recover
Portfolio When portfolio falls 30%
Has to rise 43% to recover! C
When portfolio falls 10%
Has to rise 11% to recover
Portfolio
A
$70
Moral of the story – Dig a smaller hole in the first place!
Confidential – for internal use only
The Multi-asset advantage – constrain risk not return
• Outcome-based Investing provides a broad diversified approach
to investment solutions that address specific investor needs
• QS employs multiple tools and multiple asset classes to
increase the certainly of achieving the investment outcome
• Rigorous manager selection and sophisticated portfolio
construction addresses the challenges and opportunities
presented by the marketplace, and ensures the portfolios are
positioned appropriately
Benefits of Outcome-based Investing
Confidential – for internal use only
How does Legg Mason QS do multi asset?
Confidential – for internal use only
QS Investors – Asset allocation experts: Applying diverse expertise to build smart solutions
* Years of experience as of December 2017
Diverse team of scientists,
mathematicians, engineers,
finance and investment experts
working together too elevate
the certainty of outcomes.
RESEARCH TEAM Focus on long-term research and alpha model
SOLUTIONS TEAM Execute on short-term client demands PORTFOLIO MANAGEMENT TEAM Day-to-day management of funds
Supported by client relationship team and strategic IT resources
Confidential – for internal use only
Legg Mason QS Investors’ robust investment process
• THREE risk-defined portfolios designed for investors with
different risk profiles
• Each portfolio targets consistent long term risk
characteristics to maintain client suitability
• RISK is managed by diversifying across a range of markets and investments
• The funds combine specialist active strategies with low cost passive funds to seek uncorrelated sources of return
• TACTICAL allocations implemented to adapt to changing market conditions
Risk Targeted
Diversified
Dynamic
Confidential – for internal use only
Legg Mason QS Investors: Comprehensive Investment Model
3
Tactical
Asset
Allocation
1
Strategic
Asset
Allocation
2
Fund
Selection
4
Portfolio
Implementation
Customer
Confidential – for internal use only
Investment Process Tactical Asset Allocation
Source: QS Investors.
Portfolio tactically shifts among assets to take advantage of changes in investment opportunity set
Evaluate Environment
Evaluate Opportunities
Produce Tactical Tilts
• Risk sentiment
• Economic cycle
• Liquidity
• Volatility
• Macro factors
GDP growth, fiscal policy,
monetary policy,
unemployment, current
account trends, political
environment
• Market factors
Earnings trends and revisions,
sentiment, risk appetite, flows
• Global equities
• Global fixed income
• Credit
EXPLOITING MARKET OPPORTUNITIES
14
Confidential – for internal use only
Disciplined approach to rebalancing
− Monitor and reconcile holdings daily
− Use cash flows to maintain target allocation
− Rebalance to target allocation on a monthly basis
− Assess transaction costs
Expertise in Manager of Manager Portfolio Trading
− Leverage efficient trading operation of QS Investors
− Understand liquidity and tax issues
Efficient portfolio fulfilment
Investment Process Portfolio Implementation
15
Provides professional oversight of the portfolios
Confidential – for internal use only
Source: QS Investors, December 2017
QS Investors – Outlook Mixed economic data has moderated our economic outlook
Confidential – for internal use only
QS Investors – Outlook
Source: QS Investors, December 2017
Continue to favor U.S. stocks over bonds, but with increased caution
Confidential – for internal use only
QS Investors – Outlook
Source: QS Investors, December 2017
Tightening monetary and leverage indicators bodes poorly for
small-cap companies
Confidential – for internal use only
Source: QS Investors, December 2017
QS Investors – Tactical shift Equity
Confidential – for internal use only
Source: QS Investors, December 2017
QS Investors – Tactical shift Fixed Income
Confidential – for internal use only
Legg Mason Multi Asset Funds Breakdown by Asset Class
Source Legg Mason, Morningstar, as at 31 December 2017. *Fund names changed on 1 January 2018 to Legg Mason QS Growth Fund (previously Legg Mason Multi-Manager Performance Fund), Legg
Mason QS Balanced Fund (previously Legg Mason Multi-Manager Balanced Fund) and Legg Mason QS Conservative Fund (previously Legg Mason Multi-Manager Conservative Fund). Multi Asset US
Funds: These funds were created from the contribution of all the assets of the no longer existing Luxembourg SICAV (Legg Mason Multi-Manager Conservative Fund (US), Legg Mason Multi-Manager
Balanced Fund (US), and the Legg Mason Multi-Manager Performance Fund (US)) established on 13 December 2004, funds with substantially similar investment objectives and policies. Past performance
was calculated using historical performance data of the Luxembourg SICAV] funds may not be a reliable indicator of the fund's future performance.
The performance data should be used for illustrative purposes only, as performance prior to the inception date of these Funds have not been adjusted to reflect the fees of
the Funds. As at Fund inception, the Funds’ fixed annual expenses for the share class shown above (investment management fees, custody and administration fees and
shareholder servicing fees) were around 1.45% in comparison to the predecessor fund of 1.83% – there may be other variable costs not included in these figures.
*Legg Mason QS Growth Fund*
At least 55% in Equity strategies
Long-term volatility range of 10-12% over the
market cycle
*Legg Mason QS Conservative Fund*
At least 60% in Bonds/Money Market/ Capital
preservation strategies
Long-term volatility range of 6-8% over the market
cycle
*Legg Mason QS Balanced Fund*
At least 35% in Bonds/Money market/ Capital
preservation strategies
Long-term volatility range of 8-10% over the market
cycle
Confidential – for internal use only
Legg Mason Multi-asset Funds Growth Fund
Source Legg Mason, Morningstar, as at 31 December 2017. Fund names changed on 1 January 2018 to Legg Mason QS Growth Fund (previously Legg Mason Multi-Manager
Performance Fund), Legg Mason QS Balanced Fund (previously Legg Mason Multi-Manager Balanced Fund) and Legg Mason QS Conservative Fund (previously Legg Mason Multi-
Manager Conservative Fund). Multi Asset US Funds: These funds were created from the contribution of all the assets of the no longer existing Luxembourg SICAV (Legg Mason Multi-
Manager Conservative Fund (US), Legg Mason Multi-Manager Balanced Fund (US), and the Legg Mason Multi-Manager Performance Fund (US)) established on 13 December 2004,
funds with substantially similar investment objectives and policies. Past performance was calculated using historical performance data of the Luxembourg SICAV] funds may not be a
reliable indicator of the fund's future performance.
Legg Mason QS Growth Fund – Top 10 Holdings % of Portfolio
Legg Mason ClearBridge US Appreciation Fund 14.19
Lyxor ETF MSCI Europe 13.94
Legg Mason Brandywine Global Opportunistic Fixed Income Fund 8.36
DBX MSCI USA 7.99
iShares MSCI World Minimum Volatility UCITS ETF 7.08
Lyxor ETF MSCI Emerging Markets 5.42
Legg Mason QS MV European Equity Growth and Income Fund 4.77
iShares US Aggregate Bond UCITS ETF 4.03
Legg Mason ClearBridge US Aggressive Growth Fund 3.89
Legg Mason Royce US Smaller Companies Fund 3.81
Top 10 holdings
Confidential – for internal use only
Legg Mason Multi asset funds cumulative Performance
Source Legg Mason, Morningstar, as at 31 December 2017. Performance is shown for the A Acc USD Share Class. Performance is calculated on a NAV to NAV basis.
*Fund names changed on 16 January 2018 to Legg Mason QS Growth Fund (previously Legg Mason Multi-Manager Performance Fund), Legg Mason QS Balanced Fund (previously Legg Mason Multi-
Manager Balanced Fund) and Legg Mason QS Conservative Fund (previously Legg Mason Multi-Manager Conservative Fund). Multi Asset US Funds: These funds were created from the contribution of
all the assets of the no longer existing Luxembourg SICAV (Legg Mason Multi-Manager Conservative Fund (US), Legg Mason Multi-Manager Balanced Fund (US), and the Legg Mason Multi-
Manager Performance Fund (US)) established on 13 December 2004, funds with substantially similar investment objectives and policies. Past performance was calculated using historical performance
data of the Luxembourg SICAV] funds may not be a reliable indicator of the fund's future performance. The performance data should be used for illustrative purposes only, as performance prior to the
inception date of these Funds have not been adjusted to reflect the fees of the Funds. As at Fund inception, the Funds’ fixed annual expenses for the share class shown above (investment management
fees, custody and administration fees and shareholder servicing fees) were around 1.45% in comparison to the predecessor fund of 1.83% – there may be other variable costs not included in these figures.
©2017 Morningstar. All Rights Reserved. Past Performance is no guide to future results. Please refer to the section entitled “Important Information” for
additional details. Past performance is no guide to future returns and may not be repeated.
Multi Asset (US) Funds
Cumulative Performance
1 Month 3 Months 1 Year 3 Years 5 Years Since Inception
(13 Dec 2004)
% Qtl % Qtl % Qtl % Qtl % Qtl % Qtl
Legg Mason QS Conservative Fund* 0.57 2 1.59 2 10.59 1 11.63 1 24.05 1 57.49 -
Morningstar Peer Group Average (USD) 0.47 1.39 6.90 6.38 12.02 -
Legg Mason QS Balanced Fund* 0.75 3 2.17 3 13.01 2 13.49 2 30.77 2 61.35 -
Morningstar Peer Group Average (USD) 0.90 2.71 11.28 11.31 23.36
Legg Mason QS Growth Fund* 1.03 2 2.90 2 15.26 1 16.73 1 38.77 1 70.16 -
Morningstar Peer Group Average (USD) 0.90 2.71 11.28 11.31 23.36
Past performance is not a reliable indicator of future results
Currency exchange rate fluctuations may impact the value of your investment
Confidential – for internal use only
Legg Mason Multi asset funds Calendar year performance
Source Legg Mason, Morningstar, as at 31 December 2017. Performance is shown for the A Acc USD Share Class. Performance is calculated on a NAV to NAV basis.
Fund names changed on 1 January 2018 to Legg Mason QS Growth Fund (previously Legg Mason Multi-Manager Performance Fund), Legg Mason QS Balanced Fund (previously Legg
Mason Multi-Manager Balanced Fund) and Legg Mason QS Conservative Fund (previously Legg Mason Multi-Manager Conservative Fund). Multi Asset US Funds: These funds were
created from the contribution of all the assets of the no longer existing Luxembourg SICAV (Legg Mason Multi-Manager Conservative Fund (US), Legg Mason Multi-Manager
Balanced Fund (US), and the Legg Mason Multi-Manager Performance Fund (US)) established on 13 December 2004, funds with substantially similar investment objectives and
policies. Past performance was calculated using historical performance data of the Luxembourg SICAV] funds may not be a reliable indicator of the fund's future performance. The
performance data should be used for illustrative purposes only, as performance prior to the inception date of these Funds have not been adjusted to reflect the fees of the Funds. As at
Fund inception, the Funds’ fixed annual expenses for the share class shown above (investment management fees, custody and adm inistration fees and shareholder servicing fees) were
around 1.45% in comparison to the predecessor fund of 1.83% – there may be other variable costs not included in these figures.
©2017 Morningstar. All Rights Reserved. Past Performance is no guide to future results. Please refer to the section entitled “Important Information” for
additional details. Past performance is no guide to future returns and may not be repeated.
Calendar Year Performance 2017 2016 2015 2014 2013 2012
% Qtl % Qtl % Qtl % Qtl % Qtl % Qtl
Legg Mason QS Conservative Fund 10.59 1 2.69 2 -1.70 3 5.59 1 5.24 2 9.83 1
Morningstar Peer Group Average (USD) 6.90 2.17 -2.61 1.31 3.94 6.32
Legg Mason QS Balanced Fund 13.01 2 2.58 3 -2.11 3 5.04 2 9.70 2 13.08 1
Morningstar Peer Group Average (USD) 11.28 3.19 -3.06 1.49 9.20 9.15
Legg Mason QS Growth Fund 15.26 1 3.83 2 -2.47 3 4.89 2 13.33 1 15.19 1
Morningstar Peer Group Average (USD) 11.28 3.19 -3.06 1.49 9.20 9.15
Past performance is not a reliable indicator of future results
Currency exchange rate fluctuations may impact the value of your investment
Confidential – for internal use only
Macro update
Confidential – for internal use only
• Global Review of 2017
• Key region views 2018
• Views on key macro
• US tax cuts and the key winners, US economy vs market
• Japan and Europe
• EM and China
• Central Banks and Inflation
• Credit markets and the hunt for yield
• Exchange rates opportunity
• Bitcoin – FOMA!
Macro update
Confidential – for internal use only
US Equities - 2017 review
Confidential – for internal use only
11.9%
13.6%
21.8%
22.2%
30.2%
30.6%
0% 10% 20% 30% 40%
UK (FTSE 100)
Europe ex UK (MSCI)
US (S&P 500)
Japan (TOPIX)
Asia Pacific ex Japan (MSCI AC)
Emerging Markets (MSCI)
2017 International stock market returns (local currency)
International equities – 2017 review
Confidential – for internal use only
The world economy in great shape
Data as of Nov. 2017.
Source: IMFWEO, Haver Analytics, DB Global Markets Research.
0
10
20
30
40
50
60
70
80
90
100
1980 1985 1990 1995 2000 2005 2010 2015 2020
Number of Countries in the World in a Recession
IMF forecast:
Smallest number
of countries in
recession ever
Confidential – for internal use only
Source: http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD
Please refer to Important Information slide at the end of this presentation.
Economic growth forecasts to be low
0% 1% 2% 3% 4% 5%
EM & DevelopingEconomies
European Union
Germany
UK
US
2017 2018 2019
Some drivers include:
Low Productivity Growth
Macro Uncertainty
– Political
– Regulatory
– Trade Policy
Real GDP Growth Forecast
Confidential – for internal use only
GDP Growth exceeded 3% in 3Q and 4Q
US Economy on a solid footing…
0.5 0.1
2.8
0.8
3.1
4.0
-0.9
4.6
5.2
2.0
3.2 2.7
1.6
0.5 0.6
2.2
2.8
1.8
1.2
3.1 3.2
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Real US GDP Growth
Past performance is not a reliable indicator of future results
Source: US Bureau of Economic Analysis, Federal Reserve of St Louis, as of December 30 2017
Confidential – for internal use only
Recovery / expansion in US
Data as of Sept. 30, 2017.
Source: http://www.bea.gov/national/.
• Recoveries (1960-2007) averaged 27 quarters
• Low-inflation expansions tend to be longer than high-inflation expansions
• Currently recovery is equal to the average low-inflation expansion
U.S. Real GDP
35 Quarters 12 Quarters 20 Quarters 31 Quarters 40 Quarters 24 Quarters 34 Quarters
as of 4Q17
These “low inflation” recoveries averaged 33 quarters
0
50
100
150
200
250
300
350
400
450
500
-6
-4
-2
0
2
4
6
8
10
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Confidential – for internal use only
Tax cuts have been enacted
Policy action in 2017 – The visible
Source: ClearBridge, OECD, as of January 8 2018
0
5
10
15
20
25
30
35
40
OECD Corporate Tax Rates
Past performance is not a reliable indicator of future results
Confidential – for internal use only
0
5
10
15
20
25
30
Micro-cap Small-cap Mid-cap Large-cap
%
Source: Royce, Furey Research and FactSet, as at 31 December 2016. Micro-caps: <$500 million. Small-caps: $500 million - $4 billion. Mid-
caps: $4 billion - $10 billion. Large-caps: >$10 billion. The definitions applied by Furey Resarch differ from the Royce & Associates' one.
Small and micro cap stock
Average foreign sales as percentage of total
Tax benefits from being more domestic
Confidential – for internal use only
Repatriation – how lower taxes could bring back cash
2016 Unremitted Foreign Earnings: S&P 500 Sectors
0 100 200 300 400 500 600 700 800 900
Information Technology
Health Care
Consumer Staples
Financials
Industrials
Energy
Consumer Discretionary
Materials
Utilities
Real Estate
Telecommunication Services
$ Billion
Unremitted Foreign Earnings
19.7% of market value
18.4% of market value
Data as of Jan. 2018.
Source: Bloomberg
Confidential – for internal use only
U.S. consumer spending is larger than the next 4 largest countries
(China, Japan, U.K., Germany) combined
The consumer is king in the US U.S. Consumer Spending Is Largest in the World
Source: Cornerstone Macro.
$12.3
$4.2
$2.4
$1.9
$1.8
0 2 4 6 8 10 12 14
United States
China
Japan
U.K.
Germany
$ Trillion
Nominal Consumer Spending 2015
Confidential – for internal use only
US Corporate earnings are growing
Source: Bloomberg, as of January 12 2018.
S&P 500 Quarterly Bottom-Up Earnings Per Share Actuals & Estimates
98.87 103.65
110.56 119.7 117.55 118.53
133.92
149.47
31-Dec-11 31-12-12 31-12-13 31-12-14 31-12-15 30-12-16 29-12-17 31-12-2018(Estimated)
S&P500 earnings-per-share
US
D P
er
Sh
are
Past performance is not a reliable indicator of future results
Confidential – for internal use only
Multiple expansion has driven markets higher
Us equity valuations: no longer cheap
Source: Bloomberg, as of December 30 2017
10
12
14
16
18
20
22
500
1000
1500
2000
2500
3000
31/12/200428/04/200631/08/200731/12/200830/04/201031/08/201131/12/201230/04/201431/08/201530/12/2016
S&P 500 price (LHS) S&P 500 forward P/E (RHS) Average forward P/E (RHS)
Past performance is not a reliable indicator of future results
Confidential – for internal use only
0
5
10
15
20
25
S&P 500 TR
US equities: where is the risk?
“FAANG” stocks and Microsoft made up 29% of the market’s overall return last year
Source: Bloomberg, as of December 31 2017. *FAANG stocks are Facebook, Amazon, Apple, Netflix and Alphabet (Google).
S&P 500 YTD
Total Return
21.83%
“FAANG”
Stocks +
Microsoft
Past performance is not a reliable indicator of future results
Confidential – for internal use only
Data as of Dec. 31, 2017.
Source: Cornerstone Macro.
Market corrections It’s Been a Long Time Since the Market Has Seen a 15% Correction
1,610
1,173
1,928
1,306
1,035
2,072
982
515
0 500 1,000 1,500 2,000 2,500
2017
2008
1998
1987
1962
1957
1946
1937
Days
S&P 500: Trading Days without a 15% Correction
Confidential – for internal use only
GDP-Services, YoY (left)
PMI-Services (right)
38
43
48
53
58
63
68
-2
-1
0
1
2
3
4
5
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Index Level
Per
cent
Eurozone: Service Output
GDP-Manufacturing, YoY (left)
PMI-Manufacturing (right)
30
35
40
45
50
55
60
65
-15
-10
-5
0
5
10
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Index Level
Per
cent
Eurozone: Manufacturing Output
Europe Outlook – growth continues to improve but inflation remains subdued
Source: Bloomberg, ECB, Western Asset. As of 31 Oct 17 Source: Bloomberg, ECB, Western Asset. As of 31 Oct 17
Confidential – for internal use only
Large Manufacturers
Large Non-Manufacturers
-60
-50
-40
-30
-20
-10
0
10
20
30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Diff
usio
n In
dex
Tankan Business Conditions
Source: Bloomberg, Bank of Japan, Cabinet office, Western Asset. As of 31 Dec 17
Japan Outlook – inflation expectations rising
Inflation and Expectation
BEI 10-Year
CPI ex Food & Energy (Core)
-3
-2
-1
0
1
2
3
2009 2010 2011 2012 2013 2014 2015 2016 2017
Per
cent
Confidential – for internal use only
EM Outlook – Government finances healthy
Advanced Economies
Emerging Markets
0
20
40
60
80
100
120
2001 2003 2005 2007 2009 2011 2013 2015 2017
Per
cent
Government Debt as a Percentage of GDP
Source: International Monetary Fund, World Economic Outlook Database. As of 31 Oct 17
Confidential – for internal use only
2nd Tier City
1st Tier City
5
15
25
35
45
2010 2011 2012 2013 2014 2015 2016 2017
3-M
onth
Rol
ling
Ave
rage
(t
hous
ands
)
Average Residential Price (Yuan/M²)
Source: Bank for International Settlements, Bloomberg. As of 31 Dec 17
Manufacturing PMI
Services PMI
48
50
52
54
56
58
60
2011 2012 2013 2014 2015 2016 2017
Per
cent
Broad-Based Recovery in Economic Activity
Source: China Federation of Logistics and Purchasing. As of 31 Dec 17Note: 3-Month Moving Average
Index=50
China outlook – solid economic activity • China has been able to support growth with a tremendous amount of stimulus to
make growth resilient. At some point policy will turn back to neutral and growth will
likely downshift toward the policy directive of 6.5% GDP growth.
Confidential – for internal use only
• Number of millennials in China is larger than the working populations of U.S., Canada and Western Europe combined
• More than one-quarter of China’s millennials are college graduates
• As 400 million new Chinese people enter the spending class, implications are huge
Long-Term Growth Prospects for China
Source: VisualCapitalist.com.
415
207
87
22
0 50 100 150 200 250 300 350 400 450
China
Western Europe
U.S.
Canada
Population (Millions)
Number of Millennials (16-35 Years Old)
Confidential – for internal use only
Source: Pew Research Center and South China Morning Post.
Secular trends bring opportunities
Confidential – for internal use only
520 million
220 million
203 million
Alipay
Paytm
PayPal
Source: www.Bloomberg.com. The information provided should not be considered a recommendation to purchase or sell any particular security. It should
not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.
Annual active users
World leaders in innovation
Confidential – for internal use only
The changing nature of emerging markets
Source: Martin Currie as at 31 December 2017. MSCI Emerging Markets index used. Prior to 2016 real estate sector was categorised with financials.
Past performance is not a reliable indicator of future results
MSCI Emerging Markets Index sector weight comparison
10.1
22.4
9.6
14.8
17.0
8.9
12.0
0.0
3.6
27.7
23.5
16.8
7.4
6.8
5.2
4.8
2.8
2.7
2.4
Technology
Financials
Consumer
Materials
Energy
Industrials
Telecommunications
Real estate
Healthcare
Utilities2008
2017
Confidential – for internal use only
Past performance is not a guide to future returns.
Source: Lipper for Investment Management as at 31 March 2017. Total return indices used and reported in US$. The figures provided include the re-investment of dividends.
Market Performance
Market performance over three years Market performance over ten years
19.5
4.7
(25)
(20)
(15)
(10)
(5)
0
5
10
15
20
25
2014 2015 2016 2017
Retu
rn (
%)
MSCI World MSCI Emerging Markets Free
59.9
35.0
(60)
(40)
(20)
0
20
40
60
80
Retu
rn (
%)
MSCI World MSCI Emerging Markets Free
Confidential – for internal use only
Created by Brandywine Global
The One Belt One Road program (OBOR) is a development strategy proposed by Chinese President Xi Jinping
in 2013 that focuses on connectivity and cooperation between Eurasian countries and China th rough the land-
based "Silk Road Economic Belt" (SREB) and the "Maritim e Silk Road" (MSR). It’s about building infrastructure,
mostly around transport and energy: roads, bridges, gas pipelines, ports, railways, and power p lants.
• Involves 65 count ries
account ing for 62% of the
world’s populat ion, 40% of
world GDP, 75% of global
energy resources.
• Anticipated cumulat ive
investment over an uncertain
t imescale is estimated to be
between US$4 t rillion and
US$8 t rillion.
One Belt One Road
Confidential – for internal use only
As of 10 Jan 18
Financial Income Investment Outlook
• Global growth and inflation improving from subdued levels
• US growth and inflation aided by fiscal stimulus
• Central banks very cautiously signaling their path to normalization
• Spread credit sectors should outperform but margins are thin
• Emerging markets debt and currencies should provide superior performance
Confidential – for internal use only
0.5
1.6
3.0 3.1 3.3 3.53.9
6.1
7.27.7
13.3
15.3
0
2
4
6
8
10
12
14
16
18
USMBS
USCMBS
USBank
Loans¹
AustraliaIG Credit
EuroCredit
US IGCredit
UK IGCredit
USHigh-Yield
EMDUSD
EuroHigh-Yield
EMLocal
Currency
EuropeanBanks(CoCo)
Per
cent
Year to Date Ending 31 Dec 17 Excess Returns
Source: Bloomberg Barclays, J.P. Morgan, Western Asset. As of 31 Dec 17¹Bank loan excess return vs. 3-Month LIBOR
Spread Sectors Most spread sectors performed well over the quarter with emerging markets
leading the way.
Confidential – for internal use only
300
350
400
450
500
550
600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Bas
is P
oint
s
Spread Between Local Currency EM and DM Sovereign Yields
Source: J.P. Morgan. As of 31 Dec 17
Emerging Markets
DM Rate -47 bps
EM Rate +162 bps
Difference +207 bps
30 Apr 13 – 28 Feb 16
708090
100110120130
2013 2014 2015 2016 2017
Inde
x Le
vels
J.P. Morgan GBI-EM Global Diversified Index FX Return
Source: J.P. Morgan, Bloomberg. As of 31 Dec 17
Emerging markets valuations look attractive both on a historical basis and relative
to developed markets, particularly given a better global recovery, lower risks in
China and commodity stabilization.
Confidential – for internal use only
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2010 2011 2012 2013 2014 2015 2016 2017
Per
cent
Germany: Lending to Households (Year-Over-Year)
European growth continues to improve but core inflation remains subdued
30-Year Bund (left)
Core CPI, YoY (right)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
1
2
3
4
5
6
2002 2004 2006 2008 2010 2012 2014 2016 2018
PercentP
erce
nt
Eurozone: Core Inflation and Bund Yields
Source: Bloomberg, ECB, Western Asset. As of 30 Nov 17
Source: Bloomberg, ECB, Western Asset. As of 31 Dec 17
Confidential – for internal use only
Absence of price acceleration continues to puzzle
Source: Bloomberg, as of December 30 2017
0
0.5
1
1.5
2
2.5
3
1-D
ec-0
7
1-M
ar-
08
1-J
un
-08
1-S
ep
-08
1-D
ec-0
8
1-M
ar-
09
1-J
un
-09
1-S
ep
-09
1-D
ec-0
9
1-M
ar-
10
1-J
un
-10
1-S
ep
-10
1-D
ec-1
0
1-M
ar-
11
1-J
un
-11
1-S
ep
-11
1-D
ec-1
1
1-M
ar-
12
1-J
un-1
2
1-S
ep
-12
1-D
ec-1
2
1-M
ar-
13
1-J
un
-13
1-S
ep
-13
1-D
ec-1
3
1-M
ar-
14
1-J
un
-14
1-S
ep
-14
1-D
ec-1
4
1-M
ar-
15
1-J
un
-15
1-S
ep
-15
1-D
ec-1
5
1-M
ar-
16
1-J
un
-16
1-S
ep
-16
1-D
ec-1
6
1-M
ar-
17
1-J
un-1
7
1-S
ep-1
7
US Core CPI
Past performance is not a reliable indicator of future results
No sign of inflation in US
Confidential – for internal use only
Could low inflation actually be “More ingrained and turn out to be permanent”?
The chart shows a 36-month average of this same core PCE deflator measure. The 36-month average smooths out
short-and intermediate-term swings in inflation. It has been nowhere near 2% at any time in the 10 year coverage
of this chart. The 36-month averages for 2010 include inflation data back to 2008.
EM Core Inflation
G10 GDP Weighted Core Inflation
0
1
2
3
4
5
2005 2007 2009 2011 2013 2015 2017
Per
cent
Emerging Market Inflation
Source: J.P. Morgan. As of 30 Jun 17
Confidential – for internal use only
-25
TRY JPY MXN BRL ZAR MYR NOK CAD RUB GBP SEK PLN HUF EUR AUD CLP IDR PHP CHF CZK NZD SGD THB KRW USD CNY INR
As of 10/31/2017
Data has been obtained by Thomson Reuters DataStream (© 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by
Brandywine Global. Please refer to Appendix 1 for important disclosure information.
-20
-10
-15
-5
5
0
10
15
REAL EFFECTIVE EXCHANGE RATE: PERCENTAGE DEVIATION FROM 10-YEAR MA %
+2 Std. Dev.
-2 Std. Dev.
Average
Dollar and yuan look expensive, the Turkish lira and yen cheap
How far are some exchange rates from long term averages?
Confidential – for internal use only
Both the height of the fed chair and rates have fallen over time, could a taller fed chair mean rates rise?
Source: LPL Research, Bloomberg, as at 22 October 2017
Confidential – for internal use only
The easy assumption that the dollar will rise with Fed tightening is not validated by history, as
in only one of the last seven tightening cycles did the dollar clearly rise (1983). Here are four
examples where the dollar declined in a tightening cycle.
Dollar Might Not Rise
Source: Bloomberg.
080
85
90
95
100
105
110
Jul. 1976 Jan. 1977 Jul. 1977 Jan. 1978 Jul. 1978
DX
Y
1976
Fir
st
Rate
Hik
e
-23% 090
95
100
105
110
115
120
Aug. 1971 Feb. 1972 Aug. 1972 Feb. 1973 Aug. 1973
DX
Y
1972
Fir
st
Rate
Hik
e
-17%
080
85
90
95
100
Aug. 1993 Feb. 1994Aug. 1994 Feb. 1995Aug. 1995
DX
Y
1994
Fir
st
Rate
Hik
e
-15% 080
85
90
95
Jan. 2004 Jan. 2005 Jan. 2006 Jan. 2007
DX
Y
2004
Fir
st
Rate
Hik
e
-8%
Confidential – for internal use only
27.5
20.2
12.8
3.9
0.9 0.2
0
5
10
15
20
25
30
U.S. Stock Market U.S. Gov't Debt World Gold U.S MonetaryBase
Apple Bitcoin
($)
Tri
llio
n
Bitcoin’s Value is Relatively Small
Confidential – for internal use only
How does the Bitcoin bubble stack up to history?
Source: Thomson Reuters, World Gold Council, bitcoin.com, CE.
-100
100
300
500
700
900
1100
1300
Year1
Year2
Year3
Year4
Year5
Year6
Year7
Year8
Year9
Year10
Bitcoin Nasdaq Composite Nikkei 225 Gold $/oz Case Shiller Home Price Index
Confidential – for internal use only
Questions?
Confidential – for internal use only
Bonds: There is a risk that issuers of bonds held by the fund may not be able to repay the bond or pay the interest due on it, leading
to losses for the fund.
Liquidity: In certain circumstances it may be difficult to sell the fund’s investments because there may not be enough demand for
them in the markets, in which case the fund may not be able to minimise a loss on such investments.
Investment in company shares: The fund invests in shares of companies, and the value of these shares can be negatively affected
by changes in the company, its industry or the economy in which it operates.
Emerging markets investment: The fund may invest in the markets of countries which are smaller, less developed and regulated,
and more volatile than the markets of more developed countries.
Fund currency: Changes in exchange rates between the currencies of investments held by the fund and the fund's base currency
may negatively affect the value of an investment and any income received from it.
Interest rates: Changes in interest rates may negatively affect the value of the fund. Typically as Interest rates rise, bond values fall.
Fund counterparties: The fund may suffer losses if the parties that it trades with cannot meet their financial obligations.
Fund operations: The fund is subject to the risk of loss resulting from inadequate or failed internal processes, people or systems or
those of third parties such as those responsible for the custody of its assets.
Fund of Funds: The fund is subject to the overall costs, investment objectives or policy changes, performance and investment
valuations of the underlying funds in which it invests which could result in a loss to the fund.
Charges from capital: Fees and expenses of this share class may be charged to the capital of the share class rather than its income.
This policy will result in an increase in income available for distribution to investors. However, this will forego some of the capital that
the share class has available for future investment and potential growth.
Class currency: The value of your investment may fall due to changes in the exchange rate between the currency of your share class
and the base currency of the fund.
Income from capital: For this share class a portion of the class's capital may be declared as dividends. This policy may result in
higher dividends to investors. However, such higher dividends limit the capital that the share class has available for future investment
and potential growth.
Fund Risks
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Investment Expertise and Choice: Investing in capabilities to solve client needs
Global
Equity
Traditional
Equity
Traditional
Fixed
Income
/ / / / / B RIDGING THE G AP \ \ \ \ \ \
Global
Bonds
Long/Short
and
Alt Credit
Real Estate
Infrastructure
Managed
Volatility
and
Unconstrained
Equity
Long/Short
and
Alt Equity
Unconstrained
Fixed Income
Our affiliate line-up provides investors with access to world class investment talent across a
breadth of asset classes and investment strategies.
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Legg Mason Global Distribution Global Footprint
International
offices staffed by
local
professionals
Fully aligned to
local client
requirements
given location
and focus
Full
understanding of
local market
dynamics and
trends impacting
our clients at a
local level
Location Sales Client
Service
Marketin
g Product
US ● ● ● ●
UK ● ● ● ●
Middle East ● ● ● Spain ● ● ● Italy ● ● ● Germany ● ● ● Switzerland ● ● ● France ● ● ● Benelux ● ● ● ● Nordics ● ● ● Hong Kong ● ● ● ● Singapore ● ● ● ● Taiwan ● ● ● Japan ● ● ● ● Australia ● ● ● ● Miami (covers NRA* and Latin America) ● ● ● Chile (covers Latin America) ● Brazil ●
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The Multi-asset advantage to customers