Market Outlook Stocks, bonds and currencies April 2017

Contents

MARKET OUTLOOK

Growth prospects

Eurozone catharsis:

Global economic break out?

Currencies

Stocks

Bonds

Other Opportunities

An important note on risks

MARKETS

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Growth prospects

Macro climate

▪  Prospects for the world economy are temporarily brightening as evidenced by the continued pick-up in business confidence surveys across the major economies. Headline inflation has bounced, as the transitory effects of past commodity price falls no longer influence the data. These signs are typical for the cyclical end of the cycle and not to be confused with something more secular.

▪  For now, China remains lower down our global list of concerns. Authorities have been tightening monetary policy in order to contain systemic financial risks and asset bubbles. For us, China’s banking sector remains well capitalised, but there are underpriced risks everywhere in the world economy and the domino effect is not to be underestimated. We think a crisis is on the way which will equal or exceed the 2008 Lehman-style crisis.

▪  More broadly, we believe the world economy will continue to grow in the short term but see the cycle end as only a few months away. The political backdrop is set to remain noisy in 2017, but investors will be best served by tuning much of this out and focusing on the above described timing parameters in our view.

Investment conclusions

1.  Strategically: Government should be preferred to corporate and the stock to bond transition should begin

▪  There remainvery few unfulfilled economic opportunities to exploit for the corporate sector in our view. Bonds look expensive only relative to history not stocks or the deflationary environment.. Positive real returns are still likely as disinflationary pressures remain.

2.  Tactically: we remain overweight equities for a little while longer

▪  Momentum should lead stocks to continue generating attractive returns above bonds for a few more months although bond returns should turn upwards after smallish correction the last few months.

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Eurozone cyclical improvement

Animal spirits... The opportunity

▪  It’s been a long time since anyone was able to argue that the European political backdrop might actually be positive for risk assets.

▪  Emmanuel Macron’s likely victory in the French presidential elections further weakens the argument of those who saw the rise of the extreme ends of the political spectrum as either inexorable or indeed the dominant factor to consider with regards to an investment in European capital markets.

▪  The underlying economic backdrop continues to improve unevenly. Survey strength is translating into hard economic data, with the corporate sector finally starting to deliver the earnings growth long expected by consensus.

▪  Italy is likely to remain an area of economic disappointment, while the political backdrop will remain a source of concern into next year’s likely elections. However, much as we argued this year, we continue to believe that Europe’s

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Composite

Manufacturing Services

Eurozone purchasing manager indices (PMIs)

various constitutional restraints will help keep the eurozone more or less intact and moving unevenly forward.

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Global economic break out?

Animal spirits... Soft versus hard

▪  The positive economic backdrop in Europe is part of a wider synchronised pick-up in animal spirits around the world.

▪  The effects of the 2008/2009 Financial Crisis has been understandably slow to heal. However, the banks are starting to look a bit more willing and able to lend, while consumers and businesses seem to have returning appetite to borrow. This is typical end-cycle behaviour.

▪  It is important to be able to liquidate portfolios quickly, avoid illiquidity as markets can turn swiftly and violently. Volatility should rise thorughout the year.

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DM manufacturing PMI (lhs) DM ind. prod. - 3mma (rhs)

diffusion index = 50

year-on-year growth (%)

Developed Markets

Emerging Markets These implementations are not recommendations to buy. Any recommendation will require a full assessment of your individual circumstances and advice from your banker

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46 May-14 Uov-14 May-15 Uov-15 May-16 Uov-16

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Market Outlook

Stocks: S&P 500

Some exuberance... The final chapter

▪  The positive economic backdrop in Europe is part of a wider synchronised pick-up in animal spirits around the world.

▪  The effects of the 2008/2009 Financial Crisis has been understandably slow to heal. However, the banks are starting to look a bit more willing and able to lend, while consumers and businesses seem to have returning appetite to borrow. This is typical end-cycle behaviour.

▪  It is important to be able to liquidate portfolios quickly, avoid illiquidity as markets can turn swiftly and violently. Volatility should rise thorughout the year.

Developed Markets

Emerging Markets These implementations are not recommendations to buy. Any recommendation will require a full assessment of your individual circumstances and advice from your banker

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Bonds

Animal spirits... Soft versus hard

▪  The positive economic backdrop in Europe is part of a wider synchronised pick-up in animal spirits around the world.

▪  The effects of the 2008/2009 Financial Crisis has been understandably slow to heal. However, the banks are starting to look a bit more willing and able to lend, while consumers and businesses seem to have returning appetite to borrow. This is typical end-cycle behaviour.

▪  It is important to be able to liquidate portfolios quickly, avoid illiquidity as markets can turn swiftly and violently. Volatility should rise thorughout the year.

Developed Markets

Emerging Markets These implementations are not recommendations to buy. Any recommendation will require a full assessment of your individual circumstances and advice from your banker

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Currencies

Animal spirits... EUR-USD

▪  The positive economic backdrop in Europe is part of a wider synchronised pick-up in animal spirits around the world.

▪  The effects of the 2008/2009 Financial Crisis has been understandably slow to heal. However, the banks are starting to look a bit more willing and able to lend, while consumers and businesses seem to have returning appetite to borrow. This is typical end-cycle behaviour.

▪  It is important to be able to liquidate portfolios quickly, avoid illiquidity as markets can turn swiftly and violently. Volatility should rise thorughout the year.

GBP-EUR

Emerging Market Currencies

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Selected commodities

Deflationary move... Precious metals

▪  The positive economic backdrop in Europe is part of a wider synchronised pick-up in animal spirits around the world.

▪  The effects of the 2008/2009 Financial Crisis has been understandably slow to heal. However, the banks are starting to look a bit more willing and able to lend, while consumers and businesses seem to have returning appetite to borrow. This is typical end-cycle behaviour.

▪  It is important to be able to liquidate portfolios quickly, avoid illiquidity as markets can turn swiftly and violently. Volatility should rise thorughout the year.

Industrial Metals

Agriculturals

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Asset Allocation: Volatility is subdued

The value of investments can fall as well as rise and you may get back less than you invested.

Strategic Asset Allocation Rationale Tactical Allocation

Developed and Emerging Stocks – 46% of Risk Level 3 SAA portfolio – best strategic outlook

Developed stocks in particular offer attractive long-term, risk-adjusted returns in our nine-asset class Strategic Asset Allocation but only the US, large caps and dollar assets are favored. Near the end of the cycle.

▪  PE ratios have more or less risen far enough, earnings growth cannot support further price gains from here

▪  Quoted corporate sector is losing breadth and running out of steam

Fixed Income (including cash) – 34% of Risk Level 3 SAA portfolio – worst strategic outlook

Government bonds offer best long-term returns. Some corporate bonds are still a hold but tactically these are expensive and vulnerable to monetary normalisation.

▪  Ratings matter less than the cycle ▪  Global liquidity can matter more than

fundamentals in the short term

Commodities, ATS & Real Estate – 20% of Risk Level 3 SAA portfolio – neutral, but important diversifiers

In the strategic context these are diversifying assets. While gold should still suffer with the strengthening dollar the industrial metals can still show a little cyclical flourish before the next downturn hits.

▪  Real estate (5%)also leveraged to global growth and availability of capital is toppish. The global market is fragmented and somepockets may still offer value

Foreign Exchange

GBP has fallen a long way since Brexit and appears significantly undervalued now Expect moderate upside from USD amidst continuing monetary normalisation and rising yield spreads

▪  We remain bearish in the long term on the pound as the brexit process and new industrial policy harm the Uks relative position

▪  E

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An important note on risks

All clients need to be aware of all the specific risks and disadvantages for all funds and products

While the funds and products featured here may have some specific risks, please be aware that risks include but are not limited to: ▪  The value of investments and any income can fall as well as rise, so clients could get back less than they initially invested. ▪  Funds and other investment products are not suitable for all clients. You should only invest if you are comfortable with the specific risks pertaining

to the fund or product in question. Before making any investment decision, all clients should refer to a copy of the product termsheet, prospectus, the relevant provider’s Key Investor Information Document, simplified prospectus or similar related material.

▪  For emerging markets, there is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund invests in markets affected by currency exchange rates, the investment could either increase or decrease. These investments therefore carry more risk.

▪  For investments in foreign securities, the value of investments and any income from them may therefore decrease or increase as a result of changes in exchange rates between currencies.

▪  Where derivatives form part of a fund’s or product’s investment strategy, over and above their use for Efficient Portfolio Management (EPM), investors should be aware that the use of these instruments can, under certain circumstances, increase the volatility and risk profile of the fund beyond that expected of a fund that only invests in equities. The fund may also be exposed to the risk that the company issuing the derivative may not honour their obligations which in turn could lead to losses arising.

Structured Product generic risks: ▪  Investors are subject to the default/credit risk of the issuer. If the issuer fails to meet its obligations, investors may get back less than is due to them

or nothing at all. Changes in the creditworthiness of the issuer could also be detrimental. ▪  A structured product’s price in the secondary market will be subject to many parameters and investors looking to sell their holdings during the life of

the trade may receive less than the capital invested irrespective of the performance of the index. ▪  Diversification risks (thresholds applicable in UK&I only): we advise no more than 10% of total investible assets being exposed to a single Issuer and/

or Guarantor (if applicable). In addition, investors should consider no more than 25% of their investible assets to be allocated to structured products or assets of a similar nature.

▪  This document is expressly not intended for persons who, due to their nationality, place of residence or any other circumstance, are not allowed to access such information under local law. References to structured products set out herein pertain to products that are not considered as a collective investment scheme pursuant to article 7 of CISA and thus does not require an authorisation from the Swiss Financial Market Authority (FIUMA). consequently, investors are not eligible for the specific investor protection under CISA and are exposed to issuer risk. this product is exclusively for qualified investors as defined from time to time by the Swiss regulation (art. 10 al. 3 CISA and art. 6 CISO).

Alternative Trading Strategies generic risks ▪  An investment in hedge funds and funds of funds is speculative and involves significant risk. Therefore, the value of your investment will vary. This

should be regarded as a long- term investment. The value of the investment can fall as well as rise, so you could get back less than you invested. ▪  Hedge Funds may use financial contracts (known as derivatives) for various reasons, including to try to reduce the effect of currency fluctuations

between the currency of its assets and their base currency of, or to reduce the effect of market or interest rate movements (known as hedging). ▪  The effectiveness of any hedging strategy is not guaranteed to succeed and may prevent the fund from benefiting from an increase in value of a

particular currency. ▪  In some circumstances, investments may be more difficult to buy or sell at reasonable prices or at all. As a result, changes in the value of

investments and the price of shares in funds may be unpredictable. ▪  There is no guarantee funds will achieve the targeted return. 12

Disclaimer

This document has been prepared by the research department of Deer Creek Advisors for information purposes only. Deer Creek Advisorss does not guarantee the accuracy or completeness of information which is contained in this document and which is stated to have been obtained from or is based upon trade and statistical services or other third party sources. Any data on past performance, modelling or back-testing contained herein is no indication as to future performance. Uo representation is made as to the reasonableness of the assumptions made within or the accuracy or completeness of any modelling or back-testing. All opinions and estimates are given as of the date hereof and are subject to change.

The value of any investment may fluctuate as a result of market changes. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.

The information contained herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The investments discussed in this publication may not be suitable for all investors. Advice should be sought from a financial adviser regarding the suitability of the investment products mentioned herein, taking into account your specific objectives, financial situation and particular needs before you make any commitment to purchase any such investment products.

Deer Creek and its affiliates do not provide tax advice and nothing herein should be construed as such. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. Ueither Deer Creek Advisors, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of or reliance upon this publication or its contents, or for any omission. Past performance does not guarantee or predict future performance. The information herein is not intended to predict actual results, which may differ substantially from those reflected.

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An additional note: This document is expressly not intended for persons who, due to their nationality, place of residence or any other circumstance, are not allowed to access such information under local law. References to collective investment schemes("Funds") set out herein pertain to Funds which have usually not been authorised for public offering in or from Switzerland by the Swiss Financial Market Supervisory Authority (FIUMA); accordingly, shares in the Funds may only be offered to qualified investors within the meaning of the Swiss Collective Investment Schemes Act (CISA) and it implementing regulations and in a manner consistent therewith.. In no circumstances may this document be sent, taken into or distributed in the United States or provided to any US person.