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May 2012for the period ended 4/30/12
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GLOBAL PERSPECTIVES
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Table of Contents
Overview
Strategic Overview 1
Economy
Consumer Trends, Confidence 46-47ews ea nes 2
Global Capital Market Returns 3
Equity
-
ea ng & urrent us ness n cators 48-51Employment and Unemployment 52-53GDP 54Inflation 55Housin 56-57. .
Valuation 9-10Fundamentals 11-16Volatility 17
Federal Budget, Debt, Deficits, Funding 58-60Corporate Tax Rates 61Commodities, Oil, U.S. Trade 62-65
xe ncome
Bond and Loan Returns 18Yield Curves 19Global Yields 20
Asset Allocation
Correlation Matrix 66Fund Flows 67Alternative Investment Returns 68
. . -Municipal, Credit and Mortgage Spreads 23-25Fixed Income Strategy 26-33
International
ong-term ap ta ar et esu ts 69Diversification & Allocation Strategy 70-74
Retirement
Global Returns 34-37Major Currencies 38International Economics 39Global Stock Fundamentals 40
Index Definitions / Important Disclosures 85-87
Investment-Related Retirement Trends 75-84
GLOBAL PERSPECTIVES
a a are e mos recen y ava a e as o un essindicated otherwise. Please refer to the Index Definitions.
World and Emerging Markets 41-42Euro Zone, Frontier Mkts, China Hard Landing 43-45
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Strategic Overview
Fundamentals Slide Comment
Global Capital Market 3 Returns for a globally diversified strategy over the last 10 years refute the notionReturns of a lost decade.
Advancing CorporateProfits
12 Consistent earnings growth is the cornerstone of an improving investment climate.
Broadenin 49-50 U.S. manufacturin ca acit utilization is nearin historicall normal levels whileManufacturing
the ISM index has expanded for 33 consecutive months.
Consumer Strength 46 Personal consumption and income are at all-time highs; retail sales are rising fast.
Developing 41 World GDP grew steadily through the great recession supported by the largestEconomies emerging markets, which now out-produce the largest developed economies.
Global Risks
U.S. Debt and Deficit 59 Total federal debt exceeds 90% of GDP, and the deficit is about 9% of GDP (without. .
Euro zone Debt 43 The alarming debt levels of PIIGS countries may be containable by the fence beingput in place, but obstacles and pitfalls remain.
China Hard Landing 45 Chinas soaring state investments, property bubble and declining exports raiseques ons a ou e pro a y o a so an ng.
Commodities Bubble 62 Gold prices exemplify the risk of a potential collapse in commodities prices.
GLOBAL PERSPECTIVES
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April News Headlines
April 2: ISM reports 32nd consecutive month of expansion in the U.S. manufacturing sector
April 3: March auto sales leap 13% over year-ago results
April 6: Nonfarm payrolls disappoint, but unemployment rate ticks down to 8.2%
April 10: Santorum suspends presidential campaign, all but guaranteeing Romney the nomination
April 13: Widely condemned North Korean rocket launch fails
. ,
April 13: Consumer prices rise 2.7% in March from a year ago, above the 2% long-term Fed target
April 16: Retail sales rise again in March despite high gasoline prices
,
April 24: U.K. GDP contracts again in the first quarter, as it slips back into recession
April 25: U.S. durable goods orders fall at the largest rate in three years
-
April 27: At 2.2%, U.S. GDP growth disappoints in the first quarter
GLOBAL PERSPECTIVES
2
Overview
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Index W t A r-12 YTD 2011 2010 2009 2008 2007 1 ear 3 ears 5 ears 10 ears
Global Perspectives Model AllocationReturns for a globally diversified strategy over the last 10 years refute the notion of a lost decade.
Equity
S&P 500 10% (0.6) 11.9 2.1 15.1 26.5 (37.0) 5.5 4.8 19.5 1.0 4.7
S&P Midcap 10% (0.2) 13.2 (1.7) 26.6 37.4 (36.2) 8.0 (0.9) 22.7 4.1 7.7
S&P Smallcap 10% (1.3) 10.6 1.0 26.3 25.6 (31.1) (0.3) 1.1 22.0 2.9 7.1
Global REITs 10% 2.8 13.4 7.3 27.6 27.8 (37.8) (17.8) 8.5 30.2 (0.2) 10.2
EAFE 10% (1.8) 8.9 (11.7) 8.2 32.5 (43.1) 11.6 (12.4) 12.3 (4.3) 5.9
merg ng ts 10% . . . . . . . . . . .
Average (0.5) 11.6 (4.3) 18.9 40.5 (40.8) 11.0 (2.6) 20.2 1.1 8.8
Fixed Income
10% . . . . . . . . . . .
U.S. Treasury 20+ 10% 4.7 (2.4) 33.8 9.4 (21.4) 33.7 10.2 30.2 10.6 10.3 8.7
Global Aggregate10%
1.2 2.1 5.6 5.5 6.9 4.8 9.5 3.3 7.6 6.4 7.1High Yield 10% 1.0 6.4 5.0 15.1 58.2 (26.2) 1.9 5.9 19.7 8.0 9.2
Average 2.1 2.4 13.2 9.8 15.6 1.9 6.5 12.1 12.6 7.9 7.9
60/40 Portfolio 0.5 7.9 2.7 15.3 30.6 (23.7) 9.2 3.3 17.2 3.8 8.5
GLOBAL PERSPECTIVES
3
Overview
e o a sset ocat on strategy s compr se o 10 asset c asses, equa y we g te : & 500, & 400 cap, & 600 ma cap, . . n ex,NA REIT Index, MSCI EAFE Index, MSCI BRIC Index, Barclays Capital U.S. Corporate Bonds, Barclays Capital U.S. Treasury Bonds, Barclays Capital GlobalAggregate Bonds, Barclays Capital U.S. High Yield Bonds. Source: FactSet and FTSE NAREIT Index.
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S&P 500After two bull and two bear market cycles, the S&P 500 is about 11% below its 2007 peak.
1,600
1,800
(11%)
S&P 500 (price only 15 years) S&P 500 (since 2007 peak)
1,200
1,400
(49%)
800
1,00024.2 106.6
...
600
10/09/07 11/20/08 1/06/09 3/09/09 10/09/0711/20/08 01/06/09 3/09/09 4/30/12 4/30/12
1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
4Source: Standard & Poors, FactSet
Equity
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Index Total ReturnsFlat to negative 2011 returns gave way to a remarkable 2012 rally as perceptions of global risk subsided.
Index Apr-12 YTD 2011 2010 2009 2008 2007 2006 2005 1 year 3 years 5 years 10 years
Broad Market
Dow Industrial 0.2 9.1 8.3 14.0 22.6 (31.8) 8.8 19.0 1.7 6.0 20.6 3.0 5.5
S&P 500 (0.6) 11.9 2.1 15.1 26.5 (37.0) 5.5 15.8 4.9 4.8 19.5 1.0 4.7
S&P 100 (OEX) (0.7) 12.1 3.2 12.5 22.3 (35.3) 6.1 18.5 1.2 6.9 18.8 1.0 4.1
Nasdaq Composite (1.4) 17.3 (0.8) 18.0 45.3 (40.0) 10.5 10.4 2.1 7.2 22.3 4.8 6.9
Large-Cap
Russell 1000 (0.6) 12.2 1.5 16.1 28.4 (37.6) 5.8 15.5 6.3 4.1 19.9 1.2 5.1
Russell 1000 Value (1.0) 10.0 0.4 15.5 19.7 (36.8) (0.2) 22.2 7.1 1.0 18.3 (1.7) 4.8Russell 1000 Growth (0.2) 14.5 2.6 16.7 37.2 (38.4) 11.8 9.1 5.3 7.3 21.4 4.1 5.2
Mid-Cap
Russell Mid-Ca 0.3 12.6 1.5 25.5 40.5 41.5 5.6 15.3 12.7 0.0 23.0 2.2 8.0
Russell Mid-Cap Value (0.7) 10.7 (1.4) 24.8 34.2 (38.4) (1.4) 20.2 12.6 (0.8) 22.4 0.5 8.0
Russell Mid-Cap Growth (0.0) 14.5 (1.7) 26.4 46.3 (44.3) 11.4 10.7 12.1 0.8 23.6 3.5 7.5
Small-Cap
. . . . . . . . . . . . .
Russell 2000 Value (1.4) 10.0 (5.5) 24.5 20.6 (28.9) (9.8) 23.5 4.7 (4.1) 18.8 (0.5) 6.1
Russell 2000 Growth (1.6) 11.4 (2.9) 29.1 34.5 (38.5) 7.0 13.3 4.2 (4.4) 21.8 3.3 6.1
GLOBAL PERSPECTIVES
5Note: All returns are total returns including dividends expressed as percentages. Returns for 3-, 5-, and 10-year periods are annualized.Source: Dow Jones, Standard & Poors, NASDAQ, Russell Investments, FactSet
Equity
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Sector Total ReturnsWide variations in sector returns have characterized markets buoyed by strong fundamentals and buffeted byglobal risks.
Sector Apr-12 YTD 2011 2010 2009 2008 2007 2006 2005 1 year 3 years 5 years 10 years
Consumer Discretionary 1.3 17.5 6.1 27.7 41.3 (33.5) (13.2) 18.6 (6.4) 14.5 27.3 5.0 5.7
Consumer Staples 0.3 5.9 14.0 14.1 14.9 (15.4) 14.2 14.4 3.6 11.8 19.6 7.7 6.5Energy (1.0) 2.9 4.7 20.5 13.8 (34.9) 34.4 24.2 31.4 (9.1) 16.8 3.8 11.6
Financials (2.4) 19.2 (17.1) 12.1 17.2 (55.3) (18.6) 19.2 6.4 (4.1) 14.3 (14.1) (3.0)
Health Care (0.2) 8.8 12.7 2.9 19.7 (22.8) 7.1 7.5 6.5 9.0 18.3 2.9 3.8
Industrials 1.1 10.1 0.6 26.7 20.9 39.9 12.0 13.3 2.3 2.0 21.6 1.3 5.3
Materials (0.9) 10.2 (9.8) 22.2 48.6 (45.7) 22.5 18.6 4.4 (6.9) 17.0 1.6 7.6
Information Technology (1.9) 19.2 2.4 10.2 61.7 (43.1) 16.3 8.4 1.0 14.6 23.0 6.6 6.3
Telecommunication 5.4 7.6 6.3 19.0 8.9 (30.5) 11.9 36.8 (5.6) 7.2 15.5 1.3 5.9
Utilities 1.8 0.2 20.0 5.5 11.9 (29.0) 19.4 21.0 16.8 12.4 16.5 1.1 6.3
S&P 500 (0.6) 11.9 2.1 15.1 26.5 (37.0) 5.5 15.8 4.9 4.8 19.5 1.0 4.7
GLOBAL PERSPECTIVES
6ote: returns are tota returns nc u ng v en s expresse as percentages. eturns or 3- an 5-year per o s are annua ze . ot er returns are
cumulative. Total returns are based on S&P GICS sectors.Source: Standard & Poors, FactSet
Equity
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Style Total ReturnsSmall- and mid-cap styles have led the market every calendar year except 2007 and 2011-2012.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sm Val Mid Val Sm Gr Mid Val Mid Val Sm Val Lg Gr Sm Val Mid Gr Sm Gr Lg Gr Mid Gr
14.0% -9.6% 48.5% 23.7% 12.7% 23.5% 11.8% -28.9% 46.3% 29.1% 2.6% 14.5%
ValueSm Val Sm Val Sm Val Mid Gr Lg Val Mid Gr Lg Val Lg Gr Mid Gr Lg Val Lg Gr
2.3% -11.4% 46.0% 22.3% 12.1% 22.2% 11.4% -36.8% 37.2% 26.4% 0.4% 14.5%
Lg Val Lg Val Mid Gr Lg Val Lg Val Mid Val Sm Gr Lg Gr Sm Gr Mid Val Mid Val Sm Gr
- . - . . . . 20.2 . - . . . - . .
Sm Gr Mid Gr Mid Val Mid Gr Lg Gr Sm Gr Lg Val Mid Val Mid Val Sm Val Mid Gr Mid Val
-9.2% -27.4% 38.1% 15.5% 5.3% 13.3% -0.2% -38.4% 34.2% 24.5% -1.7% 10.7%
Mid Gr Lg Gr Lg Val Sm Gr Sm Val Mid Gr Mid Val Sm Gr Sm val Lg Gr Sm Gr Lg Val
-20.2% -27.9% 30.0% 14.3% 4.7% 10.7% -1.4% -38.5% 20.6% 16.7% -2.9% 10.0%
Lg Gr Sm Gr Lg Gr Lg Gr Sm Gr Lg Gr Sm Val Mid Gr Lg Val Lg Val Sm Val Sm Val
Indexes:Lg Val = Russell 1000 Value Lg Gr = Russell 1000 Growth Mid Val = Russell Mid Cap ValueMid Gr = Russell Mid Cap Growth Sm Val = Russell 2000 Value Sm Gr = Russell 2000 Growth
-20.4% -30.3% 29.8% 6.3% 4.2% 9.1% -9.8% -44.3% 19.7% 15.5% -5.5% 10.0%
GLOBAL PERSPECTIVES
7Note: Data based on Russell U.S. equity indices as indicated above and are total returns including dividends for each calendar year or partial year.Source: Russell Investments, FactSet
Equity
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Dow Jones Industrials (price only 100 years)It is not unusual for stocks to have prolonged periods of flat returns.
5,0006,000
10,000
Log
Period of falling
1 000
2,000
3,0004,000
interest rates
200
300400500600
Period of risingin a ion and
405060
100
interest rates
1910 1916 1922 1928 1934 1940 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012
GLOBAL PERSPECTIVES
8Source: Dow Jones, FactSet
Equity
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Performance by Market CapitalizationMid-cap stocks have had the best U.S. equity 10-year return record.
Annualized 10-Year Returns
2.2
2.4
Mid-Cap
January 1, 1999 April 30, 2012
Large-Cap: 4.7%Mid-Cap: 7.7%Small-Cap: 7.1%
1.6
1.8
.
of$1
Small-Cap
1.0
1.2
.
Grow
th
Large-Cap
0.4
0.6
0.8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
9Source: FactSet, Russell Investments
Equity
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Stock vs. Bond ValuationStocks look historically attractive based on their earnings yield (E/P) vs. the yield-to-maturity of 10-year Treasuries.
14
16 Earnings Yield (solid = forward, dotted = trailing)
%
10
12
. .
E uiv en o
6
8 7.86
P/E of 13
2
4
1.91Equivalent toP/E of 52
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
GLOBAL PERSPECTIVES
10ote: arn ngs e s t e nverse o t e rat o an s ca cu ate as t e sum o t e reporte next twe ve mont s earn ngs est mates v e y mar et
capitalization. The 10-year U.S. Treasury yield is used for bonds.Source: Standard & Poors, First Call, Reuters, Bloomberg, FactSet
Equity
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Dividend YieldsDisregarding the 2008 spike, stock dividend yields remain above levels seen since 1996 and remain historicallyattractive relative to bond yields.
4
Stocks Attractive
%% 2Dividend Yields Dividend Yield Minus Bond Yield
3
(2)
2
average
(4)
Bonds Attractive
(6)
1988 1992 1996 2000 2004 2008 2012 1988 1992 1996 2000 2004 2008 2012
GLOBAL PERSPECTIVES
11Note: Bond yield is represented by the 10-year U.S. Treasury note.Source: Standard & Poors, Reuters, FactSet
Equity
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Fundamentals Drive the Stock MarketAdvancing earnings drive markets up, and negative earnings drive markets down, albeit with a reporting lag.
2012 S&P 500 Earnings Forecast: $1052012 S&P 500 Price Forecast: 1425
2,200150%
1,600
,
50%
100%
Price
Grow
thS&P 500 Index (right scale)
1,000
1,300
0% S&P5
00
S&P500E
P
400
700
-100%
-50%growt e t sca e
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
12Source: Standard & Poors, First Call, FactSet, ING Investment Management
Equity
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Corporate Earnings vs. S&P 500 PricesThe S&P 500 sold for 1,469 in 1999 based on less than $40 of annual earnings per share; today the index is about1,400, still a good value with earnings around $100.
$ billions S&P price level
Recessions
1,400
1,600
1,600
1,800
1,000
1,200
1 000
1,200
1,400
S&P500
600
800
600
800
,
Corporate Earnings
200
400
200
400
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
13Earnings data through 9/30/11.Source: FactSet
Equity
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Sector Re orted Earnin s Growth Earnin s Sur rise
S&P 500 Historical and Projected EarningsFirst quarter 2012 earnings reports are more than 60% complete with positive earnings surprises for more than 75%of those reporting.
Actual / Total Percent Positive Negative Percent Positive Negative
Energy 24 / 42 -1% 13 11 -1% 15 9
Materials 23 / 31 -10% 10 11 7% 20 3
Industrials 44 / 61 14% 35 9 8% 35 8onsumer scre onary -
Consumer Staples 22 / 42 2% 10 12 2% 14 3
Health Care 35 / 52 1% 23 12 4% 24 6
Financials 56 / 80 25% 40 14 19% 39 12
Information Technology 43 / 71 20% 22 21 11% 31 6
Telecommunication 5 / 8 -1% 3 1 15% 3 2
Utilities 8 / 33 -13% 1 7 0% 3 5S&P 500 305 / 500 9% 184 114 8% 220 60
-
0%
25%
50%
Historical Projected
-50%
-
1Q 06 1Q 07 1Q 08 1Q 09 1Q 10 1Q 11 1Q 12
GLOBAL PERSPECTIVES
14o e: arn ngs row s e percen age c ange n e cumu a ve s are weg e earn ngs rom a o a year ago. urpr se ercen s e s areweighted average of the ratio of actual company earnings vs. the consensus estimate.
Source: Bloomberg, Standard & Poors, Factset
Equity
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Fundamental Characteristics by Market Capitalization
Size matters in terms of growth and valuation. Smaller stocks have higher growth rates, and in terms of the P/E ratio,higher valuation.
Characteristics S&P 500 Russell Midcap Russell 2000
Market Capitalization 12,635,655 4,190,029 1,201,637
# of Securities 500 782 1957
Dividend Yield 1.96 1.63 1.39
Growth S&P 500 Russell Midcap Russell 2000
Historical 3 Year Sales Growth % 15.90% 15.78% 18.20%
Long-term Estimated Growth % 10.97% 12.73% 13.81%
Estimated 2011 EPS Growth % 13.16% 17.10% 27.08% High
ValuationS&P 500 Russell Midcap Russell 2000
Price/Earnin s 14.55 20.30 25.18Rich
growth
Price/Cash Flow 7.82 9.37 9.06
Price/Book 2.29 2.21 1.94
va ua on
GLOBAL PERSPECTIVES
15Source: Russell Investments, Standard & Poors
Equity
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Operating Profits and Operating Margins
Corporate profits (excluding financials) have improved steadily along with operating margins, which collapse inrecessions and surge in recoveries.
15Operating Margins (S&P 500 ex-financial)
%
1,100
1,200
Operating Profits (S&P 500 ex-financial)
1,085
13
1414.0
900
1,000
12700
800
11
500
600
1996 1998 2000 2002 2004 2006 2008 2010 20121996 1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
16ote: a ues are ca cu ate ase on a mar et va ue-we g te sum o t e quarter y stor ca resu ts o t e & 500 const tuents exc u ng nanc a s.Values reflect results for trailing four quarters at each quarter end. Data as of 12/31/11.
Source: Standard & Poors, Compustat, FactSet
Equity
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Equity Volatility (VIX)
Projected market volatility spikes in times of crisis then drops into the normal range as fear, uncertainty and doubtsubside apparently the prevailing sentiment today.
80
90
12/31/07 = 22.5
11/20/08 = 80.9
Lehman Crisis
50
60
12/31/08 = 40.004/30/12 = 17.2
U.S. Credit
30
40
uro r s sDowngrade
0
10
20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
17Source: Standard & Poors, Chicago Board Option Exchange, FactSet
Equity
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Bond and Loan Returns
Although long-term U.S. Treasuries were winners in crisis periods, over time, risk relates to return in a rational way,and riskier bonds have been the leaders.
Index Spread Apr-12 YTD 2011 2010 2009 2008 2007 2006 1 year 3 years 5 years 10 years
U.S. Investment Grade
Treasury 0 1.5 0.1 9.8 5.9 (3.6) 13.7 9.0 3.1 8.9 5.0 6.4 5.6
Treasur (1-3YR) 0 0.2 0.1 1.6 2.4 0.8 6.7 7.3 3.9 1.2 1.6 3.4 3.2
Treasury (20+YR) 0 4.7 (2.4) 33.8 9.4 (21.4) 33.7 10.2 0.9 30.2 10.6 10.3 8.7
Government Related 68 0.9 1.8 6.7 5.0 2.5 8.5 8.0 4.3 6.8 5.5 6.1 5.5
Corporate 185 1.4 3.5 8.1 9.0 18.7 (4.9) 4.6 4.3 9.1 12.6 7.1 6.6
Fixed rate MBS 69 0.7 1.2 6.3 5.5 5.8 8.5 7.0 5.2 5.8 5.4 6.4 5.5
ABS 64 0.7 1.5 5.1 5.9 24.7 (12.7) 2.2 4.7 5.1 9.0 4.3 4.3CMBS 203 0.5 3.6 6.2 18.5 28.3 (20.5) 5.6 4.7 5.9 16.5 6.6 N/A
Hybrid ARM 3 0.3 1.1 3.6 2.5 7.8 6.1 6.3 4.8 3.6 4.1 5.1 N/A
. . . . . . . . . . . .
High Yield and Global
High Yield 582 1.0 6.4 5.0 15.1 58.2 (26.2) 1.9 11.8 5.9 19.7 8.0 9.2Global Aggregate 86 1.2 2.1 5.6 5.5 6.9 4.8 9.5 6.6 3.3 7.6 6.4 7.1
Emerging Markets 361 1.4 6.9 7.0 12.8 34.2 (14.7) 5.2 10.0 11.1 16.1 8.5 11.1
Senior Loans 625 0.1 4.2 1.3 10.8 51.6 (29.1) 2.0 6.8 2.7 14.3 4.8 5.9
Note: All spreads are option-adjusted spreads except for Emerging Markets and Senior Loans. Emerging Markets spread is the spread over the U.S. Treasury
GLOBAL PERSPECTIVES
18curve. Senior Loans spread is the average three-year call secondary spread. All returns are total returns including dividends expressed as percentages.Returns for 3- and 5-year periods are annualized. All other returns are cumulative.Source: Barclays Capital, JPMorgan, Standard & Poors
Fixed Income
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Yield Curves
The steep U.S. yield curve is indicative of economic growth. Higher yield opportunities can be found outside the U.S.
U.S. Yield Curve Global Yield Curves
5
6
12/31/09
12/31/10
%
10
12
14 %
Brazil
India
2
3 12/31/1104/30/12
12/31/08
4
6
8Mexico
UKEuro
Africa
3 mo 2 yrs 5 yrs 10 yrs 30 yrs3 mo 2 yrs 5 yrs 10 yrs 30 yrs0
1
02
US
Japan
Date 3 mo 2 yrs 5 yrs 10 yrs 30 yrs
04/30/12 0.09 0.25 0.81 1.91 3.11
12/31/11 0.01 0.24 0.84 1.88 2.90
12/31/10 0.12 0.59 2.00 3.29 4.34
04/30/12 3 mo 2 yrs 5 yrs 10 yrs 30 yrs
US 0.09 0.25 0.81 1.91 3.11
UK 0.47 0.44 1.07 2.11 3.34
Euro Zone 0.01 0.07 0.60 1.66 2.37
. . . . .
12/31/08 0.09 0.73 1.44 2.06 2.56
. . . . .
Mexico 4.35 4.63 5.16 6.21 7.38
South Africa 5.60 5.71 7.75 7.65 8.77
India 8.39 8.11 8.42 8.67 8.87
Brazil 7.76 9.03 10.29 10.71 10.82
GLOBAL PERSPECTIVES
19Source: Reuters, Bloomberg, FactSet
Fixed Income
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Global Yields
Investors seeking income may benefit from the rich opportunities for higher yield available from global bonds.
10-Year Sovereign Bond Yields
1.9%
1.7%
U.S.
Euro Region
3.7%
2.1%
2.0%
Australia
United Kingdom
Canada
5.8%
5.4%
4.0%
Philippines
Poland
New Zealand
8.7%
7.7%
6.0%
India
South Africa
Indonesia
.
GLOBAL PERSPECTIVES
20Source: Bloomberg
Fixed Income
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Fed Funds Target Rates and 3 Month T-Bill Yield
Both the Fed funds rate and 3-month U.S. Treasury bill yields are at their lowest levels ever, and the Fed hasindicated it intends to keep rates low into 2014.
12
14
8
9% %Fed Funds Target Rates 3 Month T-Bill Yield
8
10
5
6
4
6
2
3
4
0
2
0
1 1 basispoint
Average
1980 1984 1988 1992 1996 2000 2004 2008 2012 1988 1992 1996 2000 2004 2008 2012
GLOBAL PERSPECTIVES
21Note: 3-Month T-Bill Yield is annualized based on purchase at a discount and holding to maturity.Source: Reuters, Bloomberg, FactSet
Fixed Income
-
7/31/2019 Global Perspectives MAY
25/90
U.S. Treasury Yield
Nominal and real yields on 10-year U.S. Treasuries are far below long-term averages, and the Feds open marketoperations have been designed to keep them low.
9
10
5
6 %% 10-Year Treasury Yield Real 10-Year Treasury Yield
6
7
3
4
4
5
1
2
1
2
3
1
00%
2.03%
1988 1991 1994 1997 2000 2003 2006 2009 2012 1988 1991 1994 1997 2000 2003 2006 2009 2012
GLOBAL PERSPECTIVES
22Note: Real 10-Year Treasury Yield is equal to the 10-Year Treasury yield minus core CPI (ex food and energy)Source: Federal Reserve, Bloomberg, FactSet
Fixed Income
-
7/31/2019 Global Perspectives MAY
26/90
Municipal Bond Yields Treasury Yields
Municipal yields are well above Treasury yields; defaults have been minimal, but pressures to cut spending andbalance budgets have been intense.
180
200 %
Muni yields should be (1- tax rate) x Treasury
140
160e . n eren e ou e ex a na edifferences in credit or liquidity.
100
120 117
60
80
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
23Note: Municipal yields represent the yield-to-worst for the Merrill Lynch AA municipal index. 10-year U.S. Treasury yields are used.Source: Merrill Lynch, Reuters, Bloomberg, FactSet
Fixed Income
-
7/31/2019 Global Perspectives MAY
27/90
Corporate Spreads and Ted Spread
Credit spreads have declined since the 2008 crisis and still offer good opportunity; TED spreads are in the normalrange despite debt and deficit concerns.
6
7 % %
Lehman crisis
Corporate Spreads Baa Ted Spread (Libor 3 month Treasury)4
4
5
2
2
3 3.0
0.38
1
0
1 Euro crisis II0
1988 1991 1994 1997 2000 2003 2006 2009 2012 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
GLOBAL PERSPECTIVES
24
ote: orporate aa prea s are enc mar average rates n excess o 10-year . . reasury y e s. or s t e on on nter- an er ate, t einterest rate banks charge each other for loans.Source: Moodys, Reuters, Federal Reserve, Bloomberg, FactSet
Fixed Income
-
7/31/2019 Global Perspectives MAY
28/90
Mortgage Spreads and Loan Delinquency
Mortgage-backed bond spreads are healthy. Home loan delinquencies far exceed commercial and industrial loans;both have declined since their peaks.
10
12
3.0
3.5 Most recentdata: 12/30
%% Mortgage Spreads Loan Delinquency
82.5
es ent a.
4
6
1.5
2.0
1.7
21.01.6
1988 1992 1996 2000 2004 2008 20121988 1992 1996 2000 2004 2008 2012
.
GLOBAL PERSPECTIVES
25Note: Mortgage spread equals the Freddie Mac 30-year fixed rate mortgage yield minus the 10-year U.S. Treasury yield.Source: Federal Reserve (Federal Financial Institutions Examination Council Report), Freddie Mac, FactSet
Fixed Income
-
7/31/2019 Global Perspectives MAY
29/90
The Debt Super Cycle Unwind
The current economic environment is a continuation of the unwinding of the debt super cycle that peaked in 2008.
60
80
100
120
G
DP
0
20
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%o
f
Advanced economies, General government gross debt Emerging & Developing Economies, General government gross debt
0
2
(8)
(6)
(4)
%
ofGDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Advanced economies, General government net lending/borrowing
Emerging & Developing Economies, General government net lending/borrowing
GLOBAL PERSPECTIVES
26Source: IMF; Reuters EcoWinIMF Projections as of 11/15/11
Fixed Income
-
7/31/2019 Global Perspectives MAY
30/90
European Economic Issues
Europes situation is potentially destabilizing, but the most likely path is a long process that avoids catastrophe butallows recession.
10
15
Euro Zone Industrial Production (year-over-year %)
0
5
Italy
Germany
Franceear
(%)
(15)
(10)
Spain
Year-ov
er-
30
(25)
(20)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
27Source: BloombergData as of 1/31/12.
Fixed Income
-
7/31/2019 Global Perspectives MAY
31/90
U.S. Economic Headwinds
The U.S. economy will continue to face the effects of consumer deleveraging, but growth will prove resilient, albeitsubdued.
90
95
100
Total stock of each sector's debt outstanding,shown as a percentage of nominal GDP
Governments
70
75
80
85 Households
Businesses
45
50
55
60
2025
30
35
40
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
GLOBAL PERSPECTIVES
28Source: Bloomberg and ING Investment ManagementData as of 12/31/11.
Fixed Income
-
7/31/2019 Global Perspectives MAY
32/90
A Capital-Spending-Led Recovery
Corporations have ample capacity to retool with cash not debt while contributions to growth from fiscal policy,housing, and consumption may be muted.
19
21
14.5
15.5
Per
ce
17
12.5
13.5
To
talGDP
tofNon-Fin
Nominal Investment Spending Net Cash Flow
13
15
10.5
11.5
Percen
to
f nc
ialCorpor
9
11
8.5
9.5
teGDP
1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
GLOBAL PERSPECTIVES
29Source: Bloomberg, ING Investment ManagementData as of 9/11/11.
Fixed Income
-
7/31/2019 Global Perspectives MAY
33/90
Monetary Policy Outlook
Both developed and emerging market central banks continue to pursue accommodative monetary policies.
3,000
3,500
2,500
s
Federal Balance Sheet ($)
1,500
2,000
Millio
ECB Balance Sheet ()
1,000
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012
GLOBAL PERSPECTIVES
30Source: Bloomberg, ING Investment ManagementData as of 3/7/12.
Fixed Income
-
7/31/2019 Global Perspectives MAY
34/90
Spread Sectors Outlook
In an increasingly scarce yield environment, higher quality spread sectors will be very well supported, and yieldspreads will continue to compress.
15%
20%High Yield Spread Over U.S. Treasuries
High Yield Default Rate500
600
700U.S. Corporate Investment Grade
5%
10%
100
200
300
400OA
1000ries
Emerging Market Hard Currency Debt
1991 1998 2005 20122007 2008 2009 2010 2011 2012
2,000
CMBS Investment Grade: Eligible for U.S. Aggregate
400
600
800
verU
.S.
Treas
1,000
1,500
OAS
0
200
2007 2008 2009 2010 2011 2012Spreado
JPMorgan EMBI-Global Diversified Index02007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
31Source: Barclays Capital Aggregate Benchmark Index data, Moodys.Data as of 2/29/12.
Fixed Income
-
7/31/2019 Global Perspectives MAY
35/90
Residential Housing
The excess supply of existing homes is at the lowest level since the housing crisis began in 2007. We are past theworst point of house price deflation and should see slow improvement going forward.
20%
25%3
4Months Supply of Existing Single-family Homes(shown inverted)
5%
10%
15%5
6
7
-5%
0%8
9National House Price Inflation(annual % change, Case-Shiller Index)
-15%
-10%10
11
-1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
32Source: Bloomberg and ING Investment ManagementData as of 1/31/12.
Fixed Income
-
7/31/2019 Global Perspectives MAY
36/90
Commercial Real Estate
Commercial real estate prices, highly correlated with the business cycle, have stabilized; higher-end property pricesare rising; the broader market is still well below peak 2007 valuations, but will rise as the economy strengthens.
10%
11%
180
190
200
8%
9%
150
160
170
Moody's CommercialProperty Price Index
6%
7%
130
140
Unemployment Rate
5%
100
110
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
33Source: GA LLC, REAL, RCA, BloombergData as of 12/31/11.
Fixed Income
-
7/31/2019 Global Perspectives MAY
37/90
World Market Returns by Region USD
Emerging market equity (EME) has often been a top performer, lagged in 2011, but began 2012 with a strong rally.
EMEPac
Ex-JapanEME
Pac
Ex-JapanEME
Europe
Ex-UKEME Japan EME EME S&P 500
Pac
Ex-Japan
-2.4% -5.8% 56.3% 29.6% 34.5% 36.4% 39.8% -29.1% 79.0% 19.2% 2.1% 13.0%
Pac Pac Pac Pac Pac PacEx-Japan Ex-Japan
apanEx-Japan Ex-Japan
Ex-Japan Ex-Japan
-9.4% -6.0% 47.0% 26.0% 25.6% 33.2% 31.7% -37.0% 73.0% 17.1% -2.5% 12.8%
S&P 500 JapanEurope
Ex-UK
Europe
Ex-UK
Pac
Ex-JapanEME
Europe
Ex-UK
Europe
Ex-UKUK Japan
Pac
Ex-JapanS&P 500
- . - . . . . . . - . . . - . .
UK UK Japan UK EuropeEx-UK
UK UK UK EuropeEx-UK
S&P 500 Japan UK
-14.1% -15.2% 36.2% 19.6% 11.3% 30.7% 8.4% -48.3% 33.9% 15.1% -14.2% 9.0%
Ex-UK
Ex-UKUK Japan UK S&P 500 S&P 500 EME S&P 500 UK
Ex-UK
Ex-UK
-22.0% -19.9% 32.1% 16.0% 7.4% 15.8% 5.5% -47.1% 26.5% 8.8% -14.5% 8.2%
Japan S&P 500 S&P 500 S&P 500 S&P 500 Japan JapanPac
Ex-Japan JapanEurope
Ex-UK EME Japan
- . - . . . . . - . -50.0% . . - . .
GLOBAL PERSPECTIVES
34Note: All data are based on equity indices for each regional or country index and are total returns including dividends for each calendar year or partial year.Source: MSCI, Standard & Poors, FactSet
International
-
7/31/2019 Global Perspectives MAY
38/90
Global Returns Local and USD
Given geopolitical, economic and financial fears, 2011 equity returns were down, but 2012 had a strong start;emerging markets remain the long-term leader.
Index Currency Apr-12 YTD 2011 2010 2009 2008 2007 2006 2005 1 year 3 years 5 years 10 years
Global Markets
International USD (1.8) 8.9 (11.7) 8.2 32.5 (43.1) 11.6 26.9 14.0 (12.4) 12.3 (4.3) 5.9
. . . . . . . . . . . . .
Emerging Mkt USD (1.2) 12.8 (18.2) 19.2 79.0 (53.2) 39.8 32.6 34.5 (12.3) 18.7 3.8 14.3
local (0.5) 10.1 (12.5) 14.4 62.8 (45.7) 33.5 28.9 35.8 (5.0) 15.4 4.2 12.5
Emerging market returns have surpassed by far the
Regions
Euro x-UK USD (3.9) 8.2 (14.5) 2.4 33.9 (45.0) 17.5 36.4 11.3 (21.2) 9.6 (6.1) 5.9local (3.3) 5.8 (12.1) 5.1 29.0 (42.7) 6.6 22.5 28.6 (12.7) 7.6 (6.7) 1.5
UK USD 1.3 9.0 (2.5) 8.8 43.4 (48.3) 8.4 30.7 7.4 (4.4) 18.1 (2.9) 5.7
local (0.3) 4.3 (1.8) 12.2 27.7 (28.5) 6.6 14.6 20.1 (1.8) 14.6 1.2 4.6
Pac x-Japan USD 1.5 13.0 (12.7) 17.1 73.0 (50.0) 31.7 33.2 14.8 (8.6) 21.8 3.1 13.2
local 1.0 11.1 (12.8) 6.1 45.8 (41.6) 21.6 25.9 20.3 (5.7) 11.8 (0.5) 7.7Ja an USD 3.2 7.8 14.2 15.6 6.4 29.1 4.1 6.3 25.6 3.1 7.5 5.3 3.1
local (6.1) 11.9 (18.6) 0.7 9.3 (42.5) (10.1) 7.3 44.7 (4.7) 0.3 (12.6) (1.6)
S&P 500 (0.6) 11.9 2.1 15.1 26.5 (37.0) 5.5 15.8 4.9 4.8 19.5 1.0 4.7
GLOBAL PERSPECTIVES
35Note: Returns for periods greater than one year are annualized. All returns reflect total return including dividends expressed as a percentage.Source: MSCI, Standard & Poors, FactSet
International
-
7/31/2019 Global Perspectives MAY
39/90
Country Returns USD (YTD)
Sovereign debt and deficit fears remained the dominant global headline risks, yet stock markets around the worldwere mostly positive at the start of 2012.
Developed Markets (USD)22 20 18 18 1714 13 13 12 12 11 10 9 9 8 8 8 7 6 6 4
0 -3 -15
Emerging Markets (USD)4128 26 25 24 23 23
16 15 15 14 14 14 13 12 10 10 8-5 -34
GLOBAL PERSPECTIVES
36Note: All returns reflect total return including dividends expressed as a percentage.Source: MSCI, Standard & Poors, FactSet
International
-
7/31/2019 Global Perspectives MAY
40/90
U.S. and International Stocks vs. Bonds
Both global bonds and international stocks have outperformed their U.S. counterparts over the last ten years but withhigher volatility.
2.2
2.4
2.6
Barclays Capital
1.6
1.8
2.0
hof$1
Barclays Capital U.S.Aggregate Index
MSCI EAFE Index
Global AggregateIndex
1.0
1.2
1.4
Growt
S&P 500 Index
break even
0.4
0.6
0.8
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
37Source: FactSet, Russell Investments
International
-
7/31/2019 Global Perspectives MAY
41/90
Major Currencies
Although the U.S. dollar dropped only about 1% in 2011, the dollar is 38% below its 1985 peak compared to a trade-weighted basket of world currencies.
120
140
160
1.2
1.4
1.6
/ $$ / 12/31/11: 76.944/30/12: 79.85Change: -3.8%
rising vs. $ falling vs. $
1988 1991 1994 1997 2000 2003 2006 2009 2012
60
80
100
1996 1998 2000 2002 2004 2006 2008 2010 2012
0.8
1.012/31/11: 1.304/30/12: 1.32Change: 1.5%
2.0
2.2
12/31/11: 1.554/30/12: 1.62
$ / 14012/31/11: 82.183/30/12: 82.15
rising vs. $ $ falling vs. majorcurrencies
1.4
1.6
1.8 Change: 4.5%
80
100
Change: -0%
1988 1991 1994 1997 2000 2003 2006 2009 2012.
1982 1986 1991 1995 1999 2004 2008 2012
GLOBAL PERSPECTIVES
38Source: FactSet
International
-
7/31/2019 Global Perspectives MAY
42/90
International Economics
China, India and Brazil are growing rapidly, and China is now second only to the U.S., while Germanys export-driven economy is the runaway euro zone leader.
Countries Trade (% of GDP)
Developed Markets
USD
(Billions) Per Capita
1-Yr
Change
5-Yr
Change Exports
Population
(Millions)
Unemployment
%
Median
Age
US 15,319 49.3 1.7% 2.7% 9.8 % 314 8.2 37
GDP Demographics
Germany 3,481 42.8 3.6% 3.9% 41.7 % 82 6.7 45
Canada 1,713 50.3 2.5% 2.8% 27.7 % 34 7.2 41
UK 2,435 38.2 0.7% 2.6% 18.3 % 63 7.8 40
urozone , . . . . .
Japan 6,062 47.6 (0.7%) 1.7% 13.9 % 127 4.5 45
Ireland 208 45.8 (0.4%) 5.3% 60.4 % 5 14.3 35
Emerging Markets
Brazil 2,426 11.9 6.7% 3.9% 10.9 % 206 6.2 29
Russia 1,689 13.9 4.5% 8.9% 34.3 % 138 6.5 39
India 1,674 1.4 7.8% 9.4% 16.1 % 1,205 7.2 26
China 7,294 7.1 8.9% 10.4% 27.8 % 1,343 4.1 36
Mexico 1,122 9.9 5.4% 5.2% 32.2 % 115 5.12 27
GLOBAL PERSPECTIVES
39Source: FactSet. Data is most recent available.
International
-
7/31/2019 Global Perspectives MAY
43/90
Global Stock Fundamentals
Emerging market equities appear to offer comparable profitability and better balance sheet strength with valuationsat or below those of S&P 500 and EAFE stocks.
S&P 500 MSCI EAFE MSCI Emerging Markets
P/E (next fiscal year estimated earnings) 13.3 11.5 10.5
. . .
Price to Cash Flow Ratio 9.0 6.7 6.8
Price to Sales Ratio 1.3 0.7 0.7
Profitability
Return on Equity (ROE) 15.7 11.1 14.3
Balance Sheet Strength
Long-term Debt to Capital Ratio 35.6 37.1 24.6
GLOBAL PERSPECTIVES
40
Note: Valuation and Profitability figures are weighted harmonic averages, a statistical technique that reduces the effects of extreme outlying data on the
average. Long-term Debt to Capital figures are weighted averages.Source: FactSet
International
-
7/31/2019 Global Perspectives MAY
44/90
World GDP and Emerging Market Importance
World GDP grew steadily through the great recession, supported by the largest emerging markets, which now out-produce the largest developed economies.
80,000 $ trillions World GDP
70
80
Percent Contribution to Global Growth,PPP Basis
%
U.S. + European Union + Japan
Emerging Market Importance
60,000
50
60
40,000
30
40
20,000
10
20
Global Emerging Markets Top 8*
1990 1993 1996 1999 2002 2005 2008 2011 1991 1995 1999 2003 2007 2011
GLOBAL PERSPECTIVES
41
International
ource: e or an roup
*China, India, Russia, Brazil, Mexico, Korea, Indonesia and TaiwanData as of 12/31/10.
-
7/31/2019 Global Perspectives MAY
45/90
Developed and Emerging Market Contrasts
Aging populations in mature economies strain public resources and produce heavier government debt burdens thathinder economic growth.
50
2010 2030 2050
Population % over age 60
140 % of GDP
Gross Government Debt to GDP
30 100
120G7*
All AdvancedEconomies
20
60
80
0
10
20
40Emerging and Developing
Economies
Dev.
. .2008 2009 2010 2011 2012 2013 2014 2015
GLOBAL PERSPECTIVES
42*G7= France, Italy, Germany, Japan, U.K., U.S and CanadaSource: IMF, CIA World Factbook
International
-
7/31/2019 Global Perspectives MAY
46/90
Euro Zone
Even with total debt at 152% of GDP, Greece accounts for less then 3% of the euro zone, but Italy and Spain aremajor economies with much higher total debt at 120% of GDP.
Austria3% Belgium
C rus
SlovakRepublic Slovenia
Euro Area 2010 GDP by Country
140
160
2000Gross Debt in Euros
(billions)Debt as % of
GDP
Euro Zone Debt
0%
Finland2%
Netherlands6%
Portugal2%
Spain12% 100
120
1500
France21%
Italy
Luxembourg0%
0%
40
60
500
1000
Germany27%
Greece3%
Ireland2% 0
20
0
GLOBAL PERSPECTIVES
43Source: International Monetary Fund (IMF) as of 2011
International
-
7/31/2019 Global Perspectives MAY
47/90
Tectonic Shift Frontier Markets
Frontier countries are emerging markets with lower capitalizations and less liquidity. They offer high growth potentialand are fueling the global growth story as they evolve and mature.
Index Currency Apr-12 YTD 2011 2010 2009 2008 2007 1 year 3 years 5 years
Global Markets
MSCI Frontier Emerging Markets USD 1.5 13.8 (17.3) 29.1 25.8 N/A N/A (2.3) 16.3 N/A
MSCI Frontier Markets USD (0.8) 4.7 (18.4) 24.2 11.7 (54.1) 42.1 (13.8) 9.0 (7.2)
Select Countries
South Africa USD 0.7 12.1 (14.4) 34.2 57.8 (37.9) 18.1 (7.1) 23.8 5.2
local 1.7 7.6 4.5 20.6 25.7 (16.0) 14.5 9.3 20.1 7.2
Turkey USD (2.6) 23.8 (35.2) 21.2 98.5 (62.1) 74.8 (23.4) 19.5 1.1
local (3.9) 15.3 (20.4) 24.5 92.8 (50.1) 44.7 (11.3) 23.5 6.3
. . . . . . . . . .
local (1.9) 4.7 (18.1) 19.6 37.6 (45.2) 7.9 (19.0) 13.2 (5.5)
Qatar USD 0.0 4.0 8.2 31.3 8.9 (26.3) 54.2 6.9 22.6 13.0
local 0.0 4.0 8.2 31.3 8.8 (26.3) 54.2 6.9 22.6 13.0
Indonesia USD (0.5) 3.5 6.5 34.6 127.6 (56.2) 55.0 0.2 36.8 16.7
local (0.0) 4.9 7.2 29.1 96.2 (49.2) 61.9 7.6 30.5 17.0
S&P 500 (0.6) 11.9 2.1 15.1 26.5 (37.0) 5.5 4.8 19.5 1.0
GLOBAL PERSPECTIVES
44
International
Source: Factset
-
7/31/2019 Global Perspectives MAY
48/90
China Hard Landing
Chinas soaring state investments, property bubble and declining exports raise questions about the likelihood of asoft landing from its enviable recent growth.
2,000
3,000 State InvestmentConsumer SpendingGovernment SpendingNet Exports
$ billionsState Investment increased
94% in four years and is now50% of GDP.
1,000
2002 2003 2004 2005 2006 2007 2008 2009 20100
35Chinas reported Debt % to GDP
20
25
30
understatedbased oncontingentliabilities
10
15
2002 2003 2004 2005 2006 2007 2008 2009 2010
GLOBAL PERSPECTIVES
45Source: International Monetary Fund (IMF) as of 2011, China Bureau of Statistics
International
-
7/31/2019 Global Perspectives MAY
49/90
Consumer Trends
At about 70% of GDP, the U.S. consumer is the game changer in the economic recovery. Consumption, income andretail sales are at new highs, and retail sales are rising consistently.
$ billions14000
7,000
8,000 450
12000
5,000
6,000400
Personal Income
100003 000
4,000
350
2,000
300Retail Sales
Personal Consumption Expenditures
2007 2008 2009 2010 2011 20128000
,
2004 2006 2008 2010 2012250
GLOBAL PERSPECTIVES
46Source: FactSet
Economy
-
7/31/2019 Global Perspectives MAY
50/90
Consumer Confidence
U.S. consumer confidence seems low, but consumer confidence is backward-looking and has often been a contraryindicator for subsequent stock market returns.
140
160 Index LevelMarket returned 16.3% in
subsequent 12 months
100
120
60
80
Present
Total Index
Market returned 13.9% in
20
Market returned 49.8% in
subsequent 12 months
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
47Source: The Conference Board, Factset
Economy
-
7/31/2019 Global Perspectives MAY
51/90
U.S. Leading Indicators
U.S. Leading Indicators have been consistently positive in fact, for 21 of the last 24 months.
0.0
1.0
2.0 % Recessions
(4.0)
(3.0)
(2.0)
.
1.0
2.0
0.0
Source: Bloomberg, FactsetThe Conference Board U.S. Leading Index consists of the weighted average of the following indices:
2010 2011.
2012
GLOBAL PERSPECTIVES
48
Economy
. , . . ,
4. Vendor performance, slower deliveries 5. Manufacturers new orders, capital 6. Building permits, new private housing units7. Stock prices, 500 common stocks 8. Money Supply, M2 9. Interest Rate Spreads10. Index of consumer expectations
-
7/31/2019 Global Perspectives MAY
52/90
Broadening Manufacturing
U.S. manufacturing capacity utilization is expanding from record lows and is nearing historically normal levels.Manufacturing is a significant part of the U.S. economy, accounting for 61% of U.S. exports.
85
90 U.S. Manufacturing Capacity Utilization U.S. Export Composition%
AgricultureProducts, 6%
Other, 4%
80 78%
70
75Services, 30%
65
Manufacturing
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012,
GLOBAL PERSPECTIVES
49Source: FactSet , US Census Bureau
Economy
-
7/31/2019 Global Perspectives MAY
53/90
Broadening Manufacturing
U.S. factory activity remains in expansionary territory as does the global index, but the euro zone is hovering atthe precipice of economic contraction.
60
65
Euro zonePMI
60
65Expansionary (>50)
Non Manufacturing
U.S. Institute for Supply Management Global Manufacturing
50
55
50
5554.8
56.8
50.5
40
45
Global PMI
40
45
Manufacturing
.
30
35
30
35Contractionary (
-
7/31/2019 Global Perspectives MAY
54/90
Tectonic Shift Business Fixed Investment
A strong recovery in corporate profits and cash flows is spurring a revival in business spending on equipment andsoftware.
1,600
1,800 $ billions
1,400
Business Fixed Investment
Highest
1,000
1,200
Equipment and Software
800
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
51Source: Factset
Economy
-
7/31/2019 Global Perspectives MAY
55/90
Employment Payrolls
Total payrolls, including all non-farm employment, have been positive, but not enough to bring unemployment ratesdown significantly.
400
000s+121 most
recentprivate
Total Payrolls
0
(400)
(200) +120 mostrecent
totalTotal Private Payrolls
(800)
(600)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
52Source: FactSet
Economy
U l R
-
7/31/2019 Global Perspectives MAY
56/90
Unemployment Rate
High unemployment may reluctantly recover as growth resumes; recent reports are encouraging, and news of jobgrowth and payrolls has been positive.
800,000
11%
12%
Unemployment Rate
000sRecessions
600,000
8%
9%
400,000
5%
6%
7%
200,0003%
4%
Initial Unemployment Claims
1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
GLOBAL PERSPECTIVES
53Source: Bureau of Labor Statistics, FactSet
Economy
R l GDP
-
7/31/2019 Global Perspectives MAY
57/90
Real GDP (Q/Q)
The U.S. has recovered the output level it lost in the recession and has now reached new highs. Expansionshistorically last about five years.
Breakdown
Consumption: 71%Government: 20%
Investment: 12%15
20
$10
$11
$12
xports:Imports: (15%)
10
$7
$8
$9
1Q122.2%
%)
Real annualized GDP % change
Gr
0
5
$4
$5
$6
Per
cent( w
th
of$1
(10)
(5)
$1
$2
$3
Real GDP Cumulative Value starting at $1
1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
GLOBAL PERSPECTIVES
54Source: Bloomberg
Economy
Inflation CPI
-
7/31/2019 Global Perspectives MAY
58/90
Inflation CPI
Core and headline inflation remain under control; while commodities prices spiked dramatically in 2009-2010, recentfigures show a marked softening.
600
70015
%Index Level
50010
CRB Index (left)Core Inflation (right axis)
Headline Inflation (right axis)
300
4005
100
200
5
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
55Note: Core CPI reflects consumer price inflation excluding food and energy.Source: Factset.
Economy
S&P Case Shiller Home Price Index
-
7/31/2019 Global Perspectives MAY
59/90
S&P Case-Shiller Home Price Index
Home values have fallen about 32% since 2006; the 20 City Composite Index has steadily declined, though recentdata have seen upticks in some areas.
15
20
200
220Index Level
207
% change
0
5180
(10)
(5)
140
160
25
(20)
(15)
100
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GLOBAL PERSPECTIVES
56Source: Factset, S&P Case-Shiller, Bloomberg
Economy
Home Sales and Housing Starts
-
7/31/2019 Global Perspectives MAY
60/90
Home Sales and Housing Starts
Housing is still lagging the U.S. economic recovery; existing homes and new household formation suggest thatoutstanding supply will remain a hurdle for some time.
7,000
7,500 2,500000s 000s
Peak: 2.27 millionhousing starts/month
5,500
6,000
6,500
1,500
,
Housing Startsincluding multi family(right axis)
4,500
5,0001,000
Existing Homes (left axis)
3,500
4,000500New Homes (right axis)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
,
GLOBAL PERSPECTIVES
57Source: U.S. Census Bureau, FactSet
Economy
Federal Budget Deficit
-
7/31/2019 Global Perspectives MAY
61/90
Federal Budget DeficitTroubling projected budget deficits are driven by large mandatory programs, defense and interest payments, makingit difficult to reduce government spending.
Historical
Current
Projected
1.4
1.3
1.4$ trillions
Federal Budget Deficit Federal Budget Breakdown
20%
Defense
14.3%
OtherMandatory
1.2
0.90.8
40.7%
Social Security,
6% Interest
OtherDiscretionary
0.5
0.8 0.8
e care,Medicaid
0.30.2
0.2
05 06 07 08 09 10 11 12 13 14 15 16
GLOBAL PERSPECTIVES
58Source: Congressional Budget Office, Office of Management and Budget, Data as of 10/31/11.
Economy
U S Government Debt and Deficit Perspective
-
7/31/2019 Global Perspectives MAY
62/90
U.S. Government Debt and Deficit PerspectiveTotal federal public debt outstanding exceeds 90% of GDP, and the current U.S. deficit is more than 9% of GDP(excluding Social Security and Medicare).
100
120
> 90%of GDP
16,000,000% of GDP$ U.S. Government Debt Deficit Levels
60
80
8 000 000
12,000,000
Debt
40
> 9.4%4,000,000
0
20
0
Debt
Deficit
Deficit
1964 1970 1976 1982 1988 1994 2000 2006 20121964 1972 1980 1988 1996 2004 2012
GLOBAL PERSPECTIVES
59Source: Factset
Economy
Foreign Ownership of U S Treasuries
-
7/31/2019 Global Perspectives MAY
63/90
Foreign Ownership of U.S. TreasuriesForeign ownership of U.S. debt has more than tripled since 2000, in effect, financing U.S. consumption andfacilitating unsustainable deficit spending.
5,000$ billions
Europe11%
$4.6 trillion
Foreign Ownership of Treasuries Breakdown of Foreign Ownership
3,000
, Other17%
Commodity Exporters8%
2,000
Offshore16%
Japan
0
1,000
China27%
2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
60Source: U.S. Treasury. Data as of 9/30/11, Factset
Economy
Corporate Tax Rates
-
7/31/2019 Global Perspectives MAY
64/90
Corporate Tax RatesThe average marginal corporate tax rate for all OECD countries is 24.3%. The U.S. is highest at 35%.
Corporate Tax Rates
.0%
.0%
0.0
%
0.0
%
0.0
%33.0
%
33.3
%
34.0
%
35.0
%Canada lowered its rate in 2011and lowered it again in 2012
% 5.0
%
16.5
%
16.5
%
17.0
%
18.0
%20.0
%
20.0
% 24.3
%
25.0 28 28
12. 1
Ireland
ada-2012
ada-2011
on
gKong
Sin
gapore
C
anada
Russia
Turkey
EC
DAVG
China
U.K.
Ind
onesia
A
ustralia
Japan
India
Germany
France
Brazil
U.S.A.
Can
Can
GLOBAL PERSPECTIVES
61Source: Bloomberg, CIA World Factbook
Economy
Gold and Copper Prices
-
7/31/2019 Global Perspectives MAY
65/90
Gold and Copper PricesGold, regarded as a safe haven and inflation hedge, actually sells for less today in real terms than in 1980. Coppersmany industrial uses make it a strong proxy for economic growth.
$2,000
10,000
$/metric ton
1,664
Gold Copper
$1,200
,
8,000
$800
4,000
, 8,529
$4002,000
Real Price/oz.
om na r ce oz.503
1976 1982 1988 1994 2000 2006 2012$0
1990 1993 1996 1999 2002 2005 2008 2011
GLOBAL PERSPECTIVES
62Source: FactSet, (gold divided by CPI U.S. city average with 9/30/1976 = 100)
Economy
Oil Price and Intensity
-
7/31/2019 Global Perspectives MAY
66/90
yEnergy prices rise and fall based on political turmoil, and gasoline prices follow suit, but the required amount of oilper GDP output in the U.S. (oil intensity) has steadily declined.
140
160
1,000
Barrels per $1 million of GDP Price $ per Barrel
100
120
800
tensity
CrudeOil(
105
60
80
600OilIn
YM$/billion)
0
20
200
400
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
63Note: Oil Prices are West Texas Intermediate light crude spot price (NYMEX).Source: US Dept of Energy, FactSet
Economy
Tectonic Shift Energy
-
7/31/2019 Global Perspectives MAY
67/90
gyThe abundance of natural gas in North America, as well as the ability to extract oil from shale, is changing the globalenergy landscape.
Horn River
Montney Colorado Group Shale Gas Basins
Gammon Utica Horton Bluff
Structural Deformation of Crust
BakkenMowry
Green RiverBaxter
Mancos
McClure
PierreOhio
Marcellus
Utica
Antrim
New Albany
Excello/Mulkey
Mobrara
Cane Creek
Monterey
GothicHovenweep
Lewis
Mancos
Palo Duro
Barnett
Woodford Fayetteville
Barnett/Woodford
HaynesvilleBossier
Floyd/Conasauga/Neal
Chattanooga
U.S. Manufacturing
Natural Gas: 27%Electricity: 13%Liquefied Petroleum: 11%Coal: 8%
Eagle FordFuel Oil: 2%Other : 39%
Note: Oil Prices are West Texas Intermediate light crude spot price (NYMEX).
GLOBAL PERSPECTIVES
ource: vance esources, o tc ov 2002 1999, a n, 1994 art u s ng, 2008 mo e rom nergy roup
Source: U.S. Dept of Energy, FactSetSource: Census Bureau, http://upload.wikimedia.org/wikipedia/commons/b/b4/Plate_tectonics_map.gif
Economy
64
Tectonic Shift Trade
-
7/31/2019 Global Perspectives MAY
68/90
A growing economy fuels demand for imports; the trade deficit hit a 10-year low in the great recession as demanddwindled. Exports recently reached their highest level ever at $180 billion.
(10)
0 250
Trade Deficit
$USD billions $USD billions
Recessions
(30)
(20) 200
Imports
(left axis)
HighestExport Level
FEB 12$181B
(50)
(40)
100
(70)
50
Exports(right axis)
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GLOBAL PERSPECTIVES
65Source: FactSet
Economy
Long-Run Correlation (since 1990)
-
7/31/2019 Global Perspectives MAY
69/90
Return correlations below 1.0 indicate ways to combine investments and reduce overall risk; negative or near zerocorrelations offer the best diversification benefits.
Std Dev Cash Bonds Int Bnds Lg Cap Sm Cap Intl Eq Emg Eq REITS Hdge Fds
Cash 0.61 1.00 0.05 (0.10) 0.03 (0.03) 0.00 (0.06) (0.05) 0.09
Bonds 3.74 1.00 0.48 0.13 0.02 0.10 0.00 0.17 0.03
Int Bnds 8.62 1.00 0.16 0.09 0.42 0.15 0.24 0.12
g ap . . . . . . .Sm Cap 19.75 1.00 0.66 0.70 0.66 0.82
Intl Eq 17.72 1.00 0.73 0.51 0.75
Emg Eq 24.22 1.00 0.46 0.82
REITS 20.52 1.00 0.45
Indices:Cash 3 Month T-Bill
Bonds Barclays Aggregate
Sm Cap Russell 2000
Intl Eq MSCI EAFEIntl FI Barclays Global Agg ex-US
Lg Cap S&P 500
Emg Eq MSCI Emerging Equity
REITS FTSE NAREIT US
Hdge Fds HFRI Composite
Hdge Fds 7.08 1.00
Note: Correlation coefficients describe the degree to which two variables are related, ranging from -1 to +1. Larger values (positive or negative) indicatestronger correlation, with +1 indicating the variables tend to move together and -1 indicating the variables move opposite one another. Zero correlation
GLOBAL PERSPECTIVES
66
Allocation
. - ,which goes back 12 years. Standard deviations are calculated based on monthly data that is annualized.
Source: Barclays Capital, MSCI, Russell Investments, Standard & Poors, Citigroup, FTSE, NAREIT, HFR, FactSet
Mutual Fund Flows
-
7/31/2019 Global Perspectives MAY
70/90
Early 2012 bond flows were the strongest in 18 months while net outflows from domestic equity funds show thatinvestors remain spooked by market volatility.
millions USD 2012 2011 2010 2009 2008 2007
Asset Class Flows
Total Equity (18,744) (164,174) (28,765) (9,056) (234,387) 90,816
Domestic (33,833) (168,746) (87,739) (39,666) (151,749) (47,791)
Foreign 15,088 4,572 58,975 30,613 (82,635) 138,609
Hybrid 25,709 44,969 23,522 22,764 (18,414) 24,162
Total Bond 112,444 174,747 246,000 376,137 27,593 108,768
Taxable 94,390 177,903 234,817 307,052 19,773 97,895
Municipal 18,054 (3,159) 11,183 69,086 7,820 10,874
Total 119,412 55,541 240,756 389,847 (225,209) 223,749
AUM
Money Market 2,582,314 2,694,825 2,814,001 3,302,793 3,840,054 3,122,000
Change YTD (112,511) (119,176)
GLOBAL PERSPECTIVES
67Source: Investment Company Institute (ICI)
Allocation
Alternative Investment Returns
-
7/31/2019 Global Perspectives MAY
71/90
Alternative Asset Class YTD 2011 2010 2009 2008 2007 2006 1 Year 3 Year 5 Year 10 Year
Hed e Funds as of 3/31/12
CSFB/Tremont HF Index 4.0 (2.5) 10.9 18.6 (19.1) 12.6 13.9 (0.8) 9.8 3.3 6.8
Distressed 5.9 (4.2) 10.3 20.9 (20.5) 8.4 15.6 (1.2) 11.0 2.2 7.8
Convertible Arbitrage (4.9) 1.1 11.0 47.3 (31.6) 5.2 14.3 1.5 17.2 3.9 5.4
. . . . . . . . . . .
Global Macro 1.6 6.4 13.5 11.6 (4.6) 17.4 13.5 7.4 10.1 8.3 10.5
Long/Short Equity 7.2 (7.3) 9.3 19.5 (19.8) 13.7 14.4 (2.9) 8.9 2.7 6.8
Real Estate (as of 3/31/12)
NCREIF Property Index 2.6 14.3 13.1 (16.9) (6.5) 15.8 16.6 13.1 (4.2) 3.5 7.4
Apartment 2.8 15.5 18.2 (17.5) (7.3) 11.4 14.6 18.2 (3.3) 2.9 7.4Industrial 2.7 14.6 9.4 (17.9) (5.8) 14.9 17.0 9.4 (5.4) 2.6 6.8
Office 2.3 13.8 11.7 (19.1) (7.3) 20.5 19.1 11.7 (5.7) 3.8 6.4
Retail 2.8 13.8 10.8 (10.9) (4.1) 13.5 13.3 10.8 (1.8) 4.0 9.8
Equity (as of 4/30/12)
S&P 500 11.9 2.1 15.1 26.5 (37.0) 5.5 15.8 4.8 19.4 1.0 4.7
Note: All returns are annual returns except year-to-date (YTD) returns above. When considering alternative investments, investors should consider
U.S. REIT 12.8 4.7 23.5 21.0 (41.5) (20.2) 30.2 6.0 26.9 (4.2) 7.2
Global REIT 7.5 1.7 23.4 33.7 (45.0) (11.1) 38.8 2.8 36.3 (3.7) 10.3
GLOBAL PERSPECTIVES
68
various risks including the use of leverage and other speculative investment practices, illiquid instruments, and complex tax structures. These
investments are intended for sophisticated investors only, as defined by law. All investing involves substantial risk of loss.Source: CSFB/Tremont, NCREIF, Standard & Poors, Bloomberg
Allocation
Long-term Capital Market Results
-
7/31/2019 Global Perspectives MAY
72/90
Consistent with capital market theory, stocks have outdistanced bonds, and small-cap stocks have substantiallyoutperformed large-cap stocks for many years.
Recessions
1000U.S. Stock and Bond Returns and Economic Shocks
Small-Cap Stocks
Log
100
$1
Large-Cap Stocks
Corporate Bonds
10
Grow
tho
f
1
.1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
GLOBAL PERSPECTIVES
69Source: FactSet
Allocation
Global Asset Allocation Effective DiversificationS
-
7/31/2019 Global Perspectives MAY
73/90
A broadly diversified global strategy produced better performance with lower risk than U.S. large-cap and EAFEequities plus corporate bonds.
BarclaysAggregate Corp
20%
SP50010%
Mid Cap
GlobalAggregate
Bonds
High YieldBonds10%
MSCI EAFE10%
10%
Small Cap10%
US TreasuryBonds 20+
10%
SP50070% REIT
10%
BarclaysAggregate
CorpMSCI EAFE
10%MSCI BRIC
10%
10%
Annual Return 8.31%Annual Return 7.08%
Index returns for the period 1995-2011 (YTD): S&P 500, S&P400 Midcap, S&P600 Smallcap, MSCI EAFE, MSCI BRIC, Barclays Capital U.S. Corporate
Standard Deviation 11.92%Standard Deviation 14.60%
GLOBAL PERSPECTIVES
70
, . . , , . . ., .illustration only. Past performance is not a guarantee of future results. Investors cannot invest directly in an index.
Source: FactSet. Returns data from 9/30/1995-12/30/2011.
Allocation
-
7/31/2019 Global Perspectives MAY
74/90
Effect of Combining Risky AssetsA portfolio of risky assets may have less risk than might be expected at first glance Assets should be evaluated on
-
7/31/2019 Global Perspectives MAY
75/90
A portfolio of risky assets may have less risk than might be expected at first glance. Assets should be evaluated on
their contribution to the overall portfolio, not in isolation.
Annualized Returns and Risks (%)
Risky Asset Return Risk
U.S. Small-cap 8.4 24.716
18Diversification Benefits Portfolio Return/Risk Ratio
InternationalEquities
6.6 17.0
Global REITS 12.2 20.7
Emer in10
12
14
eRe
turn
%
Market Equities
16.5 30.1
Other asset classesnot included in the analysis:
6
8Avera
U.S. Large-cap 4.5 17.0
U.S. Bonds 6.0 4.0
416 18 20 22 24 26 28 30 32
Annualized Risk %
1-Asset 2-Assets 3-Assets 4-Assets Log. (1-Asset)
Note: The analysis includes returns for the Russell 2000 Small-cap Index, MSCI EAFE International Index, NAREIT REIT Index and MSCI Emerging MarketsEquity index for the period January 1995 June 2011. Hypothetical 2-, 3- and 4- asset portfolios were created based on equal weighting of the included assets.The return for each portfolio (vertical axis) is the average annualized return over the measurement period. The risk (horizontal axis) equals the annualizedstandard deviation for the period. Standard deviation measures dispersion around the average return, indicating whether the returns tend to be close to theaverage or spread over a wide range. The dotted line ellipses represent theoretical attainable sets of other portfolios of those assets with different assetweightings. As more assets are added to the hypothetical portfolios, historically risk tends to decline. For illustration purposes only. Past performance is not a
GLOBAL PERSPECTIVES
72
guarantee o uture resu ts. nvestors cannot nvest rect y n an n ex. vers cat on oes not guarantee aga nst a oss an t ere s no guarantee t at adiversified portfolio will consistently outperform a non-diversified portfolio.Source: ING Investment Management, FactSet.
Allocation
Benefits of Portfolio RebalancingOver 35 years regular rebalancing increased returns and reduced risk compared to a buy and hold approach which
-
7/31/2019 Global Perspectives MAY
76/90
Over 35 years, regular rebalancing increased returns and reduced risk compared to a buy and hold approach, which
allows allocations to drift away from the intended targets.
Rebalanced
60/40 Average AllocationValue: $2.9 million
Buy and Hold
72/28 Average AllocationValue: $2.7 million
Initial Portfolio
60/40 AllocationValue: $100,000
Barclays CapitalAggregate Bonds
S&P 500Stocks
Return 9.88%
Risk 9.90%
Return 9.67%
Risk 11.70%
Note: Based on index return data for the period 1/31/1976-9/30/2011, compounded annually. Initial hypothetical portfolios comprised of 60% S&P 500, 40%Barclays Capital U.S. Aggregate Bonds with rebalancing for the rebalanced portfolio on a quarterly basis. Risk equals historical annualized standard
GLOBAL PERSPECTIVES
73
ev at on. or ustrat on on y. ast per ormance s not a guarantee o uture resu ts. nvestors cannot nvest rect y n an n ex. ort o o re a anc ng mayinclude trading costs and fees.Source: FactSet, ING Investment Management.
Allocation
Cash on the Sidelines and Equity Fund Flows vs. Stock PricesThe excess of M2 over M1 money supply data show record levels of cash on the sidelines while flows into and out
-
7/31/2019 Global Perspectives MAY
77/90
The excess of M2 over M1 money supply data show record levels of cash on the sidelines, while flows into and out
of equity mutual funds exhibit extreme swings that reflect stock market performance.
60 2,000
7,000
8,000 $7.5 trillionin cash onthe sidelines
$ billions
$ millions
Extreme inflows atthe top of the market
Equity Fund Flows vs. Stock Prices
Index value
20
40
1,600
5,000
6,000
Money Supply M2-M1Equity Fund Flows
-20
0 1,200
3,000
4,000
S&P Index
-40
800
1,000
2,000 Retail Money Market Funds
Institutional Money Markets
Extreme outflowsat the bottom of
the market
1998 2000 2002 2004 2006 2008 2010 2012-60 400
1994 1998 2002 2006 2010
GLOBAL PERSPECTIVES
74
Allocation
Note: M2 minus M1 includes all savings deposits and retail money market funds and excludes currency, coins and checking account balances.Source: FactSet
Life ExpectancyImproving life expectancy for those of all ages means the probability of living many years in retirement is higher than
-
7/31/2019 Global Perspectives MAY
78/90
Improving life expectancy for those of all ages means the probability of living many years in retirement is higher than
most people realize.
Life Expectancy Before Retirement
65%
Probability of Long Life at Age 65
.
40.0
31.0
46%
22.5
18.6
26%
30 40 50 60 65 80 85 90
Age Age
GLOBAL PERSPECTIVES
75Source: Table B. Expectation of life by age, sex, Hispanic origin and race for non-Hispanic population, United States, 2007, National Vital Statistics Reports,Vol. 59, No. 9, September 28, 2011.
Retirement
Retirement Plan Funding, Sponsorship, ParticipationDeclining funding and sponsorship of pension plans is shifting the burden of retirement savings to participants in
-
7/31/2019 Global Perspectives MAY
79/90
Declining funding and sponsorship of pension plans is shifting the burden of retirement savings to participants in
defined contribution plans.
500
600
700DB Plan Sponsors in Fortune 1000
No Frozen Plans
ponsors
Funded, 7.6%Underfunded,
Funded Status of DB Plansfor S&P 500 Companies, 2011 Forecast
0
100
200
300
Frozen Plans
Numberof
.
2004 2005 2006 2007 2008 2009 2010 2011
90Retirement Plan Participation, Medium and Large Companies
50
60
70
80
art
icipa
ting
Defined Benefit
20
30
40
1985 1989 1995 2000 2005 2010
%
Defined Contribution
GLOBAL PERSPECTIVES
76Source: Top: Towers Watson. Bottom: Employee Benefit Research Institute, U.S. Department of Labor, Bureau of Labor Statistics, National CompensationSurvey: Employee Benefits in Private Industry in the United States, March 2004 March 2010, Bureau of Labor Statistics, 2004-2010.
Retirement
Major Sources of Retirement IncomeTodays workers expect to rely more on personal sources of retirement income, such as their savings plan and IRA,
-
7/31/2019 Global Perspectives MAY
80/90
y p y p , g p ,
than is presently the case for those over 65.
Expected Sources Percent (%)
Employer-sponsored saving plan 44Earnings
Actual Sources of Retirement Income 2009, Age 65 and Over
Social Security 33
Employer traditional pension 29
Individual Retirement Account 29
SocialSecurity
42%
28%
er sav ngs an nves men s
Continued Employment 24
Personally-owned guaranteed income products 14 Incomefrom
Pensionsand
Annuities
Assets11%
19%
GLOBAL PERSPECTIVES
77Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1993-2011 Retirement Confidence Surveys, ebri.org Issue Brief,March 2011, No. 355. EBRI Databook on Employee Benefits, estimates from Current Population Survey, U.S. Census Bureau, March 2010 Supplement.
Retirement
Savings Rates and Household Net WorthLower personal savings rates and household net worth increase the burden that future savings must bear to achieve
-
7/31/2019 Global Perspectives MAY
81/90
p g g
retirement security.
60
70
8
10 3 month average,% of disposableincome
Most recent data: 12/30/11$ trillionsMost recent data: 2/29/12
Household wealthhas likely stabilized
506
.
30
40
2
4.
200Since reaching a bottom at 1%in 2008, the savings ratehas moved unevenly higher.
1988 1991 1994 1997 2000 2003 2006 2009 20121988 1991 1994 1997 2000 2003 2006 2009 2012
GLOBAL PERSPECTIVES
78Source: Bureau of Economic Analysis, Federal Reserve, FactSet.
Retirement
Savings Needed for RetirementAmong workers who reported, total savings and investments not including their personal residence or defined
-
7/31/2019 Global Perspectives MAY
82/90
benefit plans are far less than what they will need to retire.
31
30
35
Amount Needed at Retirement:Estimated Weighted Average: $567,000
46
45
50
Reported Total Savings and Investments:75% have saved < $100,000
19
22
20
25
t(%)
30
35
40
nt(%)
1010
15
P
ercen
11
14
1115
20
25
Perc
0
5
- - -
9
0
5
10
- - - -- -1,000
, -1,500
, - - -100k
-250k
GLOBAL PERSPECTIVES
79
ource: mpoyee ene t esearc nst tute an at ew reenwa & ssoc ates, nc., 2011 etrement on ence urvey, e r .org ssue r e , arc2011, No. 355, Figure 26, Amount of Savings Workers Think They Need for Retirement, including data only for those who responded (88%), Figure 3,
Reported Total Savings and Investments, Among Those Providing a Response.
Retirement
Confidence in the FutureThe percentage of workers who are very confident about the financial aspects of retirement has slipped substantially
-
7/31/2019 Global Perspectives MAY
83/90
in the past ten years.
37342001
Percentage of Workers Very Confident in Financial Aspects of Retirement
22
2728.0
22.0
29.0
13.0
Live comfortably Enough for basic expenses Doing a good job of preparing
for retirement
Confidence that social security
will rovide benefits of e ualvalue
GLOBAL PERSPECTIVES
80
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2011 Retirement Confidence Survey, ebri.org Issue Brief, March
2011, No. 355, Figure 7, Percentage of Workers Very Confident in Financial Aspects of Retirement, selected retirement responses.
Retirement
Capital Market ReturnsCapital market returns vary widely over time, making asset allocation decisions difficult and successful market timing
-
7/31/2019 Global Perspectives MAY
84/90
virtually impossible.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
BC U.S. MSCI EM NAREIT/REIT MSCI EM NAREIT/REIT MSCI EAFE BC U.S. MSCI EM NAREIT/REIT BC U.S.
10.3% 55.8% 31.6% 34.0% 35.1% 11.6% 5.2% 78.5% 28.0% 7.8%
NAREIT/REIT R2000 MSCI EM MSCI EAFE MSCI EM BC U.S. T-Bill MidCap R2000 NAREIT/REIT
3.8% 47.3% 25.6% 14.0% 32.2% 7.0% 1.6% 40.5% 26.9% 4.7%
T-Bill MidCap MSCI EAFE MidCap MSCI EAFE Balanced Balanced MSCI EAFE MidCap Balanced
1.7% 40.1% 20.7% 12.7% 26.9% 6.2% -22.1% 32.5% 25.5% 4.4%
MSCI EM MSCI EAFE MidCap NAREIT/REIT R2000 MidCap R2000 NAREIT/REIT MSCI EM SP500
-6.2% 39.2% 20.2% 12.2% 18.4% 5.6% -33.8% 28.0% 18.9% 2.1%
-
-9.8% 37.1% 18.3% 4.9% 15.8% 5.5% -37.0% 27.2% 15.1% 0.0%
MSCI EAFE SP500 SP500 R2000 MidCap T-Bill NAREIT/REIT SP500 Balanced MidCap-15.7% 28.7% 10.9% 4.6% 15.3% 4.7% -37.7% 26.5% 12.1% -1.5%
MidCap Balanced Balanced Balanced Balanced R2000 MidCap Balanced MSCI EAFE R2000
-16.2 18.5% 8.3% 4.0% 11.1% -1.6% -41.5% 18.4% 8.2% -4.2%
R2000 BC U.S. BC U.S. T-Bill T-Bill NAREIT/REIT MSCI EAFE BC U.S. BC U.S. MSCI EAFE
-20.5% 4.1% 4.3% 3.0% 4.8% -15.7% -43.1% 5.9% 6.5% -11.7%
SP500 T-Bill T-Bill BC U.S. BC U.S. MSCI EM MSCI EM T-Bill T-Bill MSCI EM
-22.1% 1.0% 1.2% 2.4% 4.3% -39.4% -53.3% 0.1% 0.1% -18.2%
NAREIT/REIT = NAREIT Equity REIT T-Bill = U.S. 30-day T-Bill BC Agg. = Barclays Capital U.S. Aggregate Bond Index
MSCI EM = MSCI Emerging Markets - Net R2000 = Russel l 2000 Index Balanced = 60% S&P 500, 40% BC Aggregate
Midcap = Russell Midcap Index SP500 = S&P 500 MSCI EAFE = MSCI EAFE USD
GLOBAL PERSPECTIVES
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Note: For illustration only. Past performance is not a guarantee of future results. Investors cannot invest directly in an index.
Source: FactSet, ING Investment Management.
Retirement
Asset Allocation by Participant AgeAs participants age, declining equity and increasing fixed income allocations make reported allocations appear to be
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rational if not optimal.
50.050
60 Average Asset Allocation of 401(k) Accounts byParticipant Age 2009
39.2
33.731.8
30
40
20.9 19.6
10.17.1
10.8 10.3
15.9
7.77.89.4 9.8
4.310
20
. .
0Equity Target Date Other Balanced Stable Value Bonds Money Market
GLOBAL PERSPECTIVES
82
Note: Dollar weighted averages, omits minor investment options, may not sum to 100 due to rounding.
Source: EBRI/ICI Participant-Directed Plan Data Collection Project.
Retirement
Maintaining Purchasing PowerRetirees face the risk of shrinking real purchasing power; on average, small-cap stocks have been a good inflation
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hedge; cash is a poor choice.
Recessions16
)
Real Rates of Return Over Average Life Expectancy at Age 651982 2011
ew grap1012ofReturn(%
2
4
6
ualized
Rate
ma - ap oc s
Large-Cap Stocks
Corporate Bonds
(4)
(2)
0An Cash
Rate of Inflation
Note: Return data for the S&P 500 Index, Russell 2000 Small-cap Index, Barclays Capital U.S. Corporate Bond Index and the 30-day U.S. T-Bill index for
1982 1986 1990 1994 1999 2003 2007 2011
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83
ro ng 18.5-year per o s rom 1963-2011. a cu ate as t e compoun annua ze return n excess o t e rate o n at on or eac asset c ass. e rate oinflation is based on the monthly reported change in the Consumer Price Index (CPI).
Source: FactSet, ING Investment Management.
Retirement
Fund Flows in DC PlansFund flows show the tendency of investors to remain risk averse long after market downturns in ways that may
d i h i l l h l i l
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undermine their long-term wealth accumulation goals.
Estimated Net New Cash Flows to DC Retirement Plans ($billions)
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 201010-Year
Total% ofTotal
Equities 63 20 74 92 52 68 16 -124 -22 -25 214 20%
Hybrid(Balanced)
19 16 37 57 75 59 95 32 41 51 482 45%
Bonds 36 54 8 3 13 15 28 31 90 52 330 31%
MoneyMarket
31 20 -30 -31 1 32 59 82 -70 -50 44 4%
Total 150 110 88 120 139 174 198 21 40 28 1068 100%
S&P 500Return
-11.9% -22.1% 28.7% 10.9% 4.9% 15.8% 5.5% -37.0% 26.5% 15.1%
GLOBAL PERSPECTIVES
84
Retirement
Note: Includes both 401(k) and IRA plans. Components may not add to the illustrated total due to rounding.
Source: Investment Company Institute, ING Investment Management.
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Important Disclosures
This information has been prepared by ING InvestmentM f i f i l N hi i d h i The views and judgments expressed are those of ING Investment
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This information has been prepared by ING InvestmentManagement for informational purposes. Nothing contained herein The views and judgments expressed are those of ING InvestmentManagement. They are subject to change at any time. These views
buy any security or (ii) a recommendation as to the advisability ofinvesting in, purchasing or selling any security. Certain of thestatements contained herein are statements of future expectationsand other forward-looking statements that are based onmanagement's current views and assumptions and involve known
.
All investing involves risks of fluctuating prices and the uncertaintiesof rates of return and yield inherent in investing. All securitytransactions involve substantial risk of loss.
You should consult your tax, legal, accounting or other advisors
and unknown risks and uncertainties that could cause actualresults, performance or events to differ materially from thoseexpressed or implied in such statements. Actual results,performance or events may differ materially from those in suchstatements due to, without limitation, (1) general economicconditions, (2) performance of financial markets, (3) interest rate
about the matters discussed herein.As indicated on each page, some information was obtained fromoutside sources and is believed to be reliable, but ING does notguarantee its completeness or accuracy.
levels and (4) increasing levels of loan defaults (5) changes in lawsand regulations and (6) changes in the policies of governmentsand/or regulatory authorities.
All indexes are unmanaged and an individual cannot invest directlyin an index. Index returns do not include fees or expenses.
Not FDIC Insured; no bank guarantee; may lose value
Past performance is no guarantee of future results.
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CID3520