monthly maret commentary

Monthly Market CommentaryFebruary 2021

DoubleLine Capital || 333 S. Grand Ave., 18th Floor || Los Angeles, CA 90071 || (213) 633-8200 || doubleline.com

OverviewGlobal markets in February followed a similar path from the beginning of the year as the rotation into value and small-cap stocks continued, and U.S. Treasury yields marched higher. Despite falling toward the end of the month, stocks rallied and the S&P 500 Index increased 2.76%. Value stocks markedly outperformed growth stocks, with the Russell 1000 Value Index rising 6.04% and the Russell 1000 Growth Index flat. The Treasury curve steepened month-over-month (MoM), with yields rising across most tenors. Notably, the Treasury Department reported one of its worst results for a seven-year Treasury auction, held Feb. 25, with the low bid-to-cover ratio suggesting anemic investor demand. Later that day after the auction, rates along the belly of the curve increased dramatically from Feb. 24 as the seven-year yield increased 19 basis points (bps) and the 10-year yield rose 14 bps.

2.8%2.0%

4.1%

2.8%

0.8%

-1.4% -1.8%

-0.7%

-1.7%

0.4% 0.6%

-2.7%

0.3%

6.5%

-4%

-2%

0%

2%

4%

6%

8%

Source: Bloomberg, DoubleLine


February 2021 Performance of Asset Classes | Denominated in U.S. dollars

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Month-over-Month Change February 28, 2021 January 31, 2021

U.S. Treasury Yield Curve

Monthy Market CommentaryFebruary 2021

2

Overview (cont’d)

Fiscal stimulus continued to be an important driver of economic growth for the month. Although the initial jobless claims data, including the Pandemic Unemployment Assistance (PUA) program, slowly trended lower, the numbers remained multiples above pre-COVID-19 levels. For the week ended Feb. 26, initial jobless claims were 745,000 versus consensus estimates of 750,000; initial claims for the PUA program increased 9,000 to 437,000. Total unemployment benefits claimed for the week ended Feb. 13 decreased 1.0 million to 18.0 million, driven by a 0.6 million decline in Pandemic Emergency Unemployment Compensation claims. Meanwhile, the U-3 unemployment rate continued to fall in February, reaching a pandemic-period low of 6.2%.

COVID-19 cases in the U.S. continued to decline while vaccinations increased. As of month-end, nearly 77 million vaccines had been administered in the U.S. These efforts might have helped reduce the spread of the coronavirus, bringing daily U.S. case counts below 100,000 for the first time since November. The Food and Drug Administration approved a single-shot vaccine produced by Johnson & Johnson in February, making it the third FDA-approved COVID-19 vaccine in the U.S. President Joe Biden announced that there will be enough COVID-19 vaccines for every adult in the country by the end of May. It is uncertain if the current vaccines will protect individuals from new variants of the virus that have emerged across the globe. Investors will keep an eye on the new strains as potential disruptors of the path to normalization.

Economic data largely continued to improve during the month, including the release of January’s positive income numbers. U.S. personal income in January increased 10.0% MoM versus consensus estimates of 9.5% and the previous month’s rise of 0.6% MoM. Disposable income increased 11.4% MoM. The large rise in income was driven by a 52% increase in government transfer payments as a result of the fiscal stimulus bill signed in late December. Moreover, after the first two months of the calendar year, personal income was up 13.1% year-over-year (YoY). Outside of April 2020, when the U.S. launched its stimulus plan, February marked the highest YoY growth in personal income since 1981. The personal income increase is widely expected to continue as market participants anticipate that Congress will vote in favor of Biden’s $1.9 trillion COVID-19 relief plan, which includes a provision for $1,400 going to qualified individuals. Transfer payments drove the savings rate up to 20.5%, the highest level since May. With demand for goods continuing to increase, the ISM Manufacturing Purchasing Managers Index (PMI) for February increased to 60.8, beating consensus estimates of 58.9 and up from last month’s 58.7. Strong demand in goods for February, up 10.4% YoY, was offset

by a 2.3% YoY decline in services, according to PMI data. Of note, prices paid jumped to 86.0, as measured by the PMI subindex, the highest level since May 2008.

In Europe, the manufacturing component of the IHS Markit Flash Eurozone Purchasing Managers’ Index strengthened to 57.7 while the services component remained weak at 44.7. Risk assets in the eurozone performed broadly positive for the month, looking past concerns that extended lockdown restrictions in the region, a slow start to the vaccination campaign and delayed fiscal stimulus could weigh on the recovery. Eurozone consumer confidence, however, improved only marginally. Inflation accelerated more than expected in January to 0.9% YoY, mainly pushed by an increase in the price of services and nonenergy industrial goods. Meanwhile, European Central Bank members have signaled that they will be monitoring markets closely in response to the recent sell-off in eurozone sovereign debt markets as borrowing costs rise.

In Japan, emergency restrictions weighed heavily on economic activity in February, even as infection rates sharply declined and vaccinations got underway for healthcare workers after a delayed start. Meanwhile, data confirmed better-than-expected GDP growth in the fourth quarter of 12.7% quarter-over-quarter annualized.

Heading into the final month of the first quarter, investors will be focusing on whether the $1.9 trillion relief plan will pass. This newest round of spending would come on top of an estimated $3.5 trillion distributed to individuals, small businesses, and state and local governments since the pandemic gripped the global economy. DoubleLine will continue to monitor the effects of further fiscal support on risk assets while remaining steadfast in our efforts to analyze economic data and carefully navigate any potential volatility.

U.S. Government SecuritiesU.S. Treasury yields moved sharply higher in February as the rise that began in August accelerated. The increase was especially notable in intermediate-maturity issues, with the five-year note yield rising 31 basis points (bps). The yields for all on-the-run issues moved above the channels that had been established in the August-through-January period. There was no specific catalyst to the move, and yields rose further than headlines or economic data would have justified prior to February. In contrast to longer issues, the two-year Treasury yield was largely unchanged, held in check by the Federal Reserve’s policy of keeping its target Federal Funds Rate at the zero lower bound. Treasury bill yields actually fell due to the reduction in Treasury supply at the short end of the yield curve.


3

U.S. Government Securities (cont’d)

U.S. Treasury Yield Curve

1/29/2021 2/28/2021 Change3 Months 0.05% 0.03% -0.02%6 Months 0.07% 0.05% -0.02%1 Year 0.08% 0.07% -0.01%2 Years 0.11% 0.13% 0.02%3 Years 0.17% 0.28% 0.11%5 Years 0.42% 0.73% 0.31%10 Years 1.07% 1.40% 0.34%30 Years 1.83% 2.15% 0.32%

Source: Bloomberg

The five-year yield is generally considered the best indication of the market’s expectations regarding Fed policy. February’s rise in the five-year yield and the steepening of the yield curve through five years suggest market participants have pulled forward their estimate of when the Fed will shift policy tighter. The economic projections and the dot plot from the December Federal Open Market Committee meeting indicated the Fed expected to hold rates at the zero lower bound through the end of 2023, with no subsequent activity challenging that expectation. At the end of January, the Treasury yield curve implied a market expectation of fourth quarter 2022 for the first Fed rate increase. By the end of February, the market-implied first rate rise was in first quarter 2023. Treasury market participants now believe a rapid move toward the Fed’s stated objective of maximum employment and/or a sustained rise in inflation will force the Fed to raise policy rates sooner than previously expected. The combination of expansive fiscal policy, accommodative monetary policy, a successful vaccine rollout and a robust economic recovery appears to have shifted market sentiment in favor of higher growth and inflation, and an earlier Fed policy change.

Breakeven inflation rates for Treasury Inflation-Protected Securities (TIPS) were mixed in February, with 10- and 30-year breakevens leveling off. The two-year breakeven rose modestly, and the five-year breakeven jumped 20 bps. The shifts were consistent with an increase in expected real growth and anticipated cyclical inflation. The TIPS market is now pricing in the Fed’s sought-after rise to 2% core Personal Consumption Expenditures Index inflation over a five-year horizon while still pricing in somewhat less than 2% inflation on a longer-term secular basis.

The Bloomberg Barclays U.S. Treasury Index returned a negative 1.81% for the month, bringing the year-to-date return to a negative 2.75%. The Bloomberg Barclays US Long Treasury Index returned a negative 5.57% in February. The Bloomberg Barclays US TIPS Index returned a negative 1.61%.

We foresee a confluence of factors supporting somewhat higher yields through the remainder of 2021. Higher yields will continue to correlate with a steeper yield curve. Continued expansive fiscal policy and a successful vaccine rollout could push the 10-year yield as high as 2% by year-end. The Fed’s willingness to act to prevent such a rise – and the market’s belief in that willingness – will shape the realized yield increase.

Agency Residential Mortgage-Backed and Agency Commercial Mortgage-Backed SecuritiesThe Agency mortgage market marked an increase in prepayment speeds in February as refinance activity remained high, but signs of a slowdown might appear soon as mortgage rates rise. Thirty-year Fannie Mae prepays increased to 30.5 Constant Prepayment Rate (CPR) from 29.5 CPR, 30-year Freddie Mac prepays increased to 29.4 CPR from 28.5 CPR, and 30-year Ginnie Mae II prepays increased to 35.4 CPR from 34.3 CPR. The Freddie Mac U.S. Mortgage Market Survey 30-Year Homeowner Commitment National Index ended the month at 2.97%, the highest rate seen in over six months. The average mortgage rate in the 30-year conventional universe continued to decrease. At a 3.0% mortgage rate, 63% of borrowers had at least a 50 basis point incentive to refinance compared to 67% in January.

Conventional delinquencies ticked higher in February for the first time since the June 2020 peak, driven by Fannie Mae loans. The aggregate rate of loans more than 30 days delinquent decreased to 3.15% from 3.18% month-over-month (MoM) for 30-year Freddie Mac loans but increased to 3.57% from 3.48% MoM for 30-year Fannie Mae loans. The rate of loans more than 90 days delinquent continued to decrease while the share of borrowers that have missed one payment increased to 0.68% from 0.61% MoM, suggesting the uptick is being driven by newly delinquent loans.

Multifamily fundamentals continued to be strong throughout the COVID-19 crisis. This resiliency was demonstrated in the rates of loan delinquencies of 30 days or longer for Freddie Mac and Fannie Mae Delegated Underwriting and Servicing (DUS) Program loans, which remained below 1%. In addition, rent collection rates remained strong. According to the latest data from the National Multifamily Housing Council, 79.2% of renters in February made full or partial payments by Feb. 6, as opposed to 80.1% a year ago. February’s rate was 2.6 percentage points above the 76.6% that paid by Jan. 6, 2021.


4

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Years

Duration of Barclays US MBS Bond Index

120

170

220

270

320

370

Mortgage Bankers Association Purchase Index

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Mortgage Bankers Association Refi Index

2.50

3.00

3.50

4.00

4.50

5.00

5.50%

Freddie Mac Commitment Rate - 30 Year

Source: eMBS, Barclays Capital. FHLMC Commitment Rate Source: Bloomberg

Agency Residential Mortgage-Backed and Agency Commercial Mortgage-Backed Securities (cont’d)

In February, gross issuance of Agency residential mortgage-backed securities (RMBS) decreased to $305 billion compared to $335 billion in January. Net issuance decreased in tandem to $50 billion versus $91 billion the prior month. The Federal Reserve continues to buy Agency mortgages at a steady pace, purchasing over $100 billion gross RMBS in February with no indication of a change. In the Agency commercial mortgage-backed securities (CMBS) space, gross issuance for the month was roughly $18.7 billion, a decrease from January’s $19.7 billion. The Fed purchased $67 million of Agency CMBS in February, comprising solely Fannie DUS paper and down from $121 million the prior month, bringing the Fed’s total gross purchases to roughly $10.4 billion. The Fed’s purchase volume is likely to remain muted, however, as the Agency CMBS secondary market and spreads remain firm.

Duration of Barclays U.S. MBS Bond Index | As of February 26, 2021

MBA U.S. Refinancing Index | As of February 26, 2021

Source: Bloomberg. Base = 100 on 3/16/1990. Seasonally Adjusted.

2/26/21 3,850.4

MBA Purchase Index | As of February 26, 2021

2/26/21 269.7

Source: Bloomberg. Base = 100 on 1/14/2011. Seasonally Adjusted

Source: Bloomberg. Base = 100 on 1/14/2011. Seasonally Adjusted

2/26/21 3.4

Freddie Mac Commitment Rate - 30 Year | As of February 25, 2021

2/25/21 3.0



5

Non-Agency Residential Mortgage-Backed SecuritiesNon-Agency residential mortgage-backed securities (RMBS) delivered positive returns in February despite the sharp rise in U.S. Treasury yields, and investor demand for non-Agency RMBS remained strong in the face of heavy issuance. Deal redemption volume has grown over the past few months due to lower financing costs. On the delinquency side, the private-label mortgage forbearance rate as of Feb. 23 was 5.2%, unchanged from the prior month, according to real estate lending data firm Black Knight.

New issuance totaled $12.7 billion in volume, the strongest February in recent memory, compared to $5.7 billion in January, as reported by Bloomberg. The composition of collateral offered was diverse, with no collateral type making up more than one-fifth of February’s issuance.

The most-recent reading of home prices for the month of December marked an increase of 10.1% year-over-year (YoY) and 0.9% month-over-month (MoM), as measured by the S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index. Home prices continued to accelerate and reached their highest YoY gain since May 2014. Existing-home sales marked their second consecutive month of growth in January, rising 0.6% MoM, the most-recent month for which data was available as measured by the National Association of Realtors Existing-Home Sales Report. The supply of homes available on the market was down 25% YoY, and unsold inventory relative to the pace of sales was at its lowest level since the tracking of home supply began in 1982.

The 30-year mortgage rate rose to 2.97% in February in sympathy with Treasury yields, an increase of 24 basis points MoM, as reported by the Freddie Mac Primary Mortgage Market Survey. Mortgage rates remain near historic lows, supporting housing affordability.

Non-Agency Commercial Mortgage-Backed SecuritiesThe new-issue non-Agency commercial mortgage-backed securities (CMBS) market priced $6.3 billion in February deals: one conduit deal totaling $794 million, six single asset, single buyer (SASB) deals totaling $2.7 billion and four commercial real estate (CRE) collateralized loan obligations totaling $2.9 billion. That $6.3 billion represented a 21% year-over-year (YoY) decrease. With many deals having already begun the pre-marketing process, there were signs of surprising activity for March. While new-issue spreads have largely tightened since June, issuers widened guidance for one industrial SASB transaction as

investors began to debate if tightening was justified in the face of rising U.S. Treasury yields and an increasingly busy new-issue pipeline. Issuers also widened guidance on a transitional office SASB loan after investors pushed back on credit issues. While the deal ultimately priced at the revised price guidance, it cleared with substantially less interest than recent transactions and at materially wider levels. Investors continued to keep credit in mind, pushing back against deals with weaker structure amid uncertain fundamentals, a net positive for the market. Despite the decline in February issuance, the outstanding non-Agency CMBS universe increased to $594.6 billion for the month and was up 2.84% YoY.

CRE prices followed a more traditional growth pattern in January, the latest month for which data was available, with the RCA U.S. All-Property Commercial Property Price Index gaining 1.20% month-over-month (MoM) and 6.89% YoY. Apartment prices rose 0.60% MoM and 6.82% YoY. While the sector has slowed from its double-digit pace in 2020, it has fared better than most sectors. The industrial sector remained the most stable of the national property types, gaining 0.44% MoM and 8.27% YoY. The retail sector experienced some recovery, with prices rising 0.37% MoM but still down 1.77% YoY. The suburban office sector gained 1.53% MoM while its central business counterpart fell 0.25% MoM. After CRE transaction volume closed out 2020 up 8% YoY in December, CRE transaction activity sank 74% MoM and 58% YoY in the first month of the new year. However, the decline does not necessarily indicate a pullback in investor interest. December transaction activity might have been elevated by delayed deals that needed to close by year-end. Hotels continued to be the most-impacted property type, with January transaction activity falling 73% YoY.

In February, cash spreads in the non-Agency CMBS secondary market were unchanged to tighter alongside continued flattening in the yield curve as demand continues to outweigh supply. AAA last cash flows (LCFs) were unchanged for the month at swaps +62 bps while BBB- spreads tightened by 10 bps to swaps +320 bps. Similar to recent months, new-issue spreads remained a directional for secondary. While investors debated to what extent rising rates will affect all-in coupons and borrowers’ ability to refinance, many deals approaching maturity were closed when rates were significantly higher. Synthetic spreads were similarly mixed, with a tightening in mezzanine cash bonds narrowing synthetic mezzanine spreads. While AAA liquidity saw an improvement in the back half of the month, synthetic AAA spreads ultimately moved wider following cash spreads. As a result, CMBX 2012-2018 AAA reference indexes widened by 2 bps, while BBB- reference indexes narrowed by 10 bps.


6

Non-Agency Commercial Mortgage-Backed Securities (cont’d)

Delinquencies among CMBS loans continued to stabilize, with the rate falling 78 bps to 6.80% and marking the eighth consecutive month of decline. The percentage of loans 30 days delinquent increased 3 bps to 0.77% MoM while the special servicing rate fell 12 bps to 9.60% MoM. However, loans less than 30-days delinquent fell 77 bps to 2.30% MoM.

Asset-Backed SecuritiesFebruary returns for asset-backed securities dipped into negative territory as the sharp sell-off in U.S. interest rates rippled through the fixed income market. Relative performance for ABS was quite strong, however, as the Bloomberg Barclays US ABS Index returned a negative 0.14% compared to the Bloomberg Barclays US Aggregate Bond Index’s negative 1.44% return. The steepening of the U.S. Treasury yield curve weighed heavily on the longer-duration government and corporate bonds held in the Aggregate Bond Index while the ABS sector benefitted from its lower duration and preponderance of amortizing cash-flow profiles. Spreads for most ABS sectors were unchanged or slightly wider as broad interest rate volatility put a damper on the strong momentum recently marked by the asset class. The best performers were more off-the-run sectors such as aircraft and whole business ABS, and consumer loans. The benchmark spreads for the senior tranches of the three products remained roughly unchanged despite elevated secondary trading volumes and adverse rate moves. Primary market activity weathered the rate storm quite well as over 30 different ABS transactions were priced for a total of $26 billion in gross issuance. Gross issuance for ABS stood at approximately $40 billion after the first two months of 2021, only a slight decline relative to the same period in 2020.

Investment Grade CreditU.S. investment grade (IG) corporate credit spreads moved tighter in February amid improving COVID-19 data as more people were vaccinated and positive prospects of another fiscal stimulus package, which could help with the economic recovery. IG credit spreads, as measured by the Bloomberg Barclays US Credit Index, narrowed by 6 basis points (bps) to 86 bps, outperforming duration-matched U.S. Treasuries by 55 bps.

The index’s total return was a negative 1.74%. The driver of the negative performance was a steepening in Treasury rates, with yields moving higher in the five- (+31 bps), 10- (+34 bps) and 30-year (+32 bps) parts of the curve.

The best-performing sectors on a total return basis were more-volatile sectors, including airlines, gaming, finance (other), refining and lodging. Less-volatile sectors underperformed, with sovereigns, industrial (other), utility (other), natural gas and railroads the worst performers.

At the ratings level, bonds rated AAA outperformed, posting a total return of negative 1.16%, followed by bonds rated BBB at negative 1.74%, bonds rated A at negative 1.77% and bonds rated AA at negative 2.06%. Across the curve, short-duration credit outperformed, posting a total return of 0.03% versus a negative 0.81% for intermediate duration and negative 3.31% for long duration.

U.S. dollar-denominated new issuance was again strong, albeit lighter than the previous month, with $138.8 billion of gross issuance and $61.3 billion of net issuance in February, as reported by Barclays. IG funds’ inflows remained robust at $21.4 billion, according to data from EPFR Global reported by Wells Fargo.

0

50

100

150

200

250

300

350

400

Billi

ons o

f U.S

. Dol

lars

Total Fixed-Rate Investment Grade Supply

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Performance of Select Barclays Indices Last 12 Months

U.S. High YieldU.S. CreditU.S. Aggregate

Performance of Select Barclays Indexes Last 12 Months

Total Fixed-Rate Investment Grade Supply As of February 28, 2021

Source: Barclays Live


7

Collateralized Loan ObligationsFebruary’s U.S. collateralized loan obligation (CLO) primary supply totaled $15 billion across 31 transactions, bringing the year-to-date (YTD) total to $23.65 billion across 48 deals. Refinancing (refi) and reset activity remained elevated, with 24 refis and 22 resets pricing for a total of $22.8 billion. When aggregating all of the supply channels (new issue, refi and reset), February marked the busiest month ever, with $37.8 billion of total CLO creation.

The plethora of activity in the primary market overshadowed that of the secondary market. The monthly supply of U.S. CLO bids wanted in competition dropped 3% to $3.2 billion. Trading volumes also declined, per Trade Reporting and Compliance Engine data, with investment grade (IG) falling 18% to $7.4 billion and below-IG falling 9% to $5.5 billion.

Fundamentals strengthened as the minimum overcollater-alization cushion marked further improvement while Moody’s weighted average rating factor scores and collateral rated CCC by Standard & Poor’s declined along with the loan default rate. The last 12-month U.S. leveraged loan default rate by principal amount ended February at 3.25%, 13 basis points lower month-over-month. Weighted average spread metrics marked slight declines as loan repricing activity ramped up.

CLO market-based metrics, including net asset value and market value overcollateralization, strengthened again as the S&P/LSTA Leveraged Loan Price Index continued its upward climb, gaining 0.42%.

Spreads at the top of the capital stack continued to tighten, while junior tranches experienced some widening. The J.P. Morgan Collateralized Loan Obligation Total Return Level Index gained 0.22%, contributing to a YTD total return of 0.86%.

Bank LoansThe bank loan market rose 0.59% in February, the 11th straight month of positive returns following the COVID-19-induced sell-off in March. On a year-to-date (YTD) basis, returns were up 1.78%. The weighted average bid price of the S&P/LSTA Leveraged Loan Index, at $97.79, exceeded levels of pre-pandemic 2020. The risk-on tone in markets was manifest in the ratings dispersion of bank loan returns, with loans rated CCC posting another strong month, rising 1.89%. By contrast, loans rated B were up 0.52%, and loans rated BB rose 0.29%.

The top-performing sectors for the month were publishing (+2.93%), cosmetics/toiletries (+2.38%), and beverage and tobacco (+1.99%). The only negative sector was radio and television, which declined 0.61%. In general, discount paper performed well while names trading at premiums to par experienced modest pricing pressure.

The trailing 12-month default rate continued to trend lower, ending the month at 3.25% based on principal and 3.66% based on issuer count. There were just two new defaults in February. Given the full recovery of leverage finance markets and the improved economic outlook, issuers have largely been successful in raising capital to term out maturities and forestall defaults.

January’s scorching pace of new issuance continued into February. The first two months of 2021 marked $110 billion in new issuance, a record start. Moreover, the two-month period was the busiest for loan repricings in four years, with $115 billion repricing into lower coupons through an amendment process. On the demand side, the collateralized loan obligation (CLO) market remained extremely active in February as low liability spreads maintained the best arbitrage conditions in years for CLO equity investors. The month priced 26 new CLOs, raising $12.7 billion. YTD, the CLO issuance of $21.2 billion is slightly behind 2018’s record pace, when $21.4 billion was raised in the first two months. At the same time, rising interest rates have led to renewed retail interest in the bank loan asset class, which marked $3.1 billion in inflows in February, according to financial data firm Leveraged Commentary & Data.

CLO New Issuance | September 2012 to February 2021

Last 12 Months Issuance | March 2020 to February 2021


0510152025303540

$0$2$4$6$8

$10$12$14$16$18$ Billions

CLO New Issuance

Volume ($B) Count

0510152025303540

$0$2$4$6$8

$10$12$14$16$ Billions

Last 12 Months Issuance

Volume ($B) Count


8

Bank Loans (cont’d)

Like in other risk markets, rising bank loan prices and low risk-free rates have compressed yields in the asset class. The yield to maturity of bank loans ended the month at 4.33%, the lowest level since April 2004. Nevertheless, with interest income that floats with short-term interest rates, bank loans offer unique protection against the twin threats of rising interest rates and higher inflation. As a result, we remain constructive on the asset class.

High YieldHigh yield (HY) marked a positive performance in February, with the Bloomberg Barclays US Corporate High Yield Index returning 0.37%. The index yield fell 6 basis points (bps) to 4.25% while spreads fell 36 bps to 326 bps. The month’s early strength faded somewhat in the back half as U.S. Treasury yields surged and issuance remained robust.

Bonds rated CCC continued to outperform, increasing 0.97%. Bonds rated B followed, rising 0.52%, and bonds rated BB gained 0.08%. The three best-performing sectors were oil field services (+7.09%), independent energy (+2.47%) and airlines (+2.24%). The worst performers were wirelines (-0.83%), supermarkets (-0.75%) and electric utilities (-0.59%).

The par-weighted, 12-month default rate declined 3 bps to 6.05%, as reported by J.P. Morgan, compared to 2.29% at the end of February 2020. The energy sector continued to account for a substantial portion of defaults in February 2021, with a sector rate of 19.29% (ex energy the HY default rate is 3.84%). The current HY default rate compares to a 25-year average of 3.04%.

The upgrade-to-downgrade ratio was 2.3x after $49.2 billion of upgrades posted versus $21.6 billion of downgrades, as reported by J.P. Morgan, bringing the trailing 12-month mark to 0.4x. Full-year 2020 marked $252.3 billion of upgrades compared to $842.1 billion downgrades, the highest downgrade volume back to at least 2000. As for rising stars and fallen angels, February delivered more modest activity in aggregate, as reported by J.P. Morgan, with just $1.1 billion of rising stars compared to $1.8 billion of fallen angels, bringing the year-to-date (YTD) totals to $11.2 billion of rising stars and $1.8 billion of fallen angels. 2020 registered a record $237.5 billion for fallen angels.

Issuance remained very strong for the month, as reported by J.P. Morgan. In total, the HY market priced $38.1 billion, the second-most-active February on record. About 77% of volume was for refinancing, continuing a recent trend of issuers taking advantage of the low-rate environment. On a YTD basis, total issuance volume was up 37%, and net volume of refinancings was up 48%.

The HY sector reported $3.0 billion in outflows in February, according to Lipper data as reported by J.P. Morgan, for a three-month total of $5.0 billion. 2020 tallied $44.8 billion in inflows.

CommoditiesThe broad commodity market continued to surge in February, with the S&P GSCI up 10.58% and the Bloomberg Commodity Index rising 6.47%. The energy sector was the best performer, up 17.22% on the power of West Texas Intermediate crude (+18.06%) and Brent crude (+17.72%). Industrial metals gained 10.97%, with copper (+15.63%) the top performer. Precious metals depreciated 6.05% as gold dipped 6.57% and silver slid 1.90%. Agricultural commodities increased 2.14%, lead higher by the “three softs”: coffee (+10.00%), sugar (+8.79%) and cotton (+8.43%).

Emerging Markets Fixed IncomeEmerging markets (EM) sovereign external bonds posted negative performance in February, driven primarily by higher U.S. Treasury yields. EM corporate external bonds also posted negative performance but to a lesser degree, largely due to their generally shorter duration and the tightening of corporate credit spreads. The J.P. Morgan Emerging Markets Bond Index Global Diversified (EMBI GD) credit spread widened by 6 basis points (bps) while the J.P. Morgan Corporate Emerging Markets Bond Index Broad Diversified (CEMBI BD) credit spread tightened by 24 bps. The Treasury yield curve steepened significantly, with two-year yields up 2 bps and 10-year yields up 34 bps.

Performance was negative across all regions for the EMBI GD, which tracks sovereign bonds. Performance was mixed across regions for the CEMBI BD, which tracks corporate bonds. Africa was the best-performing region in both indexes. Latin America was the worst performer in the EMBI GD; the Middle East was the worst performer in the CEMBI BD.


9

Emerging Markets Fixed Income (cont’d)

The CEMBI BD significantly outperformed the EMBI GD, with the CEMDI BD’s investment grade (IG) and high yield (HY) subindexes outperforming their EMBI GD counterparts. The HY subindex outperformed the IG subindex in both parent indexes. The lower duration of the CEMDI BD versus the EMBI GD and the lower duration of the HY subindexes versus their IG counterparts contributed to the outperformance of the CEMDI BD and the HY subindexes.

Risk appetite for the remainder of 2021 is expected to be largely driven by the trajectory of coronavirus mutations and infections; government containment measures; and developments around vaccine deployment, safety and efficacy. Other risk-appetite factors could include rising Treasury yields and inflation expectations, the potential tapering of monetary accommodation by global central banks and elevated sentiment with risk assets generally near all-time highs.

International SovereignGlobal government bonds, as measured by the FTSE World Government Bond Index, posted a negative performance in February, driven by rising yields and foreign currency losses against the U.S. dollar.

The dollar, as measured by the U.S. Dollar Index, strengthened versus most G-10 peers against the backdrop of increased market volatility as the surge in risk assets stalled amid rising inflation expectations, which drove a sell-off in U.S. Treasuries. Democrats continued to advance a $1.9 trillion economic

relief plan through Congress as economists debated the risk of significant spending leading to destabilizing inflation. Federal Reserve Chair Jerome H. Powell reaffirmed the central bank’s view that any rise in prices would likely be transitory. He also committed to maintaining substantial support for the economy and clearly communicating in advance of any change in the pace of asset purchases.

The euro weakened against the dollar amid continued concerns that extended lockdowns in the eurozone, a slow start to the vaccination campaign and delayed fiscal stimulus could weigh on the region’s recovery. Inflation accelerated more than expected in January to 0.9% year-over-year, mainly due to one-off factors. Meanwhile, European Central Bank members signaled that they are monitoring markets closely in response to the recent sell-off in eurozone sovereign debt markets as borrowing costs rise.

The Japanese yen depreciated versus the dollar as state-of-emergency restrictions weighed on economic activity even as infection rates sharply declined and vaccinations got underway for healthcare workers after a delayed start. Meanwhile, better-than-expected GDP growth in the fourth quarter was confirmed, rising 12.7% quarter-over-quarter annualized.

InfrastructureInfrastructure debt generated strong relative performance during February but ultimately fell victim to the rate sell-off and posted slightly negative returns. The main story in the market was the abrupt steepening of the U.S. Treasury curve, with 10- and 30-year rates each rising by more than 30 basis points. The rate move caused the Bloomberg Barclays US Aggregate Bond Index to fall 1.44% and the Bloomberg Barclays US Corporate Index to tumble 1.72%. Many infrastructure debt sectors outperformed these benchmarks due to their lower durations relative to the indexes. The best-performing infrastructure segment was aviation-related debt, which continued to benefit from the global COVID-19 vaccine rollout. Transactions backed by telecommunications entities in securitized form were another bright spot as their prices remained roughly unchanged despite the adverse rate move. The performance laggards were long-duration corporate bonds from industrial and utility companies, whose prices decreased as long-term interest rates rose.

-15%

-10%

-5%

0%

5%

10%

JP Morgan Emerging Markets Bond Index PerformanceLast 12 Months

JPM Emerging Markets Bond Global DiversifiedIndex (EMBI)

JPM Corporate Emerging Markets Bond BroadDiversified Index (CEMBI)

JPM Government Bond Emerging Markets GlobalDiversified Index (GBI-EM)

J.P. Morgan Emerging Markets Bond Index Performance March 31, 2020 to February 28, 2021

Source: J.P. Morgan


10

U.S. Equities In February, the broad U.S. stock market rallied, with the S&P 500 Index up 2.76% and the Dow Jones Industrial Average rising 3.43%. Small-cap and value stocks outperformed the broad market, with the Russell 2000 Index, which tracks small caps, up 6.23% and the Russell 1000 Value Index rising 6.04%. The best-performing sectors were energy (+22.50%), financials (+11.49%) and communications (+7.03%). The worst performers were utilities (-6.12%), healthcare (-2.11%) and consumer staples (-1.25%).

Global EquitiesGlobal equities marked a positive performance in February. The Morgan Stanley Capital International All Country World Index rose 2.35%. U.S. equities outperformed slightly, led by value stocks, with the S&P 500 Index up 2.76% and the Nasdaq Composite Index up 1.01%. The Dow Jones Industrial Average rose 3.43% while the Russell 2000 Index was up 6.23%.

European equities outperformed the broader market. The Euro Stoxx 50 Index rose 4.57%. The DAX of German blue chips was up 2.63% while the French CAC 40 rose 5.63%. On the periphery, Italian stocks rose 5.92%, as measured by the FTSE Milano Indice di Borsa, while Spain’s IBEX was up 6.04%. U.K. equities rose 1.58%, as measured by the FTSE 100 Index.

Asian equities had mixed results. Japanese equities had a strong month, up 4.75%, as measured by the Nikkei. As measured by the Shanghai Stock Exchange Composite Index, Chinese equities were up 0.75%. Hong Kong’s Hang Seng Index was up 2.46%. South Korea’s KOSPI was up 1.23% while Taiwan’s TAIEX rose 5.39%.

Emerging markets (EM) equities in aggregate underperformed the broader market. The Morgan Stanley Capital International Emerging Markets Index rose 0.77%. Brazil’s Ibovespa was down 4.37% while Chilean equities were up 7.96%, as measured by MSCI Chile. Russian equities rose 2.52%, as measured by MSCI Russia.

11

ADP Research Institute – ADP generates data-driven discoveries about the world of work and derives economic indicators from these discoveries. Its two primary areas of focus are labor market trends, and issues related to people and performance at work.AUD – Australian dollarBasis Points (BPS) – Basis points (or basis point (bp)) refer to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as: 1% change = 100 basis points; 0.01% = 1 basis point.Bid-to-Cover Ratio – Dollar amount of bids received in a Treasury security auction versus the amount sold. The bid-to-cover ratio is an indicator of the demand for Treasury securities. A high ratio indicates strong demand.Bid Wanted in Competition (BWIC) – Formal request for bids on a package of securities that is submitted by an institutional investor to a number of securities dealers. The dealers are being invited to submit bids on the listed securities.Bloomberg Agriculture Subindex – This index, formerly known as the Dow Jones-UBS Agriculture Subindex (DJUBSAG), is a commodity group subindex of the Bloomberg Commodity Index. It comprises futures contracts on coffee, corn, cotton, soybeans, soybean oil, soybean meal, sugar and wheat. It reflects the return of underlying commodity futures price movements only and is quoted in U.S. dollars.Bloomberg Barclays Emerging Markets (EM) USD Aggregate Sovereign Index – This index tracks fixed- and floating-rate, U.S. dollar-denominated debt issued by EM governments. Country eligibility and classification as an emerging market is rules-based and reviewed annually using World Bank income group and International Monetary Fund country classifications.Bloomberg Barclays US Aggregate Bond Index – This index, known as “the Agg,” represents securities that are SEC registered, taxable and dollar denominated. It covers the U.S. investment grade, fixed-rate bond market, with components for government and corporate securities, mortgage pass-through securities and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis.Bloomberg Barclays US Aggregate Credit Average OAS Index – This index gauges the option-adjusted spread on the Bloomberg Barclays US Aggregate Bond Index.Bloomberg Barclays US Asset-Backed Securities (ABS) Index – This index is the ABS component of the Bloomberg Barclays US Aggregate Bond Index. The ABS index has three subsectors: credit and credit cards, autos and utility.Bloomberg Barclays US Corporate High Yield (HY) Index – This index measures the U.S. dollar-denominated HY fixed-rate corporate bond market. Securities are classified as HY if the respective middle ratings of Moody’s, Fitch and S&P are Ba1, BB+ or BB+ or below. The Bloomberg Barclays US HY Long Index, including bonds with maturities of 10 years or greater, and the Bloomberg Barclays US HY Intermediate Index, including bonds with maturities of 1 to 9.999 years, are subindexes of the Bloomberg Barclays US Corporate HY Index.Bloomberg Barclays US Corporate Index – This index measures the investment grade, fixed-rate taxable corporate bond market. It includes U.S. dollar-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.Bloomberg Barclays US Credit Index – This index is the U.S. credit component of the US Government/Credit Index. It consists of publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity and quality requirements. To qualify, bonds must be SEC registered. The US Credit Index is the same as the former US Corporate Index.Bloomberg Barclays US Government/Credit Index – This index is a broad-based flagship benchmark that measures the nonsecuritized component of the Bloomberg Barclays US Aggregate Bond Index. It includes investment grade, U.S. dollar-denominated, fixed-rate U.S. Treasuries, and government-related and corporate securities.Bloomberg Barclays US Long Treasury Index – This index includes all publicly issued U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value.

Bloomberg Barclays US Mortgage-Backed Securities (MBS) Index – This index measures the performance of investment grade, fixed-rate mortgage-backed pass-through securities of the government-sponsored enterprises (GSEs): Federal Home Loan Mortgage Corp. (Freddie Mac), Federal National Mortgage Association (Fannie Mae) and Government National Mortgage Association (Ginnie Mae).Bloomberg Barclays US Treasury Index – This index measures U.S. dollar-denominated, fixed-rate nominal debt issued by the U.S. Treasury with a remaining maturity of one year or more. Treasury bills are excluded by the maturity constraint but are part of a separate Short Treasury Index.Bloomberg Barclays US Treasury Inflation-Protected Securities (TIPS) Index – This index comprises all publicly issued U.S. Treasury inflation-protected securities (TIPS) denominated in U.S. dollars and traded intraday.Bloomberg Barclays US Treasury Total Return Unhedged Index – This index measures the performance of the Bloomberg Barclays US Treasury Index on a total return unhedged basis.Bloomberg Commodity (BCOM) Index – This index is calculated on an excess return basis and reflects the price movements of commodity futures. It rebalances annually, weighted two-thirds by trading volume and one-third by world production, and weight caps are applied at the commodity, sector and group levels for diversification. The roll period typically occurs from the sixth to 10th business day based on the roll schedule.Brent Crude Oil – Major trading classification of sweet light crude oil that serves as a benchmark price for purchases of oil worldwide. Brent is known as a light, sweet oil because it contains 0.24% sulfur, making it “sweet,” and has a low density, making it “light.”CMBX Index – This index, or, more accurately, this series of indexes, is designed to reflect the creditworthiness of commercial mortgage-backed securities (CMBS).Collateralized Loan Obligation (CLO) – Single security backed by a pool of debt.Core Personal Consumption Expenditure (PCE) Price Index – This index, published by the U.S. Bureau of Economic Analysis, measures prices paid by consumers for goods and services, excluding the volatility of food and energy prices, to gauge underlying inflation trends. It is the Federal Reserve’s preferred index for tracking inflation.Cotation Assistee en Continu (CAC) 40 – This stock market index tracks the 40 largest French stocks based on Euronext Paris market capitalization.Deutsche Aktien Index (DAX) – This blue-chip stock market index comprises the 30 major German companies trading on the Frankfurt Stock Exchange.Dot Plot – Simple statistical chart that consists of data points plotted as dots on a graph with x- and y-axes. Dot plots are well known as the method that the U.S. Federal Reserve uses to convey its benchmark Federal Funds Rate outlook at certain Federal Open Market Committee (FOMC) meetings.Dow Jones Industrial Average (DJIA) – This index tracks 30 large publicly owned companies trading on the New York Stock Exchange and the Nasdaq.EUR – EuroEUR/USD – The currency pair EUR/USD is the shortened term for the euro and U.S. dollar pair or cross for the currencies of the European Union and the United States. The currency pair indicates how many dollars (the quote currency) are needed to purchase 1 euro (the base currency).Euro Stoxx 50 Index – This index of 50 eurozone stocks provides a blue-chip representation of supersector leaders in the eurozone.FactSet – FactSet Research Systems provides computer-based financial data and analysis for financial professionals, including investment managers, hedge funds and investment bankers. It consolidates data on global markets, public and private companies, and equity and fixed-income portfolios.Fallen Angel – A bond that was initially given an investment grade rating but has since been reduced to junk-bond status. The downgrade is caused by a deterioration in the financial condition of the issuer.

12

Fannie Mae (FNMA) – The Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise (GSE) chartered by Congress in 1938 during the Depression to stimulate home ownership and provide liquidity to the mortgage market. Its purpose is to help moderate- to low-income borrowers obtain financing for a home.Fannie Mae Delegated Underwriting and Servicing (DUS) Program – Grants approved lenders the ability to underwrite, close and sell loans on multifamily properties to Fannie Mae without prior Fannie Mae review.Federal Funds Rate – Target interest rate, set by the Federal Reserve at its Federal Open Market Committee (FOMC) meetings, at which commercial banks borrow and lend their excess reserves to each other overnight. The Fed sets a target Federal Funds Rate eight times a year, based on prevailing economic conditions.Freddie Mac (FHLMC) – The Federal Home Loan Mortgage Corp. (Freddie Mac) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle-income Americans. Freddie Mac purchases, guarantees and securitizes mortgages to form mortgage-backed securities (MBS).Freddie Mac Delegated Underwriting and Servicing (DUS) Program – Grants approved lenders the ability to underwrite, close and sell loans on multifamily properties to Freddie Mac without prior Freddie Mac review.Freddie Mac Primary Mortgage Market Survey (PMMS) – This weekly national survey tracks the most-popular 30- and 15-year fixed-rate mortgages, and 5-1 hybrid amortizing adjustable-rate mortgage products among a mix of lender types. The survey is compiled Monday through Wednesday and released (as average rates and points) on Thursday.Freddie Mac U.S. Mortgage Market Survey 30-Year Homeowner Commitment National Index – This index tracks the 30-year, fixed-rate mortgages component of the Freddie Mac Primary Mortgage Market Survey (PMMS).FTSE Milano Indice di Borsa (FTSE MIB) – This benchmark index for the Borsa Italian, the Italian stock exchange, comprises the 40-most traded stock classes on the exchange.FTSE 100 Index – This index tracks the 100 companies with the highest market capitalization on the London Stock Exchange.FTSE World Government Bond Index (WGBI) – This broad index measures the performance of fixed-rate, local-currency, investment grade sovereign bonds. It is a widely used benchmark that comprises sovereign debt from more than 20 countries that is denominated in a variety of currencies.G-10 (Group of Ten) – The G10 comprises 11 industrialized nations that meet on an annual basis, or more frequently as needed, to consult each other, debate and cooperate on international financial matters. The member countries are: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.GBP – British poundGinnie Mae (GNMA) – The Government National Mortgage Association (Ginnie Mae) is a federal government corporation that guarantees the timely payment of principal and interest on mortgage-backed securities (MBS) issued by approved lenders. Ginnie Mae’s guarantee allows mortgage lenders to obtain a better price for MBS in the capital markets.Ginnie Mae (GNMA) – Ginnie Mae I is composed of mortgages that pay principal and interest on the 15th of every month while Ginnie Mae II mortgages do the same on the 20th. Another difference between the two pools is the maturity, with Ginnie Mae I having a maximum of 30 years for single family and 40 years for multifamily; Ginnie Mae II is 30 years max as it doesn’t include multifamily project or construction loans.Ginnie Mae II – This class of pass-through investments is issued by the Government National Mortgage Association (GNMA), known as Ginnie Mae, and draws income from pools of Federation Housing Administration and Department of Veterans Affairs mortgages. Ginnie Mae II securities pay principal and interest on the 20th every month (in contrast to the 15th for Ginnie Mae I) and have a maximum maturity of 30 years.

Hang Seng Index – This free-float-capitalization-weighted index tracks a selection of companies on the Stock Exchange of Hong Kong. The index has four subindexes: finance, utilities, properties, finance, and commerce and industry.Ibovespa Index – This gross-return index is weighted by trade volume and comprises the most-liquid stocks on Brazil’s Sao Paulo Stock Exchange.ICE Bank of America (BofA) MOVE Index – This index is a measure of U.S. interest-rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on two-, five-, 10- and 30-year Treasuries.ICE Bank of America (BofA) U.S. Fixed-Rate Asset-Backed Securities (ABS) Index – This index tracks the performance of U.S. dollar-denominated, investment grade (IG) asset-backed securities publicly issued in the U.S. domestic market. Qualifying securities must have an IG rating (based on an average of Moody’s, S&P and Fitch).ICE Bank of America (BofA) U.S. Fixed-Rate Miscellaneous Asset-Backed Securities (ABS) Index – A subset of the ICE BofA U.S. Fixed-Rate ABS Index, including all ABS collateralized by anything other than auto loans, home equity loans, manufactured housing, credit card receivables and utility assets.IHS Markit/CIPS U.K. Manufacturing Purchasing Managers’ Index (PMI) – This index is based on data compiled from monthly surveys of purchasing executives at over 600 industrial companies. The PMI is based on five individual indexes: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stock of items purchased (10%), with the delivery times index inverted to move in a comparable direction. A reading above 50 indicates an expansion of the sector, a reading below 50 represents a contraction, and 50 indicates no change.IHS Markit CMBX Index – This synthetic tradable index references a basket of 25 commercial mortgage-backed securities (CMBS).IHS Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) – This index measures the performance of the manufacturing sector derived from a survey of 3,000 manufacturing firms and includes national data for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. The PMI is based on five individual indexes: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stock of items purchased (10%), with the delivery times index inverted to move in a comparable direction. A reading above 50 indicates an expansion of the sector, a reading below 50 represents a contraction, and 50 indicates no change.IHS Markit Flash Eurozone Purchasing Managers’ Index (PMI) – This index is based on original survey data collected from a representative panel of around 5,000 companies based in the eurozone manufacturing and service sectors. National manufacturing data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The flash estimate is typically based on approximately 85% to 90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.Indice Bursatil Espanol (IBEX) – This official index of the Spanish Continuous Market comprises the 35 most-liquid stocks traded on the market. ISM Manufacturing Purchasing Managers Index (PMI) – This index is compiled by the Institute for Supply Management and tracks the economic health of the manufacturing sector. The index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and employment environment.ISM New Orders Index – This index is compiled by the Institute for Supply Management and is one of the major indicators used by the ISM Manufacturing PMI to gauge the economic health of the manufacturing sector.ISM Services Index – This index (which used to be called the ISM Non-Manufacturing Purchasing Managers Index (PMI)) is compiled by the Institute for Supply Management and tracks the economic health of the services (formerly nonmanufacturing) sector.J.P. Morgan Collateralized Loan Obligation Index (CLOIE) – This index a market value-weighted index consisting of U.S. dollar-denominated collateralized loan obligations (CLOs).

13

J.P. Morgan Collateralized Loan Obligation (CLO) Total Return Level Index – This index is a total return subindex of the J.P. Morgan Collateralized Loan Obligation Index (CLOIE), which is a market value-weighted index consisting of U.S. dollar-denominated CLOs.J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI) – This index is a market capitalization-weighted index consisting of U.S. dollar-denominated emerging markets corporate bonds. CEMBI is a liquid global corporate benchmark representing Asia, Latin America, Europe and the Middle East/Africa.J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI) Broad Diversified – This index is a uniquely weighted version of the CEMBI, which is a market capitalization-weighted index consisting of U.S. dollar-denominated emerging markets corporate bonds. It limits the weights of index countries with larger debt stocks by only including specified portions of those countries’ eligible current face amounts of debt outstanding.J.P. Morgan Emerging Markets Bond Index (EMBI) – This index tracks emerging markets (EM) bonds and comprises sovereign debt and EM corporate bonds.J.P. Morgan Emerging Markets Bond Index (EMBI) Global Diversified – This index is a uniquely weighted version of the EMBI, which tracks emerging markets (EM) bonds and comprises sovereign debt and EM corporate bonds. It limits the weights of index countries with larger debt stocks by only including specified portions of those countries’ eligible current face amounts of debt outstanding.JPY – Japanese yenKorean Composite Stock Price Index (KOSPI) – This index comprises all common stocks traded on the stock market division of the Korea Exchange. It is the representative stock market index in South Korea, like the S&P 500 Index in the U.S.Last Cash Flow (LCF) – Last revenue stream paid to a bond over a given period.Leveraged Commentary & Data (LCD) – A unit of S&P Global Market Intelligence, LCD provides in-depth coverage of the leveraged loan market through real-time news, analysis, commentary and proprietary loan data.London Interbank-Offered Rate (LIBOR) – Indicative average interest rate at which a selection of banks, known as the “panel banks,” are prepared to lend one another unsecured funds on the London money market.LTM – Last 12 monthsMorgan Stanley Capital International All Country World Index (MSCI ACWI) – This market capitalization-weighted index is designed to provide a broad measure of stock performance throughout the world. It comprises stocks from 23 developed countries 24 and emerging markets.Morgan Stanley Capital International Emerging Markets Index (MSCI EMI) – This index captures large- and midcap representation across 26 emerging markets (EM) countries. With 1,385 constituents, the index covers approximately 85% of the free-float-adjusted market capitalization in each country.Morgan Stanley Capital International (MSCI) Europe ex UK Index – This index captures large- and mid-cap representation across 14 developed market countries in Europe. With 348 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across European developed markets excluding the U.K.Morgan Stanley Capital International (MSCI) India Index – This index measures the performance of the large- and midcap segments of the Indian market. The index covers approximately 85% of the Indian equity universe.Morgan Stanley Capital International (MSCI) Russia Index – This index measures the performance of the large- and midcap segments of the Russian market. The index covers approximately 85% of the free-float-adjusted market capitalization in Russia.Mortgage Bankers Association (MBA) Purchase Index – This index, a component of the MBA’s Weekly Application Survey, includes all mortgage applications for purchases of single-family homes. The index covers the entire market, including all products, and conventional and government loans.

Mortgage Bankers Association (MBA) Refinance Index – This index, a component of the MBA’s Weekly Application Survey, tracks the number of mortgage refinance applications. The index is used to help predict mortgage activity and loan prepayments based on the number of mortgage refinance applications submitted. Nasdaq Composite Index – This index (“the Nasdaq”) comprises the more than 3,000 common stocks and similar securities (e.g., American depository receipts (ADRs), tracking stocks, limited-partnership interests) listed on the Nasdaq exchange. The index, which includes U.S. and non-U.S. companies, is highly followed in the U.S. as an indicator of the stock performance of technology companies and growth companies.Nasdaq 100 Index – This index comprises the 100 largest U.S. and non-U.S. nonfinancial securities based on market capitalization listed on the Nasdaq stock exchange. The index reflects companies across major industry groups including computer hardware and software, telecommunications, biotechnology and retail/wholesale trade.National Association of Realtors Existing-Home Sales Report – This report tracks sales and prices of existing single-family homes for the nation overall, and gives breakdowns for the West, Midwest, South and Northeast regions of the country. These figures include condos and co-ops in addition to single-family homes.Net Asset Value (NAV) – Net value of an entity calculated as the total value of the entity’s assets minus the total value of its liabilities. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), the NAV represents the per share/unit price of the fund at a specific date or time.Nikkei 225 Index – This price-weighted index (“the Nikkei”) comprises Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S.On-the-Run Treasuries – Most-recently issued U.S. Treasury bonds or notes of a particular maturity. “On-the-run” Treasuries are the opposite of “off-the-run” Treasuries, which refer to Treasury securities that have been issued before the most-recent issue and are still outstanding.Overcollateralization (OC) – Provision of collateral that is worth more than enough to cover potential losses in cases of default.RCA Commercial Property Price Index (CPPI) – This index describes various nonresidential property types for the U.S. (10 monthly series from 2000). It is a periodic same-property, round-trip investment, price-change index of the U.S. commercial investment property market. The dataset contains 20 monthly indicators.RCA U.S. All-Property Commercial Property Price Index (CPPI) – This index is a component of the suite of price indexes that comprise the RCA CPPI.Rising Star – Bonds that were considered speculation grade when issued but have since improved their financials, reducing the risk of default. These bonds are now closer to the security of an investment grade bond. So while rising stars are still junk bonds, there’s a chance they will not always remain junk bonds.Russell 1000 Growth Index – This index measures the performance of the large-cap value segment of the U.S. equity universe. It includes Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.Russell 1000 Index – This index typically comprises approximately 92% of the total market capitalization of all listed stocks in the U.S. equity market and is considered a bellwether index for large-cap investing.Russell 1000 Value Index – This index measures the performance of the large-cap value segment of the U.S. equity universe. It includes Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values.Russell 2000 Index – This market capitalization-weighted index comprises 2,000 small-cap U.S. companies and is considered a bellwether index for small-cap investing.S&P CoreLogic Case-Shiller National Home Price Index – This index tracks the value of single-family housing within the United States and is a composite of single-family price indexes for the nine Census Bureau divisions.

14

S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index – This index measures the value of residential real estate in 20 major U.S. metropolitan areas: Atlanta; Boston; Charlotte; Chicago; Cleveland; Dallas; Denver; Detroit; Las Vegas; Los Angeles; Miami; Minneapolis; New York City; Phoenix; Portland, Oregon; San Diego; San Francisco; Seattle; Tampa; and Washington, D.C.S&P 500 Index – This unmanaged capitalization-weighted index of the stocks of the 500 largest publicly traded U.S. companies is designed to measure performance of the broad domestic economy through changes in the aggregate market value of the 500 stocks, which represent all major industries.S&P GSCI – This index (formerly the Goldman Sachs Commodity Index) measures investment in the commodity markets and commodity market performance over time. S&P/LSTA Leveraged Loan Index – This index tracks the market-weighted performance of institutional weighted loans based on market weightings, spreads and interest payments.S&P/LSTA Leveraged Loan 100 Index – This index tracks the market-weighted performance of the 100 largest institutional leveraged loans based on market weightings, spreads and interest payments.S&P/LSTA Leveraged Loan Price Index – This index tracks the prices of institutional weighted loans based on market weightings, spreads and interest payments.S&P/LSTA Leveraged Loan Total Return Index – This market value-weighted index measures the performance of the U.S. leveraged loan market on a total return basis based upon market weightings, spreads and interest payments.Shanghai Stock Exchange Composite Index – This capitalization-weighted index, developed in December 1990 with a base value of 100, tracks the daily performance of all A shares and B shares listed on the Shanghai Stock Exchange.Spread – Difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured between debt instruments of differing maturities, credit ratings or risk.TAIEX Index – This index tracks companies traded on the Taiwan Stock Exchange. The index covers all listed stocks excluding preferred, full-delivery and newly listed stocks, which are listed for less than one calendar month.Trade Reporting and Compliance Engine (TRACE) – Financial Industry Regulatory Authority (FINRA)-developed vehicle that facilitates the mandatory reporting of over-the-counter secondary market transactions in eligible fixed-income securities.

TTM – Trailing 12 monthsU-3 Unemployment Rate – Officially recognized rate of unemployment, compiled and released monthly by the U.S. Bureau of Labor Statistics, measuring the number of unemployed people as a percentage of the labor force.Upgrade-to-Downgrade Ratio – A ratio between bond upgrades (when a rating agency raises a bond’s rating) and bond downgrades (when a rating agency lowers a bond’s rating).U.S. Dollar Index (DXY) – A weighted geometric mean of the U.S. dollar’s value relative to a basket of six major foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.U.S. Treasuries (UST) – Commonly used for references to the Treasury debt that the U.S. issues.USD/JPY – The currency pair USD/JPY is the shortened term for the U.S. dollar and yen pair or cross for the currencies of the United States and Japan. The currency pair indicates how many Japanese yen (the quote currency) are needed to purchase one dollar (the base currency). Weighted Average Rating Factor (WARF) – Used by credit rating companies to indicate the credit quality of a portfolio. This measure aggregates the credit ratings of a portfolio’s assets into a single rating.West Texas Intermediate Crude Oil (WTI) – Specific grade of crude oil and one of the main three benchmarks, along with Brent and Dubai Crude, in oil pricing. WTI is known as a light sweet oil because it contains 0.24% sulfur, making it “sweet,” and has a low density, making it “light.” It is the underlying commodity of the New York Mercantile Exchange’s (NYMEX) oil futures contract and is considered a high-quality oil that is easily refined.Yield to Maturity (YTM) – The total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. It is not possible to invest directly in an index.

15

Important Information Regarding This MaterialIssue selection processes and tools illustrated throughout this presentation are samples and may be modified periodically. These are not the only tools used by the investment teams, are extremely sophisticated, may not always produce the intended results and are not intended for use by non-professionals.

DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. While we have gathered this information from sources believed to be reliable, DoubleLine cannot guarantee the accuracy of the infor-mation provided. Securities discussed are not recommendations and are present-ed as examples of issue selection or portfolio management processes. They have been picked for comparison or illustration purposes only. No security presented within is either offered for sale or purchase. DoubleLine reserves the right to change its investment perspective and outlook without notice as market condi-tions dictate or as additional information becomes available. This material may include statements that constitute “forward-looking statements” under the U.S. securities laws. Forward-looking statements include, among other things, projec-tions, estimates, and information about possible or future results related to a cli-ent’s account, or market or regulatory developments.

Important Information Regarding Risk FactorsInvestment strategies may not achieve the desired results due to implementa-tion lag, other timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. The views and forecasts ex-pressed in this material are as of the date indicated, are subject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. All investments involve risks. Please request a copy of DoubleLine’s Form ADV Part 2A to review the material risks involved in DoubleLine’s strategies. Past performance is no guarantee of fu-ture results.

Important Information Regarding DoubleLineIn preparing the client reports (and in managing the portfolios), DoubleLine and its vendors price separate account portfolio securities using various sources, includ-ing independent pricing services and fair value processes such as benchmarking.

To receive a copy of DoubleLine’s current Form ADV (which contains important additional disclosure information, including risk disclosures), a copy of Double-Line’s proxy voting policies and procedures, or to obtain additional information on DoubleLine’s proxy voting decisions, please contact DoubleLine’s Client Services.

Important Information Regarding DoubleLine’s Investment StyleDoubleLine seeks to maximize investment results consistent with our interpreta-tion of client guidelines and investment mandate. While DoubleLine seeks to max-imize returns for our clients consistent with guidelines, DoubleLine cannot guaran-tee that DoubleLine will outperform a client’s specified benchmark or the market or that DoubleLine’s risk management techniques will successfully mitigate losses. Additionally, the nature of portfolio diversification implies that certain holdings and sectors in a client’s portfolio may be rising in price while others are falling or that some issues and sectors are outperforming while others are underperform-ing. Such out or underperformance can be the result of many factors, such as, but not limited to, duration/interest rate exposure, yield curve exposure, bond sector exposure, or news or rumors specific to a single name.

DoubleLine is an active manager and will adjust the composition of clients’ portfo-lios consistent with our investment team’s judgment concerning market conditions and any particular sector or security. The construction of DoubleLine portfolios may differ substantially from the construction of any of a variety of market indices. As such, a DoubleLine portfolio has the potential to underperform or outperform a bond market index. Since markets can remain inefficiently priced for long periods, DoubleLine’s performance is properly assessed over a full multi-year market cycle.

Important Information Regarding Client ResponsibilitiesClients are requested to carefully review all portfolio holdings and strategies, in-cluding by comparison of the custodial statement to any statements received from DoubleLine. Clients should promptly inform DoubleLine of any potential or per-ceived policy or guideline inconsistencies. In particular, DoubleLine understands that guideline enabling language is subject to interpretation and DoubleLine strongly encourages clients to express any contrasting interpretation as soon as practical. Clients are also requested to notify DoubleLine of any updates to cli-ent’s information, such as, but not limited to, adding affiliates (including broker dealer affiliates), issuing additional securities, name changes, mergers or other alterations to Client’s legal structure.

DoubleLine Group is not an investment adviser registered with the Securities and Exchange Commission (SEC).

DoubleLine® is a registered trademark of DoubleLine Capital LP.

© 2021 DoubleLine Capital LP

16

For Investors in ChileIf any products are offered within Chile, they will be offered and sold only pursuant to General Rule 336 of the SVS, an exemption to the registration requirements, or in circumstances which do not constitute a public offer of securities in Chile within the meaning of Article 4 of the Chilean Law No. 18,045 on Securities Market.

This communication is addressed only to “Qualified Investors” (as defined in SVS General Rule No. 216).

Si algunos valores son ofrecidos dentro de Chile, serán ofrecidos y colocados sólo de acuerdo a la Norma de Carácter General 336 de la SVS, una excepción a la ob-ligación de registro, o en circunstancias que no constituyan una oferta pública de valores en Chile según lo definido por el Artículo 4 de la Ley 18.045 de Mercado de Valores de Chile.

Esta comunicación está dirigida a “Inversionistas Calificados” (según se define en la Norma de Carácter General N° 216 de la SVS).

For Investors in PeruAll content in this document is for information or general use only. The informa-tion contained in this document is referential and may not be construed as an offer, invitation or recommendation, nor should be taken as a basis to take (or stop taking) any decision.

This neither is an offer or an invitation to offer nor authorizes such sales or invita-tions in places where such offers or invitations are contrary to the corresponding applicable.

This communication is not intended for any person who is not qualified as an in-stitutional investor, in accordance with provisions set forth in SMV Resolution Nº 021-2013-SMV-01, and as subsequently amended. No legal, financial, tax or any other kind of advice is hereby being provided.

Todo lo contenido en este documento es sólo para fines informativos o de uso general. La información contenida en este documento es referencial y no puede interpretarse como una oferta, invitación o recomendación, ni debe considerarse como fundamento para tomar (o dejar de tomar) alguna decisión.

La presente no constituye una oferta ni una invitación a ofertar ni autoriza tales ventas o invitaciones en los lugares donde tales ofertas o invitaciones sean con-trarias a las respectivas leyes aplicables.

Esta comunicación no está dirigida a ninguna persona que no califique como un inversionista institucional, de conformidad con lo dispuesto en la Resolución SMV Nº 021-2013-SMV-01, así como pueda ser modificada en el futuro. Por medio de la presente comunicación no se le está proveyendo de consejo legal, financiero, tributario o de cualquier otro tipo.

For Investors in Latin America and the Middle EastThis material has not been registered with, or approved or passed on in any way, by any regulatory body or authority in any jurisdiction. This material is for the information of prospective investors only and nothing in this material is intended to endorse or recommend a particular course of action. By receiving this material, the person or entity to whom it has been issued understands, acknowledges and agrees that neither this material nor the contents therein shall be deemed as an offer to sell or a solicitation of an offer to buy, or a recommendation of any security or any other product, strategy or service by DoubleLine or any other third party.

For Investors in Japan (Discretionary Investment Manager (DIM) & Non- Discre-tionary Investment Manager (Non-DIM)DoubleLine Investment Management Asia Ltd. (“DoubleLine Asia”) is registered with the Kanto Local Finance Bureau as an Investment Advisory and Agency (“IAA”) operator in Japan (Registration No. 2986). However, DoubleLine Asia only conducts the agency business under its IAA registration. Under its agency busi-ness, DoubleLine Asia is authorized to intermediate in the execution of investment advisory and investment management contracts between its affiliates which are registered investment managers outside of Japan (“Foreign Investment Manag-ers”) and discretionary investment managers and trust banks conducting the in-vestment management business (together the “Japan DIMs”) registered in Japan.

DoubleLine Asia is not permitted to market or solicit any securities or other invest-ment products, nor is it able to provide any direct investment advisory or invest-ment management services in Japan or elsewhere.

While discussions with Japan DIMs may involve its agency business of interme-diating investment advisory and investment management arrangements, all dis-cussions with persons other than Japan DIMs are necessarily limited to general information about DoubleLine Asia and its affiliates and nothing herein should be read to suggest a solicitation of products or services inconsistent with such regu-latory status.

monthly maret commentary

Documents