q1 2016 market chartbook · q1 2016 market highlights economy and market •economic growth: data...

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Q1 2016 Market ChartBook Baird Private Wealth Management

Wealth Management | Capital Markets – Investment Banking | Private Equity | Asset Management Charlotte Chicago Frankfurt London Milwaukee Shanghai www.rwbaird.com

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About Baird

A Great Place to Work Since 2004, Baird has been recognized annually as one of the FORTUNE 100 Best Companies to Work For®. We ranked No. 6 for 2016.

Global Reach Baird has more than 2,900 employees and over 100 offices in the United States, Europe and Asia.

Robert W. Baird & Co.

Ownership Founded in 1919 and headquartered in Milwaukee, WI, Baird is employee-owned and fully independent.

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Table of Contents

1 | Economy & Market

Market Highlights

The Markets at a Glance

S&P 500 Index

Economic Growth

Inflation Watch

Jobs Market

Housing Market

Consumer Health

Corporate Profitability

Market Volatility

Commodity Prices

Mutual Fund and ETF Flows

2 | Domestic Equity

US Equity Snapshot

Asset Class Performance

US Economic Sector Performance

Investment Style Leadership

Historical Market Cap Valuations

Historical Sector Valuation & Growth Ranges

Mutual Fund Over/Under Performance

3 | International Equity

Global Market Performance

International Equity Snapshot

International Country Performance

Economic Sector Returns

International Style Leadership

Global Stock Market Valuations

Country Valuation Ranges

4 | Fixed Income

Bond Market Snapshot

Performance by Maturity/Credit Quality

Yield and Volatility Characteristics

U.S. Treasury Bonds

Municipal Bonds

Corporate Bond Yields

Bond Spreads

Mutual Fund Over/Under Performance


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Economy and Market

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Fixed Income

• At a Glance: With volatility and uncertainty spreading through equity markets, investors sought shelter in safe-haven assets, notably government and high quality corporate bonds. The increased demand helped push interest rates down across the yield curve. The yield on the 10-year Treasury fell from 2.3% to start the quarter to 1.8% to finish. In all, the Barclays Aggregate Bond Index moved higher by 3.0%.

• Sector: In the taxable bond market, investors preferred high quality bonds over high yield. Government-backed and investment grade sectors were among the strongest areas of the market. Credit-sensitive sectors like high yield and bank loans needed a strong rally in the back-half of the quarter to finish in positive territory.

• Maturity and Credit Quality: Longer maturity bonds finished higher on lower interest rates while shorter maturity bonds were largely flat. Among credit, high quality bonds outpaced high yield.

• Yield Curve: Long-term Treasury yields posted their steepest quarterly decline in more than three years, leading to a flattening yield curve. This flattening resulted in the narrowest yield spread between 2-year and 10-year Treasuries since 2009.

• Municipal Bonds: Insulated from the volatility of global markets, municipal bonds posted another strong quarter with returns of 1.7%.

Q1 2016 Market Highlights

Economy and Market

• Economic Growth: Data showed the pace of U.S. economic growth slowing to 1.4% in Q4 of 2015, down from 2% in Q3 of 2015. Weakness abroad appeared to be weighing on U.S. economic growth, but a pickup in consumer spending helped offset some of the slowdown. The solid pace in consumer spending underscores the economy’s underlying strength and should ease fears of an impending recession in the U.S.

• Economic Health: The labor market continued to tighten in Q1, adding an average of 228,000 jobs for the previous three months through February. The gains helped push the national unemployment rate to 4.9%, a post-recession low.

• Inflation. After years of stubbornly low inflation, price indicators are starting to show inflationary pressures are taking hold. Core consumer prices, which exclude the effects of food and energy, climbed 2.3% y/o/y through February, its highest reading in nearly three years. When including the effects of food and energy, headline inflation weakened slightly during the quarter to 1%, primarily due to weaker fuel and energy prices.

• Fed Speak. The Federal Reserve elected to pass on further interest rate hikes during the quarter, citing the need to see further improvements in economic and financial market conditions before choosing to move again.

Domestic Equity

• At a Glance: The S&P 500 eked out a small gain of 1.4% during a turbulent quarter for stock investors. Stocks fell sharply during the first six weeks of the year before recovering all losses to finish the quarter in positive territory.

• Market Cap and Style: Mid-cap stocks led all market segments higher, finishing with a return of 2.2% for the quarter. After lagging by more than 10% in 2015, value stocks rebounded strongly and modestly outperformed their growth counterparts.

• Sector: The best performing sectors through the first quarter of the year are consistent with a risk-off, defensive play. Utilities, telecom, and consumer staples led all sectors on the upside as investors preferred the relative safety and additional yield these sectors provide. 2015’s star sector performer, healthcare was noticeably weak after being weighed down by a flagging biotech sector.

International Equity

• At a Glance: International markets fared worse than the U.S., in general. Japanese equities posted declines of 6.4% amid doubts over the success of “Abenomics.” In Europe, tepid inflation and weaker economic data pushed equity prices down 2.4%. Emerging markets were one of the few bright spots. After three years of flagging returns, emerging markets advanced 5.8% on higher commodity prices and easing central bank policy.


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The Markets at a Glance (as of 3/31/16)

Source: Morningstar Direct; Russell, MSCI, Barclays, Citigroup, and Dow Jones benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication. Robert W. Baird & Co.

Asset Class Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark

U.S. Stocks

Large Cap Value 1.6 1.6 (1.5) 9.4 10.2 5.7 (3.8) 13.5 32.5 Russell 1000® Value

Large Cap Growth 0.7 0.7 2.5 13.6 12.4 8.3 5.7 13.0 33.5 Russell 1000® Growth

Mid Cap 2.2 2.2 (4.0) 10.4 10.3 7.4 (2.4) 13.2 34.8 Russell Midcap®

Small Cap (1.5) (1.5) (9.8) 6.8 7.2 5.3 (4.4) 4.9 38.8 Russell 2000®

International Stocks

Developed Markets (3.0) (3.0) (8.3) 2.2 2.3 1.8 (0.8) (4.9) 22.8 MSCI EAFE (Net)

Bonds

Short-Term Taxable 1.0 1.0 1.0 0.9 1.1 2.8 0.7 0.8 0.6 Barclays 1-3 Yr Govt/Credit

Intermediate-Term Taxable 2.4 2.4 2.1 1.8 3.0 4.3 1.1 3.1 (0.9) Barclays Intermed. Govt/Credit

Short-Term Municipal 0.5 0.5 1.0 0.9 1.1 2.4 0.8 0.7 1.0 Barclays 1-3 Yr Municipal

Intermediate-Term Municipal 1.5 1.5 3.7 3.1 4.7 5.0 3.3 6.1 (1.0) Barclays 7 Yr Municipal

Cash

Cash/Cash Equivalents 0.1 0.1 0.1 0.1 0.1 1.0 0.1 0.0 0.1 Citi 3 Month T-bills

Satellite

High Yield 3.2 3.2 (4.0) 1.8 4.7 6.8 (4.6) 2.5 7.4 BofA/ML High Yield Master II

Real Estate 5.2 5.2 3.0 8.7 10.3 5.3 2.1 27.2 1.8 DJ US REIT

Commodities 0.4 0.4 (19.6) (16.9) (14.1) (6.2) (24.7) (17.0) (9.5) Bloomberg Commodity

Emerging Markets 5.7 5.7 (12.0) (4.5) (4.1) 3.0 (14.9) (2.2) (2.6) MSCI Emerging Mkts (Net)

Trailing Returns (%) Annual Returns (%)

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1750

1800

1850

1900

1950

2000

2050

2100

Jan-16 Feb-16 Mar-16

Ad

juste

d C

losin

g L

ev

el

S&P 500 Index

Source: Standard and Poor’s. The S&P 500 Index, computed by the Standard & Poor's Corporation, is a well known gauge of stock market movements determined by the weighted capitalization of the 500 leading U.S. common stocks. Indices are unmanaged and it is not possible to invest directly in an index.

Year-to-Date Performance of the S&P 500 Index

Jan -5.0%

Feb -0.1%

Mar 6.8%

Q1: +1.4%


8

-10

-8

-6

-4

-2

0

2

4

6

8

GD

P G

ro

wth

(%

)

Economic Growth

Source: US Department of Commerce: Bureau of Economic Analysis (GDP Growth)

US GDP Growth (Last 20 Years)

Contribution to U.S GDP Growth (Last 10 Years)

Gross Domestic Product (GDP)

GDP is a basic measure of U.S. economic

output. Alternatively, it can be thought of as

the final value of all goods and services

produced within the U.S. Positive GDP

growth signals an expanding economy. GDP

is comprised of four major categories:

personal consumption, private investment,

government spending and net exports.


-10

-8

-6

-4

-2

0

2

4

6

8

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Co

ntr

ibu

tio

n t

o G

DP

Gro

wth

(%

)

Personal Consumption Private Investment

Govt. Spending Next Exports

9

-2

0

2

4

6

Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16

Ye

ar-

Ov

er-

Ye

ar

Ch

an

ge in

CP

I (%

)

Headline CPI

Core CPI

Inflation Watch

Source: Bureau of Labor Statistics; Baird Analysis. CPI figures lag one month.

Historic CPI Level (Last 10 Years)

CPI Breakdown

Consumer Price Index (CPI)

A common measure of inflation, Headline CPI tracks a broad basket of goods and services relatable to most consumers. Core CPI excludes Food and Energy due to the volatile nature of those categories and the distortive effect it can have on the broader inflation measure.


Components Weight (%)12-mo Change

(%)Components Weight (%)

12-mo Change

(%)

Headline CPI 100 1.0 Core CPI 79 2.3

Housing 42 2.1 Food 15 1.3

Energy/Transportation 15 (3.4) Energy 7 (12.5)

Food & Beverage 15 0.9

Education 7 1.2

Medical Care 8 3.5

Recreation 6 0.9

Apparel/Clothing 3 0.9

Other 3 1.9

Headline CPI Core CPI: Headline less Food and Energy

10

0

1

2

3

4

Wa

ge

Grr

ow

th (

%)

60

63

66

69

Pa

rtic

ipa

tio

n R

ate

(%

)

0

3

6

9

12

15

18

Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16

Un

em

plo

ym

en

t R

ate

(%

)

U-3 Unemployment Rate

U-6 Underemployment Rate-1,000

-800

-600

-400

-200

0

200

400

600

Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16

Ch

an

ge

in P

ay

roll (

00

0s)

Jobs Market

Source: US Department of Labor: Bureau of Labor Statistics. Data will lag one month and is subject to revision. Wage growth is calculated quarterly and will lag one quarter.

Unemployment and Underemployment Rates

Labor Participation Rate

Jobs Gained/Lost

Wage Growth (Last 10 Years)

Unemployment Rate

The U-3 Unemployment Rate is the standard measure of the % of the labor force that is without a job. The U-6 Underemployment Rate includes those in the U-3 measure as well as those employed on a part-time status that would prefer full-time status.

Change in Non-Farm Payroll

This is a key economic indicator that measures changes in the size of the labor force (excluding farm, government and not for-profit workers).

Labor Participation Rate

The % of working age persons that are employed or seeking employment relative to the size of the entire population. Discouraged workers and retirees cause a decline in this rate.

Change in Employment Cost Index

Measures the year-over-year growth of wages and salaries within the private sector, and is based on the Employment Cost Index.


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3000

4000

5000

6000

7000

8000

9000

10000


Un

its (

00

0s)

New Housing Starts

Existing Home Sales

80

100

120

140

160

180

200

220

240


Ind

ex

Le

ve

l

100

120

140

160

180

200

220

240


Ind

ex

Le

ve

l

Housing Market

Source: Standard & Poor’s, US Department of Commerce: Bureau of Economic Analysis.

Housing Market Trend Housing Affordability

Average Selling Price of New and Existing Homes Housing Market Activity

Housing Affordability Index

A value of 100 means that a family with a median income can qualify for a median-priced home. A higher value means housing is generally more affordable.

Home Starts/Sales

These are indicators of housing market activity that track new home construction as well as the sales of existing homes.

S&P/Case Shiller Home Price Index

This is a well-known housing market index that measures home prices among the 20 largest metropolitan areas.


$125,000

$175,000

$225,000

$275,000

$325,000


Median Price (Existing)

Median Price (New Homes)

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$32,000

$34,000

$36,000

$38,000

$40,000

0

2

4

6

8

10

12

Pe

rso

na

l Sa

vin

gs

Ra

te (

%)

-4

-2

0

2

4

6

8

Co

nsu

me

r S

pe

ndin

g G

row

th (

%)

50

55

60

65

70

75

80

85

90

95

100

Ind

ex

Le

ve

l

Consumer Health

Source: Thomas Reuters/University of Michigan, US Department of Commerce: Bureau of Economic Analysis.

Consumer Sentiment Consumer Spending Growth

Personal Savings Rate Personal Income per Capita

Univ. of Michigan Consumer Sentiment

A monthly survey of consumers’ feelings toward personal financial health and direction of the economy.

Personal Consumption Expenditures

Measures the rate of change of consumer expenditures. Core Spending excluded food and energy spending.

Personal Savings Rate

An average estimate of how much a consumer is saving as a percentage of total disposable income.

Personal Income per Capita

This measures the average gross annual wage/salary of working US citizens.


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Corporate Profitability

Source: BEA, Bloomberg, Standard & Poors, Baird analysis. Past performance is not a guarantee of future results.

S&P 500 Earnings per Share (EPS)

Corporate Profits (% of GDP)

S&P 500 EPS: Current: $110 Average: $64


Corporate Profits

This chart illustrates after-tax corporate

profits as a percentage of U.S. GDP. The

larger the percentage, the more important

corporate profits are to overall economic

growth.

3%

6%

9%

12%

Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

Co

rpo

rate

Pro

fits

/G

DP

$0

$20

$40

$60

$80

$100

$120

$0

$200

$400

$600

$800

$1,000

$1,200

Mar-

01

Mar-

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Mar-

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Mar-

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06

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07

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08

Mar-

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Mar-

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Mar-

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Mar-

14

Mar-

15

Mar-

16

Earnings Per Sh (right axis)

Revenues Per Sh (left axis) Earnings/Revenue Per Share

One way to evaluate a company’s profitability is to measure its earnings on a per share basis. The same can be done at a broader market level. The S&P 500 EPS illustrates how profitable companies are, on average.

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0

10

20

30

40

50

60

70

80

90

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

VIX

Le

ve

l

0%

20%

40%

60%

80%

Q1 2

006

Q2 2

006

Q3 2

006

Q4 2

006

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007

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007

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Q1 2

016

Pe

rce

nt

of

Tra

din

g D

ays

% of days up/down 2% or more

% of days up/down 1-2%

Market Volatility (as of 3/31/16)

Source: Standard & Poor’s; CBOE; Baird Analysis.

Historic VIX Level (Last 10 Years)

Quarterly S&P 500 Trading Volatility (Last 10 Years)

VIX (CBOE Volatility Index)

The VIX measures the implied volatility of S&P 500 future options. Simply put, it measures the expected volatility of the S&P 500 Index over the next 30 days. The higher the index, the higher the expected volatility. It is also commonly referred to as the “fear index.”

S&P 500 Trading Volatility

Rather than focus on implied volatility, this

measures actual trading volatility. Trading

days where the S&P 500 Index closes

up/down more than 1% or 2% are reported

on a quarterly basis.


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A verage Drawdown

-22.3%

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Historical Drawdowns of S&P 500

S&P 500 Declines from Recent Peak

Source: Morningstar; Baird Analysis. Shaded regions are represented by recessionary periods. Recessionary periods are defined by NBER business cycle dates.


S&P 500 Composite Index

S&P 500 Historical Drawdown

This chart illustrates the maximum

percentage decline and subsequent recovery

from a recent high for the S&P 500.

0

500

1,000

1,500

2,000

2,500

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

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0.4

-9.3-11.5 -11.8

-21.8

2.3 2.2

-0.1

15.316.5

12.0

0.7

-3.3

-0.1

5.0

1.2

-25

-15

-5

5

15

25

Commodity Markets (as of 3/31/16)

Year-to-Date Returns of Various Commodity Types

Oil Prices (Last 10 Years)

Source: U.S. Dept of Energy; London PM Gold Fix Index; Baird Analysis. “Broad Market” is represented by the Bloomberg Commodity Index, specific commodity types are reported segments of that index. See important disclosures and definitions included with this publication.


Gold Prices (Last 10 Years)

$1,235

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Lo

nd

on

PM

Go

ld (

$/o

z)

$38.34

$-

$20

$40

$60

$80

$100

$120

$140

$160

WT

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rice

s (

$/b

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-3

-2

-1

0

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80

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100

Su

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ly /

De

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MM

bb

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Glo

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il S

up

ply

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d D

em

an

d (

MM

bb

/d

)

Supply/Demand Imbalance

Global Oil Supply

Global Oil Demand

Energy Markets (as of 3/31/16)

Oil Prices (Last 10 Years)

Source: U.S. Energy Information Administration; Bloomberg; Baird Analysis.


Natural Gas Prices (10 Years)

Total U.S. Oil Production (LH) and Rig Count Index (RH) Global Oil Supply and Demand (LH) and Supply Imbalances (RH)

Un

de

rsu

pp

ly

Ove

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$38.34

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He

nry

Hu

b N

atu

ral G

as P

rice

($

/m

mb

tu)

0

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2,500

3,500

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Ba

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To

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mb

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Total Oil Production

Total Act ive Rig Count

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Mutual Fund and ETF Flows (as of 2/29/16)

Source: Morningstar Direct; Baird Analysis. Asset classes with less than $25 billion invested were excluded from the analysis.

Annual Fund Flows

The examination of annual

mutual fund and ETF flows shows

the investment pattern of the

average investor by broad asset

class. For example, in 2008

investors exited stocks when the

markets fell. In 2009, large

amounts of capital went to fixed

income, but little flowed back to

stocks.

Gainers/Losers

These tables depict individual

asset classes that have exhibited

the greatest positive or negative

percentage change in assets.

Annual Mutual Fund and ETF Flows ($millions)

Biggest % Gainers/Losers by Asset Class


YTD 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006

Money Market 20,443 52,648 24,080 40,622 23,827 (60,745) (431,604) (290,490) 613,001 340,833 223,830

Municipal Bond 10,683 21,822 32,748 (56,361) 54,251 (8,574) 16,043 75,969 12,758 14,353 18,502

Taxable Bond 4,647 29,820 110,193 34,920 329,181 190,178 246,664 333,826 61,001 112,649 55,311

Allocation (12,862) (20,669) 51,267 61,961 29,553 19,307 18,527 6,453 (21,999) 45,974 28,899

US Equity (19,536) (60,053) 127,309 175,444 (41,163) (45,395) (21,054) (33,563) 709 37,163 48,344

International Equity 14,777 209,444 153,487 200,740 61,056 19,051 91,729 63,246 (41,542) 174,946 162,568

Alternative 6,824 20,516 20,076 49,512 17,902 23,172 24,006 28,434 19,820 11,561 10,147

Commodities 9,641 (1,526) (3,317) (32,890) 11,928 8,171 24,972 36,636 12,370 6,542 8,648

Calendar Year Net Flows ($M)

Top 10 In-Flows Trailing 1-Year Top 10 Out-Flows Trailing 1-Year

(as a % of assets) Growth Rate (as a % of assets) Growth Rate

Managed Futures 61.3% China Region -7.9%

Multialternative 43.1% Long/Short Equity -8.2%

Trading-Inverse Equity 40.3% Long-Term Bond -12.3%

Europe Stock 39.2% Nontraditional Bond -14.0%

Japan Stock 25.9% Convertibles -14.1%

Foreign Small/Mid Blend 21.2% Market Neutral -14.5%

Long Government 21.0% Emerging Markets Bond -16.3%

Foreign Large Blend 19.9% Bank Loan -17.7%

Preferred Stock 17.7% Industrials -19.9%

Short Government 16.7% Pacific/Asia ex-Japan Stk -22.2%

19 19

Domestic Equity

20 Source: Morningstar Direct. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.

U.S. Stock Market Snapshot (as of 3/31/16)


Representative

Last Qtr YTD 1-Year 3-Year 5-Year 10-Year Std. Dev. Max. Loss P/E EPS Gr. Div. Yld. Benchmark

Bellwethers

S&P 500 1.4 1.4 1.8 11.8 11.6 7.0 12.2 (16.3) 16.8 9.5 2.5 S&P 500

DJIA 2.2 2.2 2.1 9.3 10.3 7.5 11.9 (13.8) 15.5 8.2 3.1 Dow Jones Industrial Avg.

Market Cap

Mega 1.0 1.0 5.9 11.8 11.8 6.8 11.9 (13.2) 18.3 8.7 2.3 Russell Top 50

Large 0.7 0.7 2.6 12.0 11.8 6.9 12.1 (15.4) 18.3 18.3 2.2 Russell Top 200

Mid 2.2 2.2 (4.0) 10.5 10.3 7.5 13.8 (20.9) 22.2 8.3 1.9 Russell Midcap

Small (1.5) (1.5) (9.8) 6.8 7.2 5.3 16.7 (25.1) 35.8 8.4 1.6 Russell 2000

Micro (5.4) (5.4) (13.1) 6.3 6.6 3.2 17.5 (26.5) 1.5 Russell Micro Cap

Style

Value 1.6 1.6 (2.1) 9.1 10.0 5.6 12.8 (19.3) 17.8 15.8 2.7 Russell 3000 Value

Core 1.0 1.0 (0.3) 11.2 11.0 6.9 12.7 (17.8) 19.9 13.2 2.1 Russell 3000

Growth 0.3 0.3 1.3 13.2 12.0 8.1 12.9 (16.2) 22.5 11.5 1.6 Russell 3000 Growth

S&P 500 Sectors

Consumer Discretionary 1.6 1.6 6.8 16.1 17.1 10.7 13.7 (13.4) 17.8 11.8 1.9 S&P 500/Cons. Disc.

Consumer Staples 5.6 5.6 11.4 12.8 15.2 11.5 10.3 (6.5) 21.2 7.9 2.7 S&P 500/Cons. Staples

Energy 4.0 4.0 (15.5) (4.9) (2.4) 3.6 19.0 (38.7) 26.3 8.3 4.4 S&P 500/Energy

Financials (5.1) (5.1) (4.6) 9.5 8.7 (1.5) 16.7 (27.4) 12.6 9.3 2.8 S&P 500/Financials

Health Care (5.5) (5.5) (5.2) 15.6 17.6 9.9 12.2 (13.1) 17.8 8.9 1.9 S&P 500/Health Care

Industrials 5.0 5.0 3.2 12.6 10.8 7.1 14.5 (23.7) 15.5 10.5 2.7 S&P 500/Industrials

Information Technology 2.6 2.6 8.1 17.0 13.8 9.2 14.4 (11.6) 17.8 10.6 1.9 S&P 500/Info. Tech.

Materials 3.6 3.6 (6.0) 6.8 4.8 5.9 19.1 (26.8) 17.0 7.9 2.8 S&P 500/Materials

Telecomm 16.6 16.6 18.7 8.1 10.7 7.7 12.8 (10.6) 13.3 4.4 4.9 S&P 500/Telecomm

Utilities 15.6 15.6 16.0 12.4 13.7 9.1 12.5 (12.8) 16.1 5.0 3.5 S&P 500/Utilities

Trailing Returns (%) 5-Year Risk Stats Other Metrics

21

1.3

2.2

-1.5

1.6

0.7

3.9

0.6

1.7

-4.7

1.3

2.2

-1.5

1.6

0.7

3.9

0.6

1.7

-4.7

-6

-4

-2

0

2

4

6

Large Cap Mid Cap Small Cap LargeValue

LargeGrowth

MidValue

MidGrowth

SmallValue

SmallGrowth

Re

turn

(%

)

Last Quarter Year-to-Date

Domestic Asset Class Performance (as of 3/31/16)

Performance by Market Cap and Style

Source: Morningstar Direct. Asset classes are represented by the following benchmarks: S&P 500 (Large Cap), Russell Midcap® (Mid Cap), Russell 2000® (Small Cap), Russell 1000 Value® (Large Value), Russell 1000 Growth® (Large Growth), Russell Midcap Value® (Mid Value), Russell Midcap Growth® (Mid Growth), Russell 2000 Value® (Small Value), and Russell 2000 Growth® (Small Growth). See important disclosures and definitions included with this publication.

Market Cap Style


22

-5.5

-5.1

1.3

1.6

2.6

3.6

4.0

5.0

5.6

15.6

16.6

-10 -5 0 5 10 15 20

Health Care

Financials

S&P 500

Cons. Disc.

Info. Tech.

Materials

Energy

Industrials

Cons. Staples

Utilities

Telecomm

Return (%)

U.S. Economic Sector Performance (as of 3/31/16)

S&P 500 Index: Performance by Sector (Latest Quarter)

Source: Morningstar Direct; Standard & Poor’s; Baird Analysis. P/E ratios are based on trailing 12 month earnings (TTM) and the consensus forecast over the next 12 months (NTM). EPS Growth is a measure of forecasted earnings growth over the next 5 years. Past performance is not a guarantee of future results. Direct investments in sectors is not possible.

S&P 500 Index: Industry Metrics

S&P 500 Index: Performance by Sector (Year to Date)


-5.5

-5.1

1.3

1.6

2.6

3.6

4.0

5.0

5.6

15.6

16.6

-10 -5 0 5 10 15 20

Health Care

Financials

S&P 500

Cons. Disc.

Info. Tech.

Materials

Energy

Industrials

Cons. Staples

Utilities

Telecomm

Return (%)

P/E Ratio

(TTM)

P/E Ratio

(NTM)

Dividend

Yield (%)

EPS Growth

(%)

S&P 500 Index 19.1 16.8 2.5 9.5

Consumer Discretionary 19.9 17.8 1.9 11.8

Consumer Staples 22.5 21.2 2.7 7.9

Energy 20.6 26.3 4.4 8.3

Financials 13.0 12.6 2.8 9.3

Health Care 20.0 17.8 1.9 8.9

Industrials 17.3 15.5 2.7 10.5

Info. Tech. 18.6 17.8 1.9 10.6

Materials 17.2 17.0 2.8 7.9

Telecomm 12.9 13.3 4.9 4.4

Utilities 18.7 16.1 3.5 5.0

23

-20

-15

-10

-5

0

5

10

15

20

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

12

-M

o P

erfo

rm

an

ce D

iffe

re

nti

al

(%

)

-50

-40

-30

-20

-10

0

10

20


12

-Mo

Pe

rfo

rman

ce D

iffe

ren

tia

l (%

)

-40

-30

-20

-10

0

10

20

30


12

-Mo

Pe

rfo

rman

ce D

iffe

ren

tia

l (%

)

Investment Style Leadership

Source: Morningstar Direct. Styles represented by S&P 500 (Large Cap), Russell 2000 (Small Cap), Russell 1000 Value (Value), Russell 1000 Growth (Growth), S&P 500 High Quality (High Quality), S&P 500 Low Quality (Low Quality), Russell 1000 Defensive (Defensive), Russell 1000 Dynamic (Cyclical). See important disclosures and definitions included with this publication.

Defensive vs. Cyclical (Rolling 12 month periods)

Large Cap vs. Small Cap (Rolling 12 month periods) Value vs. Growth (Rolling 12 month periods)

Large Cap Outperforms Value Outperforms

Small Cap Outperforms Growth Outperforms

High Quality vs. Low Quality (Rolling 12 month periods)

High Quality Outperforms Defensive Outperforms

Low Quality Outperforms Cyclical Outperforms


-20

-15

-10

-5

0

5

10

15


12

-Mo

Pe

rfo

rma

nce

Dif

fere

nti

al

(%)

24

Historical Market Cap Valuations

Source: Morningstar Direct, Standard & Poor’s, Russell. P/E (Price/Earnings) is calculated based on the weighted-average price relative to earnings over the trailing 12 months. Mid Cap is measured by the Russell Midcap Index; Small Cap is measured by the Russell 2000 Index. See important disclosures and definitions included with this publication.

S&P 500 Valuation History

Mid Cap Valuation History Small Cap Valuation History


19.6

5

10

15

20

25

P/E R

ati

o (

TT

M)

Small Cap 10-Year Average P/E

Average +1 Std. Dev. Average -1 Std. Dev.

20.1

5

10

15

20

25

P/E R

ati

o (

TT

M)

Mid Cap 10-Year Average P/E


19.1

5

10

15

20

25

P/E R

ati

o (

TT

M)

S&P 500 P/E 10-Year Average P/E


25

Historical Sector Valuation and Growth Ranges

Source: Morningstar Direct; Standard & Poor’s; Baird Analysis. P/E ratios are based on trailing 12 month earnings. EPS Growth is a measure of forecasted earnings growth over the next 5 years. See important disclosures and definitions included with this publication.

S&P 500 Sectors: 10-Year P/E Valuation Range

S&P 500 Sectors: 10-Year Earnings Growth Range

10-Year Low

10-Year High

Current

Average

LEGEND


17.8

21.2

26.3

12.6

17.8

15.5

17.8 17.0

13.3

16.1

0

5

10

15

20

25

30

35

Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities

P/E R

ati

o

11.8

7.9 8.39.3 8.9

10.5 10.6

7.9

4.45.0

0

2

4

6

8

10

12

14

16

18

Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities

LT

Ea

rnin

gs G

row

th

26

Mutual Fund Over/Under Performance (Equity Funds)

Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year)

Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)

Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of December 2015: 338 for Large Growth, 259 for Large Value, 177 for Mid Growth, 91 for Mid Value, 182 for Small Growth, 82 for Small Value, and 124 for International. Source: Morningstar Direct; S&P 500 and Russell benchmarks; Baird Analysis. See important disclosures and definitions included with this publication.

Mutual Fund Performance

Active investment managers often have a primary objective of outperforming a relevant market benchmark based on the fund’s investment style. In certain periods, active managers can find it easier or more difficult to outperform.

This chart examines four main assets classes, detailing what percentage of mutual fund managers over- or under-performed in a given period. This provides useful context when assessing mutual funds that you may own.


7%

34% 30% 34%

55%61% 59%

0%

25%

50%

75%

100%

Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l

Pe

rce

nt

of T

ota

l

% Underperform

% Outperform

8%21%

15%8%

34%

58%

40%

0%

25%

50%

75%

100%

Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l

Pe

rce

nt

of T

ota

l

% Underperform

% Outperform

27 27

International Equity

28

Global Market Performance (as of 3/31/16)

Source: Standards & Poor’s (S&P 500); MSCI benchmarks (country returns). All performance is measured in USD. See important disclosures and definitions included with this publication.

Year-to-Date Performance of Selected Stock Markets

S&P 500 1.4%

Canada 11.5%

Mexico 8.5%

UK -2.3%

France 0.2%

Spain -4.0%

Germany -2.4%

Brazil 28.6%

Japan -6.4%

Hong Kong -0.5%

China -4.8%

India -2.5%

Australia 2.1%

South Africa 13.9%

Europe -1.7%

Russia 15.8%


29

International Equity Snapshot (as of 3/31/16)

Source: Morningstar Direct; MSCI benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.


Asset Class/Region Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark

Broad Developed Markets

Developed Markets (USD) (3.0) (3.0) (8.3) 2.2 2.3 1.8 (0.8) (4.9) 22.8 MSCI EAFE (Net) USD

Developed Markets (Local Currency) (6.5) (6.5) (11.2) 6.5 6.2 1.7 5.3 5.9 26.9 MSCI EAFE (Net) Local

Currency Effect (USD - Local Returns) 3.5 3.5 2.9 (4.2) (3.9) 0.1 (6.1) (10.8) (4.1)

Broad Emerging Markets

Emerging Markets 5.7 5.7 (12.0) (4.5) (4.1) 3.0 (14.9) (2.2) (2.6) MSCI Emerging Markets (Net)

BRIC 1.4 1.4 (15.1) (5.1) (6.5) 2.6 (13.3) (2.6) (3.3) MSCI BRIC

Returns by Style

Value (4.0) (4.0) (12.8) 0.6 0.8 0.6 (5.7) (5.4) 23.0 MSCI EAFE Value

Growth (2.1) (2.1) (3.7) 3.8 3.7 2.9 4.1 (4.4) 22.5 MSCI EAFE Growth

Large Cap (3.6) (3.6) (9.8) 1.3 1.8 1.5 (2.1) (5.5) 22.4 MSCI EAFE Large Cap

Mid Cap (0.7) (0.7) (1.9) 6.0 4.3 2.8 4.4 (2.1) 24.4 MSCI EAFE Mid Cap

Small Cap (0.6) (0.6) 3.2 7.3 5.6 3.4 9.6 (4.9) 29.3 MSCI EAFE Small Cap

Returns by Region

Europe (2.4) (2.4) (8.0) 3.3 2.7 2.7 (2.3) (5.7) 26.0 MSCI Europe

Japan (6.4) (6.4) (6.8) 4.1 4.3 (0.2) 9.9 (3.7) 27.3 MSCI Japan

Pacific (ex Japan) 1.8 1.8 (9.5) (2.8) 0.8 5.9 (8.4) (0.3) 5.6 MSCI Pacific ex Japan

Trailing Returns (%) Annual Returns (%)

30

-4.8

-2.5

5.2

5.7

7.7

8.5

11.3

13.2

13.9

15.8

28.6

-11.7

-6.4

-5.1

-4.0

-3.0

-2.4

-2.3

0.2

0.2

2.1

3.4

-20 -10 0 10 20 30 40

China

India

South Korea

MSCI Em. Mkts

Taiwan

Mexico

Indonesia

Malaysia

South Africa

Russia

Brazil

Italy

Japan

Switzerland

Spain

MSCI EAFE

Germany

U.K.

Sweden

France

Australia

Netherlands

Return (%)

-4.8

-2.5

5.2

5.7

7.7

8.5

11.3

13.2

13.9

15.8

28.6

-11.7

-6.4

-5.1

-4.0

-3.0

-2.4

-2.3

0.2

0.2

2.1

3.4

-20 -10 0 10 20 30 40

China

India

South Korea

MSCI Em. Mkts

Taiwan

Mexico

Indonesia

Malaysia

South Africa

Russia

Brazil

Italy

Japan

Switzerland

Spain

MSCI EAFE

Germany

U.K.

Sweden

France

Australia

Netherlands

Return (%)

International Country Performance (as of 3/31/16)

Source: Morningstar Direct.; MSCI Indices; Baird Analysis. All returns are reported in USD. MSCI EAFE (Developed markets) and MSCI EM (Emerging markets) are broad benchmarks representing many countries. Includes the 10 largest countries by weighting in the benchmark. See important disclosures and definitions included with this publication.

Selected Country Performance (Latest Quarter) Selected Country Performance (Year to Date)

Develo

ped

Markets

Em

erg

ing

Markets


31

International Economic Sector Performance (as of 3/31/16)

MSCI ACWI Ex U.S. Performance by Sector (Latest Quarter)

Sector Weighting (%) in the MSCI ACWI Ex U.S. Index

Source: Morningstar Direct; Baird Analysis. Sectors based on global industry classification standards (GICS). The MSCI ACWI Ex US Index is a benchmark designed to measure developed market and emerging market performance excluding the U.S. See important disclosures in appendix.

MSCI ACWI Ex U.S. Performance by Sector (Year to Date)


-7.5

-5.0

-2.6

-0.4

0.7

2.3

2.4

2.5

4.1

7.2

9.8

-10 -5 0 5 10 15

Health Care

Financials

Cons. Disc.

MSCI ACWI ex US

Info. Tech.

Industrials

Utilities

Telecomm

Cons. Staples

Materials

Energy

Return (%)

-7.5

-5.0

-2.6

-0.4

0.7

2.3

2.4

2.5

4.1

7.2

9.8

-10 -5 0 5 10 15

Health Care

Financials

Cons. Disc.

MSCI ACWI Ex US

Info. Tech.

Industrials

Utilities

Telecomm

Cons. Staples

Materials

Energy

Return (%)

Financials25.5

Cons. Disc.12.0

Industrials11.5Cons. Staples

11.3

Health Care9.4

Info. Tech.8.3

Materials6.7

Energy6.3

Telecomm5.4

Utilities3.6

32

-60

-50

-40

-30

-20

-10

0

10

20

30

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

12

-M

o P

erfo

rm

an

ce D

iffe

re

nti

al (%

)

-15

-10

-5

0

5

10

15

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

12

-Mo

Pe

rfo

rman

ce D

iffe

ren

tia

l (%

)

-30

-20

-10

0

10

20

30

12

-Mo

Pe

rfo

rman

ce D

iffe

ren

tia

l (%

)

International Style Leadership

Source: Morningstar Direct. Returns based on 12-month performance, calculated monthly over the most recent 10-year period. Benchmark proxies are as follows: S&P 500 (U.S.), MSCI EAFE (Int’l), MSCI EAFE Value (Value) and MSCI EAFE Growth (Growth), MSCI EAFE (Developed markets), and MSCI EM (Emerging markets). See important disclosures and definitions included with this publication.

U.S. vs International (Rolling 12 month periods)

U.S. Outperforms

Int’l Outperforms

Developed vs Emerging Markets (Rolling 12 month periods) Value vs Growth (Rolling 12 month periods)

Dev. Markets Outperform

Emg. Markets Outperform

Value Outperforms

Growth Outperforms


33

16.7

14.6

18.3

13.1 12.6 12.7

15.313.7

11.5

8.5

10.4 11.1

14.4

18.4 17.9

6.4

0

2

4

6

8

10

12

14

16

18

20

22

P/E R

ati

o (

TT

M)

Global Stock Market Valuations (as of 3/31/16)

Source: Standards & Poor’s (S&P 500); MSCI benchmarks (country returns). All performance is measured in USD. US is measured by the S&P 500 Index, Developed International is measured by the MSCI EAFE Index, Emerging International is measured by the MSCI EM Index. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication.

Historical P/E Ratio

Current P/E Ratio of Selected Countries

Europe Asia-Pacific Emerging Markets


19.1

15.1

11.3

4

6

8

10

12

14

16

18

20

22


P/E

Ra

tio

(T

TM

)

S&P 500 MSCI EAFE MSCI EM

34

Country Valuation Ranges (as of 3/31/16)

Source: Morningstar Direct. USA is represented by the S&P 500. All other countries are represented by the respective MSCI country benchmark. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication.

Developed Markets: 7-Year P/E Valuation Range

Emerging Markets: 7-Year P/E Valuation Range

7-Year Low

7-Year High

Current

Average

LEGEND


18.5

14.3

16.718.3

14.613.1

16.3

12.6

15.013.5

20.018.7

12.7

15.313.7

11.5

0

5

10

15

20

25

P/E R

ati

o

8.510.4

12.1

18.4

6.4

15.9 15.813.6

11.1

17.9

14.5

11.7

14.4

0

5

10

15

20

25

30

35

P/E R

ati

o

35 35

Fixed Income

36

Bond Market Snapshot (as of 3/31/16)

Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Duration, measured in years, is a relative term that expresses the price sensitivity of an investment/benchmark to changes in interest rates. All else equal, the lower the duration, the less price sensitivity to interest rate changes. See important disclosures and definitions included with this publication.


Bond Types Yield (%) Duration Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark

Broad Developed Markets

U.S. Taxable Bonds 2.1 5.5 3.0 3.0 2.0 2.5 3.8 4.9 0.5 6.0 (2.0) Barclays US Aggregate Bond

U.S. Municipal Bonds 2.0 6.1 1.7 1.7 4.0 3.6 5.6 4.9 3.3 9.1 (2.6) Barclays Municipal Bond

International Bonds 1.4 6.6 8.3 8.3 6.7 (0.3) 0.4 3.9 (6.0) (3.1) (3.1) Barclays Glbl Agg. Bond ex US

Broad Emerging Markets

Emerging Market Bonds 5.3 6.0 4.5 4.5 3.5 2.6 5.7 7.0 1.3 4.8 (4.1) Barclays Emerging Markets

Taxable Bond Categories

Treasuries 1.0 7.5 3.2 3.2 2.4 2.1 3.6 4.6 0.8 5.1 (2.7) Barclays US Treasury

Agencies 1.7 4.1 3.1 3.1 2.4 2.1 3.4 4.5 0.9 4.9 (2.6) Barclays US Government

Mortgage-Backed 2.4 3.6 2.0 2.0 2.4 2.7 3.2 4.8 1.5 6.1 (1.4) Barclays US MBS

Inv-Grade Corporate 2.9 7.4 4.0 4.0 0.9 3.0 5.2 5.8 (0.7) 7.5 (1.5) Barclays US Corporate IG

High Yield Corporate 6.2 4.2 3.2 3.2 (4.0) 1.8 4.7 6.8 (4.6) 2.5 7.4 BofA/ML High Yield Master II

Municipal Bond Categories

Insured 1.8 4.3 1.3 1.3 3.2 3.9 6.0 4.9 2.9 10.3 (2.0) Barclays Municipal Insured

State GO 1.7 5.4 1.4 1.4 3.6 3.0 4.7 4.7 3.0 7.3 (2.3) Barclays Municipal State GO

Local GO 1.9 6.2 1.7 1.7 3.9 3.5 5.4 5.1 3.2 8.5 (2.4) Barclays Municipal Local GO

Revenue 2.2 6.5 1.8 1.8 4.4 4.0 6.2 4.9 3.6 10.1 (2.9) Barclays Municipal Revenue

High Yield 6.4 9.6 2.7 2.7 3.5 3.3 7.8 4.8 1.8 13.8 (5.5) Barclays High Yield Muni

Annual Returns (%)Trailing Returns (%)Characteristics

37

0.5

1.5

1.9

1.5 1.5

1.9 1.9

2.7

0.5

1.5

1.9

1.5 1.5

1.9 1.9

2.7

0

2

4

Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)

Re

turn

(%

)

QTR YTD

1.0

2.6

7.3

4.4

3.7 3.6

4.3

3.2

1.0

2.6

7.3

4.4

3.7 3.6

4.3

3.2

0

2

4

6

8

Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)

Re

turn

(%

)

QTR YTD

Performance by Maturity and Credit Quality (as of 3/31/16)

Source: Bloomberg; Baird Analysis. Ratings are as defined by Bloomberg and represent bonds in the Barclays Aggregate Bond index (taxable bonds) and Barclays Municipal Index (municipal bonds). Short-term maturity is defined as 1-3 years, intermediate is 5-7 years for taxable and 6-8 for municipal, long-term is 10+ years for taxable and 8-12 years for municipal. See important disclosures and definitions included with this publication.

Taxable Bonds

Municipal Bonds


38

International

Bank Loans Emerging Mkts

Broad Bond Market

High Yield

Treasury

Mortgage-Backed

CorporateMunicipal

HY Municipal

0

2

4

6

8

0 2 4 6 8 10 12

Yie

ld (

%)

10-Year Historical Volatility (Standard Deviation)

Yield and Volatility Characteristics of Various Bond Types

Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Bond types are represented by the following indices: Barclays Aggregate Bond (Broad Bond Market), Barclays US MBS (Mortgage-Backed), Merrill Lynch High Yield Master II (High Yield), Barclays IG Corporate (Corporate), Barclays Municipal (Municipal), Barclays US Treasury (U.S. Treasury), Barclays Global Aggregate ex USD (International), and S&P/LSTA Leveraged Loan (Bank Loans). Indices are unmanaged and are used to measure and report performance of various sectors of the market. Past performance is no guarantee of future results and diversification does not ensure against loss. Direct investment in indices is not available. See important disclosures and definitions included with this publication.

The Relationship Between Yield and Volatility


39

1

2

3

4

5

6

7

8

9

10

Mar-

91

Mar-

92

Mar-

93

Mar-

94

Mar-

95

Mar-

96

Mar-

97

Mar-

98

Mar-

99

Mar-

00

Mar-

01

Mar-

02

Mar-

03

Mar-

04

Mar-

05

Mar-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Mar-

11

Mar-

12

Mar-

13

Mar-

14

Mar-

15

Mar-

16

10

-Ye

ar

U.S

. Tre

asu

ry R

ate

(%

)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Yie

ld (

%)

Maturity

03/31/16 Current Qtr

03/31/15 Last Year

20yr

3m

o

2yr

3yr

5yr

10yr

30yr

U.S. Treasury Bonds

Source: U.S. Department of Treasury; Baird Analysis. See important disclosures and definitions included with this publication.

U.S. Treasury Yield Curve Historical U.S. 10-Year Treasury Rate (since 1990)

Current U.S. Treasury Yields by Maturity


0.210.39

0.730.87

1.21

1.78

2.61

0

1

2

3

3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr

Yie

ld (

%)

40

0.20.4

0.60.7

0.91.2

1.51.8

2.2

2.6

0.3 0.30.5

0.71.0

1.31.6

2.0

2.72.9

0.5 0.60.8

1.2

1.6

2.2

2.7

3.3

4.4

4.8

0

1

2

3

4

5

6

3mo 6mo 1yr 2yr 3yr 5yr 7yr 10yr 20yr 30yr

Yie

ld (

%)

Treasury

Municipal

Tax-Equivalent Yield

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Yie

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20yr

3m

o6m

o

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Source: U.S. Department of Treasury; Bloomberg. Municipal yields are based on the Barclays AAA GO Bond Index. The Tax-Equivalent Yields assumes a 39.6% federal tax rate and full exemption of those taxes. See important disclosures and definitions included with this publication.

U.S. Municipal and Treasury Yield Curves

Yield Comparisons of Treasury and Municipal Bonds

Tax Equivalent Yield

The income from many municipal bonds is exempt from federal taxes. The tax equivalent yield is the pre-tax income needed from a taxable bond to possess the same after-tax result. In this chart, a tax rate of 39.6% is assumed.


41

Corporate Bond Yields

Source: BofA/Merrill Lynch, Standard & Poor’s. Investment Grade Bonds are represented by the BofA/ML US Corporate Bond Index; High Yield Bonds are represented by the BofA/ML High Yield Master II Index. Historic default rates provided by Standard & Poor’s and encompass the period from 1/1/81 to 1/1/14. See important disclosures and definitions included with this publication.

Investment Grade Bonds: Historical Yields

High Yield Bonds: Historical Yields

Investment Grade Bonds: Current Yield & Historic Default Rate

High Yield Bonds: Current Yield & Historic Default Rate


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42

Bond Spreads

Source: Barclays, Bloomberg. The length of each bar represents the range of a particular spread relative to an appropriate Treasury benchmark over the past 10 years. The maximum and minimum spreads are capped at the 95th and 5th percentiles to account for outliers. The data point marked ‘current’ represents the most recent quarter. Past performance is not a guarantee of future results and this chart is not intended to be a valuation tool.

Average OAS Spread: Max/Min/Avg/Current (10-Year History)


1348

481

132 12483

283

88

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High Yield Corporate MBS Global Agencies

High 1348 481 132 124 83

Average 581 181 55 61 32

Low 283 88 15 25 13

Current 660 165 24 50 21

Current/Historical Spreads (%)

43

Mutual Fund Over/Under Performance (Bond Funds)

Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of December 2015: 103 for Short-Term Taxable, 214 Intermediate Term, 46 for Short-Term Municipal, and 70 for Intermediate Municipal. Source: Morningstar Direct; Barclays benchmarks; Baird Analysis. See important disclosures and definitions included with this publication.

Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year)

Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)

Mutual Fund Performance

Active investment managers often have a primary objective of outperforming a relevant market benchmark based on the fund’s investment style. In certain periods, active managers can find it easier or more difficult to outperform.

This chart examines four main assets classes, detailing what percentage of mutual fund managers over- or under-performed in a given period. This provides useful context when assessing mutual funds that you may own.


23%10%

31% 28%

0%

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100%

Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal

Pe

rce

nt

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ota

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% Underperform

% Outperform

79% 83%

43%53%

0%

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Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal

Pe

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% Underperform

% Outperform

44 44

Appendix and Important Disclosures

45

Disclosures Disclaimers

This is not a complete analysis of every material fact regarding any company, industry or security. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Past performance is not a guarantee of future results.

Style Definitions

Large Growth: equity securities of large capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield. Based upon the Russell 1000® Growth Index. Large Value: equity securities of large capitalization companies having value stock characteristics (low forecasted price-to-earnings ratio, low price-to-book ratio, high dividend yield). Based upon the Russell 1000® Value Index. Mid Growth: equity securities of middle capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the Russell Midcap® Growth Index. Mid Value: equity securities of middle capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the Russell Midcap® Value Index. Small Growth: equity securities of small capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Small capitalization stock may be subject to additional risks including illiquidity. Based upon the Russell 2000® Growth Index. Small Value: equity securities of small capitalization companies having value stock characteristics (low price-to-earnings ratio, low price-to-book ratio, high dividend yield). Small capitalization stocks may be subject to additional risks including illiquidity. Based upon the Russell 2000® Value Index. International: a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada, consisting of 21 developed market country indices. Based upon the MSCI EAFE Index. Satellite: these asset classes, as defined by Baird, include commodities, real estate, high yield bonds and emerging markets. Representative benchmarks are as follows: Dow Jones UBS Commodity (commodities), Dow Jones US REIT (real estate), BofA High Yield Master II (high yield), and MSCI Emerging Markets (emerging markets). Short Term Taxable: Short-term bond portfolios invest primarily in corporate and other investment-grade U.S. fixed-income issues and have durations of one to 3.5 years. Based upon the Barclays 1-3 Year Govt/Credit Index. Intermediate Taxable: Intermediate-term bond portfolios invest primarily in corporate and other investment-grade U.S. fixed-income issues and have durations of 3.5 to six years. Based upon the Barclays Intermediate Gov’t/Credit Index. Short Term Municipal: Muni national short portfolios invest in bonds issued by various state and local governments to fund public projects. These portfolios have durations of less than 4.5 years. Based upon the Barclays 3 Year Municipal Index. Intermediate Term Municipal: Muni national short portfolios invest in bonds issued by various state and local governments to fund public projects. These portfolios have durations of 4.5 to 7 years. Based upon the Barclays 7 Year Municipal Index.

GICS

The Global Industry Classification Standard ("GICS") is the exclusive property of Morgan Stanley Capital International Inc. ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by Robert W. Baird & Co. Inc. MSCI and S&P hereby provided all information "as is" and expressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have any liability.

Domestic Equity Benchmarks

S&P 500® Index: A representative sample of 500 leading companies in leading industries of the U.S. economy. Considered a large-cap index.

Russell 3000® Growth Index: Measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. An all-cap index.

Russell 3000® Value Index: Measures the performance of those Russell 3000® Index companies with lower price to- book ratios and lower forecasted growth values. An all-cap index.

Russell Top 50® Index: Measures the performance of the 50 largest companies in the Russell 1000® Index, which represents approximately 40% of the total market capitalization of the Russell 1000® Index. A mega-cap index.

Russell Top 200® Index: Measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 68% of the total market capitalization of the Russell 1000® Index. A large-cap index.

Russell 1000® Growth Index: Measures the performance of those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. A large-cap index.

Russell 1000® Value Index: Measures the performance of those Russell 1000® Index companies with lower price to- book ratios and lower forecasted growth values. A large-cap index.

Russell 1000® Defensive/Dynamic Index: Measures the performance of those Russell 1000® Index companies based in terms of volatility of price and earnings, leverage and return on assets. The Russell 1000® Defensive Index includes those with relative stability and less sensitivity to economic cycles. The Russell 1000® Dynamics Index includes those with less stability and greater sensitivity to economic cycles.

Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000® Index, which represents approximately 36% of the total capitalization of the Russell 1000® Index. A mid-cap index.

Russell Midcap® Growth Index: Measures the performance of those Russell Midcap® Index companies with higher price-to-book and higher forecasted growth values. A midcap index.

Russell Midcap® Value Index: Measures the performance of those Russell Midcap companies with lower price-to book and lower forecasted growth values. A mid-cap index.

Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index. A small-cap index.

Russell 2000® Growth Index: Measures the performance of those Russell 2000® Index companies with higher price-to-book ratios and higher forecasted growth values. A small-cap index.

Russell 2000® Value Index: Measures the performance of those Russell 2000® Index companies with lower price-to- book ratios and lower forecasted growth values. A small-cap index.

Russell Microcap Index: Measures the performance of smallest 1000 companies in the Russell 2000® Index, which represents less than 3% of the total market capitalization. A micro-cap index.

Dow Jones U.S. Real Estate: Measures the performance of Real Estate Investment Trusts (REIT) and other companies that invest directly or indirectly through development, management or ownership, including properties.

Dow Jones Industrial Average: A price-weighted index composed of 30 actively-traded large cap stocks.

Bloomberg Commodity: Aims to provide broadly diversified representation of commodity markets and represents 20 commodities, weighted based on economic significance and market liquidity.

S&P 500® High/Low Quality Index: The S&P Quality Rankings System measures growth and stability of earnings and dividends within the S&P 500 Index. The S&P 500 High Quality Index tracks stocks identified by Standard & Poor’s as high quality (ranked A and above); The S&P 500 Low Quality Index tracks stocks identified by Standard & Poor’s as low quality (ranked B and below).

The Russell Indices are a trademark of the Frank Russell Company. Russell® is a trademark of the Frank Russell Company.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. This and other information is found in the prospectus or summary prospectus. For a prospectus or summary prospectus, contact your Baird Financial Advisor. Please read the prospectus carefully before investing.


46

Disclosures MSCI International Equity Benchmarks

MSCI EAFE Index: A free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. The MSCI EAFE Index consists of 21 developed market country indices in Europe, Australasia, and the Far East. An international index.

MSCI EAFE Large Cap: The MSCI EAFE Large Cap Index is an unmanaged, market-weighted index of large companies in developed markets, excluding the U.S and Canada. An international large cap index.

MSCI EAFE Mid Cap: The MSCI EAFE Mid Cap Index is a free float-adjusted market capitalization index that is designed to measure the performance of mid capitalization equities in the developed markets excluding the US & Canada. An international mid cap index.

MSCI EAFE Small Cap: The MSCI EAFE Small Cap Index represents the small cap segment in 21 developed equity markets outside of North America. It targets 40% of the eligible small cap universe in each country. An international small cap index.

MSCI EAFE Growth: A sub-set of the MSCI EAFE Index, this benchmark is generally considered to be representative of the international growth stock market activity and often used as a benchmark for international growth equity portfolios. An international growth index.

MSCI EAFE Value: A sub-set of the MSCI EAFE Index, this benchmark is generally considered to be representative of international value stock market activity and often used as a benchmark for international value equity portfolios. An international value index.

MSCI Europe Index: A free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2006, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK. An international index.

MSCI Pacific ex Japan Index: A free float-adjusted market capitalization index designed to measure equity market performance in the Pacific region, minus Japan. As of June 2006, the MSCI Pacific ex Japan Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore. An international index.

MSCI BRIC: A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the following four emerging market country indices: Brazil, Russia, India and China.

MSCI Emerging Markets Index: A free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of December 2003 the MSCI Emerging Markets Index consisted of 26 emerging market country indices. An emerging markets index.

MSCI Country Indices: To construct an MSCI Country Index, every listed security in the market is identified. Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard (GICS®), and screened by size and liquidity. MSCI then constructs its indices by targeting for index inclusion 85% of the free float adjusted market capitalization in each industry group, within each country. By targeting 85% of each industry group, the MSCI Country Index captures 85% of the total country market capitalization while it accurately reflects the economic diversity of the market. International indices.

Fixed Income Benchmarks

Barclays Aggregate Bond Index: is an unmanaged index that tracks domestic investment-grade bonds, including corporate, government, and mortgage-backed securities.

Barclays 1-3 Yr Government/Credit Bond Index: Includes bonds covered by the Barclays Government/Credit Index, with maturities from 1 up to (but not including) 3 years.

Barclays Intermediate Government/Credit Bond Index: Composed of approximately 3,500 publicly issued corporate and U.S. government debt issues rated Baa or better, with at least one year to maturity and at least $1 million par outstanding. The index is weighted by the market value of the issues included in the index. The Index has duration of a little over 3 years and a maturity equal to slightly more than 4 years.

Barclays Muni Bond Index: Bonds must have a minimum credit rating of at least Baa, an outstanding par value of at least $3 million, part of a transaction of at least $50 million, issued after December 31, 1990 and have a year or longer remaining maturity.

Barclays 3 Year Muni Bond Index: Includes bonds that have a minimum credit rating of BAA3, are issued as part of a deal of at least $50 million, have a minimum maturity of 2 years and a maximum maturity of 4 years, and have been issued after December 31, 1990.

Barclays 7 Year Muni Bond Index: This index is a subset of the BC Municipal Bond Index. It includes maturities of six to eight years.

Barclays Global Aggregate ex USD Index: Tracks investment-grade government, corporate, agency, and mortgage-related bonds in markets outside the U.S. An international bond index.

BofA/ML US High Yield Master II Index: The US High Yield Master II Index tracks the performance of below investment grade US dollar-denominated corporate bonds publicly issued in the US domestic market, subject to various qualifications. A high yield taxable bond index.

Barclays US Treasury Bond Index: Measures the performance of public obligations of the US Treasury with a remaining maturity of one year or more.

Barclays US MBS Index: Measures the performance of investment grade mortgage-backed pass-through securities of GNMA, FNMA and FHLMC.

Barclays IG Corporate: Measures the performance of investment grade corporate bonds with a remaining maturity of one year or more.

Citigroup Treasury Bill 3 Month: An unmanaged index of three-month Treasury bills. Representative of short-term money market deposits, or “cash”.

S&P/LTSA Leveraged Loan: A broad index designed to reflect the performance of U.S. dollar facilities in the leverage loan market.

Other Benchmarks

Dow Jones CSFB Managed Futures: Designed to provide transparent representation of managed futures hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi-annually and performance is calculated quarterly.

Dow Jones CSFB Multi-Strategy: Designed to provide transparent representation of fund of hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi-annually and performance is calculated quarterly.

Dow Jones CSFB Long/Short: Designed to provide transparent representation of long/short equity hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi-annually and performance is calculated quarterly.


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