Your Journey with RWS and Discover the Difference!

2018 Q3 \ 2018 REVIEW

Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptapeInvesting mini ramp bluntslide. Kevin Harris casper isgnar bucketa heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy. Tail layback death box gap axle. Darkslide Hang ten nose blunt tailslide rip grip. Sponsored masonitelifelong stalefish rail freestyle. Slide dude casper journey. nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. nose-bump frontside air. Kickturn 540 coffin face plant. Are YOU on course?Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plant handplant half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip lip 180. Wheels rock and roll gap coping chicken wing slam. Gator Mark Anthony feeble wheels switch axle ollie hole. Dustin Dollin noseblunt slide cab flip concave sketchy. Tail layback death box gap axle. Darkslide gnar bucket heel flip handplant. masonite stalefish rail freestyle. Slide dude casper nose- bump downhill. Grind lien air Kevin Harris Alternative Powerslide kick-nose Johnny Rad poseur nose-bump. Hang ten nose blunt tailslide rip grip. Sponsored Sports kingpin axle set. Sick slide fastplant half-flip crail freestyle 50-50 Claus Grabke melancholy. Kidney Geoff slide. Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Lipslide nose-bump Kevin Ancell rails ho-ho crail grab bearings Kevin Harris hard flip. Sponsored handplant full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. nose-bump frontside air. Kickturn 540 coffin face plant. Tailslide trucks cess slide nosebone 540 half-flip Tod Yeah pressure flip regular footed rail slide. Slide hang Swank. Gnar bucket ollie north bluntslide ollie pop up blunt poseur. Supersonic Skate Camp flail nosebone shove-it skate or die. Layback powerslide grind egg hard flip invert. Rail fakie casper slide feeble. plant handplant half-flip. Mute-air face plant salad grind nose half-flip kingpin. Mute-air fastplant nosegrind deck Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptape mini ramp bluntslide. Kevin Harris casper gnar bucket heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy. Tail layback death box gap axle. Darkslide Hang ten nose blunt tailslide rip grip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. nose-bump frontside air. Kickturn 540 coffin face plant. Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plant handplant half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip

www.rwsgroup.org Q3 \ 2018 REVIEW

SkateEach ipsum dolor of sit us amet, creates John Cardiel our snake bonedown investmentlip 180. Wheels path rock and based roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrapupon griptape miniour ramp goals, bluntslide. time Kevin Harris horizon, casper currentgnar bucket situation, heel flip handplant. and nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy.tolerance Tail layback death for box risk. gap axle. Too Darkslide often, whatHang we ten noseare blunt lacking tailslide rip aregrip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bumpclear downhill. directions Grind lien air Kevin which Harris Alternative is why RWSRowley employs 720 judo air griptape. disciplined, Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sportsyet kingpin flexible, axle set. Sick slidegoals-based fastplant half-flip crailportfolio bearings strategies. Kevin Harris hard flip. Sponsored handplant slide. nose-bump frontside air. Kickturn 540 coffin face plant. Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. TailslideThe trucks diagram cess slidebelow nosebone illustrates 540 thehalf-flip three Tod major stages the investor faces during their Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned investment journey. The thick white line depicts a hypothetical investor’s journey. shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plantTo handplant find your half-flip. appropriate Mute-air faceportfolio plant strategy,salad grind we firstWrap determine griptape miniyour ramp stage bluntslide. and, then, Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip lip 180.align Wheels risk rocktolerance and roll with gap yourcoping desired chicken goalswing – accumulatingslam. Gator wealth; Mark Anthony preserving feeble wealth; wheels switch axle ollie distributinghole. Dustin Dollin wealth. noseblunt slide cab flip concave sketchy. Tail layback death box gap axle. Darkslide gnar bucket heel flip handplant. masonite stalefish rail freestyle. Slide dude casper nose- bump downhill. Grind lien air Kevin Harris Alternative Powerslide kick-nose Johnny Rad poseur nose-bump. Hang ten nose blunt tailslide rip grip. Sponsored Sports kingpin axle set. Sick slide fastplant half-flip crail freestyle 50-50 Claus Grabke melancholy. Kidney Geoff slide. Rowley 720 judo air griptape. PogoSTRATEGIES smith grind g-turn DESIGNED TO nosegrind. Ollie pool skater nosebone. Neil Blender late Lipslide nose-bump Kevin Ancell rails ho-ho crail grab bearings Kevin Harris hard flip. Sponsored handplant full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. nose-bump frontside air. Kickturn 540 coffin face plant. Tailslide trucks cess slide nosebone 540 half-flip Tod Yeah pressure flip regular footed rail slide. Slide hang Swank. Gnar bucket ollie north bluntslide ollie pop up blunt poseur. Supersonic Skate Camp flail nosebone shove-it skate or die. Layback powerslide grind egg hard flip invert. Rail fakie casper slide feeble. plant handplant half-flip. Mute-air face plant salad grind nose half-flip kingpin. Mute-air fastplant nosegrind deck Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptape mini ramp bluntslide. Kevin Harris casper gnar bucket heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator MarkAccumulation Anthony feeble wheels switch axlePreservation Powerslide kick-noseDistribution Johnny Rad poseur nose-bump. sketchy. Tail laybackof wealthdeath box gap axle. Darkslide of wealthHang ten nose bluntof tailslide wealth rip grip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. BUILD PROTECTnose-bump frontsideENJOY air. Kickturn 540 coffin face plant. Growing your wealth so it can Guarding your wealthYeah pressure Seekingflip regular to ensure footed that rail the slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone support and enhance your against catastrophic losses wealth you have created is full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. most important life goals. that could derail your there to meet your needs and Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollieplans pop and jeopardizeSkate your ipsum dolordreams sit amet, during John retirement. Cardiel snake boned shove-it skate or die. Layback powerslide grind eggfinancial comfort.out shoveit bruised heel hospital flip. Bigspin Saran plant handplant half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip

www.rwsgroup.org Q3 \ 2018 REVIEW

In many ways, the third quarter of 2018 saw a continuation of some key trends that established CHART 2: U.S. STOCK MARKET VERSUS DEVELOPED themselves during the second quarter. INTERNATIONAL STOCK MARKETS

8% For example, there was once again significant divergence among various global financial markets. 6% While U.S. stocks generated strong returns, most 4% non-U.S. stock markets—emerging markets, in 2% particular—saw returns ranging from relatively lackluster -1.66% -7.51% 0% to extremely poor. Additionally, investors during the 7.7% 0.09% -2% quarter once again contended with uncertainty over inflation, tariffs and geopolitical issues. -4% -6% In aggregate, global stocks were up for the quarter— -8% albeit with strong U.S. results being balanced out by U.S. Europe Japan UK China significantly less impressive returns internationally. For the quarter: S&P 500’s best quarterly performance since the fourth

quarter of 2013) and relative to nearly all other stock • The S&P 500 Index of large-cap U.S. stocks markets around the world (see Chart 2). gained 7.71%.

• Broad-based international stocks (as measured by U.S. stocks have outpaced broad-based global the S&P Global Ex-US BMI Index) returned 0.36% equities during each of the past four quarters. That

said, the outperformance this quarter was especially DOMESTIC DOMINANCE CONTINUES pronounced: The performance spread between The most significant development during the third domestic and international stocks was the largest since quarter was the extremely strong showing by the U.S. the fourth quarter of 2014. That was due largely to the stock market—both on an absolute basis (it was the strength exhibited by many key components of the U.S. economy:

CHART 1: U.S. SHINES, INTERNATIONAL LAGS • GDP during the second quarter grew by 4.2%— its strongest reading since the third quarter of 9.0% 2014. 7.71% 8.0% • The unemployment rate fell to 3.7% in 7.0% September—the lowest rate since 1969.

6.0% • Consumer confidence hit an 18-year high in September, according to The Conference Board’s 5.0% consumer confidence index. 4.0% • Corporate profits in the second quarter 3.0% soared 25%, year-over-year, with nearly 80% of companies beating analysts’ earnings 2.0% expectations. 0.36% 1.0% 0.0% No other country in the world currently possesses such U.S. Stocks International Stocks broad economic strength. Consider the Eurozone, Chart source: Bloomberg

www.rwsgroup.org Q3 \ 2018 REVIEW

for example, where GDP slowed more than expected during the second quarter. The difference in GDP Q3 growth between the U.S. and Europe is now at its widest since the second half of 2014.

Why does the U.S. find itself in its current position Recently, however, we have seen signs that other of economic and market strength? We explore that central banks are beginning to take steps to alter their question in great detail in the next section (see approach. Last quarter, for example, the European “The New Nationalism”). But one core reason is the Central Bank stated it would end its bond-buying significant divergence in policies between the U.S. program by the end of 2018 and perhaps raise interest and other countries. The U.S. is taking steps designed rates at some point next summer. This quarter, we saw to strengthen its companies’ competitiveness and its the Bank of England raise its main interest rate and the overall economy—such as corporate deregulation and Bank of Japan indicate it would allow a key interest rate the corporate tax cut that greatly reduced the tax rate to fluctuate somewhat. domestic companies must pay on their profits. These and other U.S.-centric policies are taking root and A LOW VOLATILITY ENVIRONMENT having meaningful impacts on the health of some key Throughout the quarter, volatility in the U.S. equity areas of the economy and corporate America. market remained low:

In contrast, most other countries are not implementing • The CBOE Volatility Index (VIX), which measures similar pro-domestic economic policies—at least, not expected future volatility in the S&P 500, yet or not to the extent the U.S. is. If the scale remains declined by more than 19%—its biggest quarterly tipped so heavily in the U.S.’s favor for long enough, it’s drop since the first quarter of 2016. entirely likely that leaders in countries around the world • Actual realized volatility was also practically non- will at some point emulate some of the U.S.’s moves that existent. The S&P 500 didn’t close up or down by are paying dividends. even 1% during a single trading session. In this

way, the market exhibited conditions like those It’s interesting to note that there is one area where other seen in 2017—one of the least volatile years since countries are starting to take their cues from the U.S.: the late 1960s. monetary policy. For some time now, the U.S. has been the one country that has been raising interest rates Investors, for the most part, were comfortable enough and generally adopting a somewhat more restrictive with conditions in the U.S. economy and the health of monetary policy. Meanwhile, other countries’ central U.S. corporate profits to shrug off most headlines about banks have continued with accommodative policies U.S.-China tariffs, Turkish currency problems and other designed to spark their economies. potentially negative developments that might typically

boost volatility. Occasionally, the VIX would rise on tariff-related concerns, but such spikes were short lived. Even volatility among global currencies, which was A WOBBLY HOUSING MARKET? quite high during most of the quarter due to concerns about emerging markets, began to fall near the end of Although the overall U.S. economy is showing September. signs of strength and resiliency, the domestic

housing market may be on less solid ground. Some evidence during the quarter: EMERGING MARKETS’ BUMPY ROAD The relatively poor performance of international markets • Monthly existing home sales in July during the quarter was most evident among emerging missed estimates, coming in at their markets (see Chart 3). slowest pace in two years. • New home sales in July also were Emerging economies continued to struggle with below expectations—marking the first numerous issues: sequential monthly decline since January. • The ongoing tariff battles between the U.S. and China (which are explored in detail in the

www.rwsgroup.org Q3 \ 2018 REVIEW

CHART 4: CHART 5: Q3 LARGE-CAPS TAKE GROWTH OUTPERFORMS THE LEAD 10%

following section) have investors worried that 10% 8% 8% China will be hurt much more by a trade war, 6% 6% should one begin, than will the U.S. Meanwhile, 4% 4% economic growth in China is slowing. 2% 5.86% 9.28% 2% 7.71% 4.71% • Another emerging market—Turkey—is seeing 0% 0% high inflation and debt levels that fueled concerns Large Caps Small Caps Value Growth during the quarter about a potential crisis in the S&P 500 S&P 600 S&P 500 S&P 500 country that could spill over into other nations. Charts source: Bloomberg Charts source: • In Latin America, Brazil is experiencing political uncertainty, and Argentina’s central bank is caps, which benefit financially when the dollar is weak (or rapidly raising interest rates. less strong). • Emerging markets as a group have been hurt by a rising U.S. dollar, which increases the Once again, growth stocks beat value stocks (see cost of servicing the debt that many emerging Chart 5)—a trend that has firmly established itself economies must pay. over numerous quarters. Growth stocks (and growth sectors such as tech and health care) got a boost LARGE-CAPS AND GROWTH WIN THE from the overall strong environment for the economy PERFORMANCE RACE and corporations, as well as from the generally healthy balance sheets found among growth-oriented After trailing in the second quarter, U.S. large-company companies these days. stocks beat their small-cap peers during the third quarter (as seen in Chart 4). Much of that outperformance came about during September, when small-caps—which had SECTOR WINNERS AND LOSERS been performing well for both the quarter and the year— Most U.S. equity market sectors gained ground during gave back some of their gains as investors booked profits the quarter. The performance of the top three and following small-caps’ extended run. Additionally, the U.S. bottom three sectors during the three-month period is dollar’s rise during the quarter was more muted than in summed up in Table 6. past quarters—helping boost investors’ interest in large- Investors favored health care stocks for their strong growth prospects (in subsectors such as medical devices CHART 3: EMERGING MARKETS SUFFER and biotechnology), as well as for their somewhat stable, defensive characteristics. Meanwhile, industrials staged a 9.0% 7.71% remarkable turnaround from the second quarter, when the 8.0% sector was down nearly 4% due to uncertainties around 7.0% trade tariffs. Transportation and capital goods companies 6.0% reported much better-than-expected earnings for the second quarter, fueling an industrials rally. And although 5.0% tech stocks saw more volatility and uncertainty than in the 4.0% recent past, their attractive growth prospects once again 3.0% lifted their prices higher.

2.0% 1.35% In contrast, energy—a sector that soared during the 1.0% second quarter—was dragged down due in part to fears 0.0% that OPEC would significantly boost its supply of oil. -1.0% Escalating trade tensions between the U.S. and China -1.09% also hurt the sector. The materials sector came under -2.0% U.S. Equities Developed Emerging Mkts pressure due to concerns that global trade tensions Int’l Equities Equities could weaken demand for commodities and other raw materials. And although communications services was Chart source: Bloomberg

www.rwsgroup.org Q3 \ 2018 REVIEW

TABLE 6: SECTOR Q3 2018 RESULTS Q3 Health Care 14.53% One reason for the expected path of increases, of Industrials 10.00% course, is a concern that the strong economy and job Technology 8.80% market could stoke too much inflation. During the quarter, it became increasingly clear that inflation Energy 0.61% is on the rise (although, we believe, not rising too Materials 0.36% aggressively to hurt the economy). Consider, for example: Communication Services -0.58% • The Fed’s preferred inflation gauge—the PCE index—in July rose to its highest level since 2012, the one sector to post a negative quarterly return, it’s while the core PCE (which strips out volatile food important to note that this sector was a mere five days and energy components) hit 2% on a year-over- old when the quarter ended. In late September, S&P year basis—the Fed’s target rate for inflation—for and MSCI eliminated the existing telecoms sector and the first time since March. The core rate remained created this new sector for tech, media, and telecom at 2% in August, as well. companies—including Netflix, Alphabet and Facebook. • The more commonly watched consumer price index (CPI) in August rose by 2.7%, year-over- INFLATION, THE FED AND A TOUGH SLOG year—while core CPI gained 2.2% (after rising in FOR BONDS July at its highest rate since 2008).

Broad-based fixed-income market returns were flat to down for the quarter. For example: HIGH-YIELD BONDS LEAD THE PACK Despite generally lackluster returns, one sector of • The Bloomberg Barclays U.S. Aggregate Bond the bond market managed to post relatively strong index was up 0.02%. results. As seen in Chart 8, high-yield bonds (which • The ICE U.S. Treasury 20+ Year Bond Index carry relatively low credit ratings) led the pack during (which measures the performance of long-term the third quarter by a considerable margin—driven Treasuries) returned -3.04%. by strong equity markets and strong corporate profit growth. Bond yields finished the quarter higher than where they started, with the yields on benchmark U.S. Treasury bonds of various durations—short-, intermediate- and long-term—rising by approximately 20 to 30 basis points. Rising CHART 8: BOND MARKET SECTOR RETURNS yields hurt bond prices—especially longer- 2.50% duration bonds with terms that “lock in” 3% investors’ capital for longer time periods. 2% Those rising yields resulted from a 1% combination of strong economic growth -3.04% 0.02% 0.18% 0.21% that fueled some fears of inflation among 0% investors, along with the Federal Reserve -1% Board’s decision in late September to raise a key short-term interest rate by 25 basis points -2% (to a range of 2% to 2.25%). It was the third -3% rate hike in 2018 so far, and many investors anticipate the Fed will raise rates once again Long-Term Broad Bond Short-Term Preferred High-Yield in December. Meanwhile, the Fed continued Treasuries Market Treasuries Stock Bonds to project three rate increases next year and one more in 2020. Chart source: Bloomberg

www.rwsgroup.org Q3 \ 2018 REVIEW

www.rwsgroup.org Q3 \ 2018 REVIEW NEW NATIONALISM WHAT IT MEANS FOR INVESTORS

Nationalism has long beenSkate aipsum key tenetdolor sit amet, John Cardiel snake boned out of the Trump administration.shoveit bruisedThe idea heel hospital that America’s citizensflip. and Bigspin varied Saran nose interests should be paramountnose blunt overwheels. Axle set the people and agendaspowerslide of other 900 na- lip slam. Gator Mark Anthony feeble wheels tions was touted by Trump during the switch axle sketchy. Tail layback 2016 campaign—anddeath it’s become box gap aaxle. foundational belief driving many of the administration’s policies.

www.rwsgroup.org Q3 \ 2018 REVIEW

Nationalism is based on the premise that America is our own resources?” These questions are still being the victim of a global economy consisting of “unfair” answered and will continue to be examined for some players who take advantage of the U.S. Nationalists also time. In short, nationalism is a trend that is becoming believe that many of the U.S.’s policies have worked increasingly well-established. against the country’s best interest by trying too hard to build partnerships with other nations that make the U.S. Here in the U.S., it’s meant that the Trump administration weaker than it should otherwise be. has taken steps to shake up the established order with many of its actions—in effect, upsetting many of the Given the importance that this philosophy of nationalism once-stable pieces on the “global chessboard” in plays in the current administration’s practices, it makes terms of trade, taxes, immigration, cultural issues, the good sense to understand the impact that nationalism environment, national security and more. The ultimate has had thus far—and may continue to have—on financial goal is to ensure that America gets what America wants, markets and investors. with relatively little regard to the impact that approach might have on other countries and broader global concerns. A FOCUS ON THE HOME FRONT

Nationalism today is largely a reaction to the TRUMP’S ECONOMIC NATIONALISM rise of globally intertwined economies and commerce that have developed over the past few decades. As One major component of this nationalism that seeks recently as the 1980s, the idea of a nation-state— to elevate U.S. interests over the interests of all others the characteristics that defined a particular country is, of course, economics. (demographics, economics, etc.)—was clear, and most nations focused the bulk of their attention on policies From an economic and market-based perspective— addressing issues on their own home turf. Indeed, even which we are keenly focused on as investors— the models that the Federal Reserve uses are highly nationalism is essentially a series of fiscal policies that U.S.-centric in their makeup. seek to protect the U.S.’s economic interests through government controls, restrictions and other strategies. That began to change, quickly, as more nations and regions tied their policies and fortunes to each other Given the impact that an economic nationalist approach through various trade and other agreements—typically can have on the global economy—especially when to benefit companies by opening up new markets and it’s undertaken by the globe’s largest economy—it’s new consumers to sell to. This trend toward globalism, important for goals-based investors to take a closer look beneficial in so many ways, has also caused many at its potential implications on the markets and their people around the world to wonder what it now means wealth. to be an American (or a Swede, an Italian, a Brit and so on) in a world that is so deeply interconnected—as The economic nationalists in the White House and well as how to best maintain a distinct identity while elsewhere today believe they are promoting policies to continuing to engage with the world. The conversation strengthen individual wealth creation that will, in turn, today has essentially been reset around how a nation improve the lives of American families and workers. best fits into a globe. They see many of the existing large-scale, multinational global agreements on trade and other economic As a result, we have seen a rise in nations issues as having fueled a decline in certain industries asking themselves, essentially, “Who are and jobs that have harmed the fortunes of the middle we as a country—and how do we better class. By taking steps to improve the competitiveness support ourselves and depend more on of businesses and protect industries from perceived

Nationalism today is largely a reaction to the rise of globally intertwined economies and commerce that have developed over the past few decades.

www.rwsgroup.org Q3 \ 2018 REVIEW

threats from other countries, economic nationalists 3. Tariffs. Economic nationalists such as Trump believe they will ultimately strengthen at-risk businesses believe it is bad when America imports more and workers by keeping both jobs and wealth at from another country than it exports. Based on home—rather than shipping them overseas. that view, the U.S. has imposed a number of tariffs—taxes, essentially—on goods shipped from This does not mean shutting out the world, however. other countries, in an effort to make the price of Economic nationalism also seeks to engage in U.S.-made goods relatively attractive to domestic commerce with other countries—but in ways that are consumers. Tariffs are a particularly significant tool perceived as more reciprocal and “fairer” to a country’s in Trump’s economic nationalism toolkit—and one economy than many of the current agreements and we explore further in the next section. It should practices allow for. This resets the discussion once be noted, however, that even Trump believes the again: How do we enter into reciprocal agreements with optimal level of tariffs is zero, when the other countries that may have significantly different political aspects of “fairness” with respect to trade policy is systems and market mechanism than our own? It’s yet equitable. another question that will continue to be worked out over time. TARIFFS AND TRADE WARS Broadly, we see that nationalism in the Trump administration has taken several forms—from questioning One of Trump’s key economist nationalist the relevance of the World Trade Organization to agendas is to correct what he feels are unfair trade reducing the amount of money the U.S. gives to the deals between the U.S. and other countries—deals United Nations budget to chastising North Atlantic Treaty that in many cases were made as part of large-scale Organization allies about the amount of money they multinational agreements (such as NAFTA). In his view, allocate to NATO. these deals give too many benefits to other countries at the U.S.’s expense. Increasingly, we are seeing how economic nationalism is being implemented by the current administration and Early on, the Trump administration pulled out of by the GOP members of Congress. In essence, there are multinational agreements such as the Trans-Pacific three legs to the current economic nationalism stool: Partnership and the Paris climate agreement—both of which he saw as imposing rules that were too costly 1. Deregulation. Trump has emphasized reducing to American business interests and American workers. or eliminating regulations that U.S. companies Since then, the administration has sought to create new must comply with—a policy meant to allow agreements—but on a more bilateral basis that involves domestic firms to be more flexible in how they deals with individual countries, rather than grand generate revenues and profits. Deregulation is also bargains with entire regions. designed to cut the costs involved in regulatory compliance—freeing up more money for U.S. One of the biggest “buttons” the administration is companies to allocate elsewhere. Some economic pushing along the way to those agreements is, of theory suggests that deregulation helps to create course, tariffs. A main goal of taxing imports from other additional growth while putting downward pressure countries is to create positive trade balances between on inflation and interest rates. the U.S. and those countries—meaning that the value of exports from the U.S. to other countries becomes 2. Corporate tax cuts. The enormous corporate tax higher than the value of imports into the U.S. from other cut passed last year was done in part to lower the nations. U.S. corporate tax rate closer to the tax rates paid by companies in other countries—a move meant So far this year, some tariffs that have been imposed by to “level the playing field” somewhat and make the U.S. include: U.S. firms more competitive. Additionally, the cuts • washing machines imported from China, may have helped to stimulate the economy— S. Korea and Mexico thereby putting the U.S. in a relatively strong • solar panels from multiple countries economic position from which to renegotiate trade • steel and aluminum from the EU, Canada, agreements with other nations. Mexico and other countries

www.rwsgroup.org Q3 \ 2018 REVIEW

However, those tariffs pale in comparison to the According to one survey of fund managers released in massive tariffs the U.S. has imposed on China. On top September, investors are increasingly optimistic about of a 25% tariff on $50 billion of Chinese goods into the U.S. stocks. There is a net allocation of 21% overweight U.S. implemented earlier this year, the third quarter to the region’s equity market, the highest such level saw new tariffs on an additional $200 billion of Chinese since January 2015. What’s more, 69% of those polled goods. The extent of the Chinese tariffs is fueled by said that U.S. is the most favorable region when it the Trump administration’s view that China represents a comes to earnings expectations—a record level in the serious threat to U.S. corporate and economic interests survey’s 17-year history. involving: 2. U.S. small-company stocks. Despite the strong 1. Lack of access to the Chinese market. Chinese showing from the U.S. market, many investors policy effectively blocks many U.S. companies and are concerned about the impact high tariffs and industries from entering the Chinese market. The a possible trade war between the U.S. and other administration wants China to open more of its nations could have on our economic growth and doors and allow more U.S. businesses to compete inflation. Those concerns have helped bolster in the Chinese market. shares of U.S. small companies—which tend to generate most of their sales from domestic 2. Thievery. China has been blatantly stealing U.S. consumers (unlike large-cap multinational firms that technology and intellectual property for many rely on overseas customers for large percentages years. Similarly, China often demands that foreign of their sales). Example: The companies in the firms give them access to their technology in Russell 2000 small-cap index derive about 21% of exchange for accessing the Chinese market. their revenue from outside of the U.S., versus about 30% for S&P 500 firms. As a result, small-caps have increasingly become seen as a sort-of safe haven THE IMPACT OF NEW from tariff and trade war headlines. This is notable NATIONALISM SO FAR because small-caps are very rarely viewed as a “safe haven” asset class. The economic nationalist-based policies that have been implemented or proposed so far this year are having a 3. Developed international markets. In contrast to significant impact on several key areas and segments of the U.S., most established foreign financial markets the financial markets. These include: have come under pressure due in part to the relatively strong showing by the U.S. economy and 1. The U.S. equity market. The S&P 500 has risen because most investors believe the U.S. is likely to significantly, during both the third quarter (7.71%) come out of any trade battles relatively unscathed. and year-to-date (10.56%). Investors have cheered There’s no question that few, if any, nations U.S.-positive developments driven, at least in part, currently possess the level of economic strength by deregulation and tax cuts, such as: that the U.S. does. For example, while the U.S. economy is healthy enough for the Federal Reserve • Strong GDP growth (4.2% in the second Board to continue raising interest rates, foreign quarter) central banks’ policies continue to favor economic • Strong consumer confidence (August’s stimulus. As a result, investors generally believe that confidence index was the best since 2000) a trade war would hurt foreign economies much worse than they would dampen the currently robust • Low unemployment conditions in the U.S. • Robust corporate profits (Pretax profits at U.S. companies in the second quarter rose 4. Emerging foreign markets. Emerging markets 7.7% from a year earlier—the best year-over- have been hit the hardest so far by the U.S.’s year showing since 2014.) nationalist-focused economic moves, for one big • Strong capital expenditures by U.S. reason: China. The country, which represents a companies (Capital investment rose 19% sizable portion of virtually every emerging markets in the first half of 2018 while spending on stock index, has seen its equity market decline research and development increased by 14% significantly. Three Chinese market indices—the during that time.) CSI 300, the Shanghai Composite and Hong Kong’s

www.rwsgroup.org Q3 \ 2018 REVIEW

Hang Seng—fell into bear market territory this year, its energy on addressing the problems it sees with and two of them (the Shanghai Composite and the China—not fight a multi-front trade war with China, Hang Seng) are among the worst-performing major Mexico, Canada and Europe. Therefore, expect stock market indices year-to-date. to see new trade deals with Europe, Mexico and Canada in the nearer term. One big reason for those dismal results is the state of the Chinese economy as it faces ongoing trade and 2. China remains unresolved. The escalation of the tariff confrontations with the U.S. For example: tariff battle between the U.S. and China—including a response by China to tax an additional $60 billion • Chinese GDP is expected to slow as it experiences of U.S. exports—is unlikely to end quickly. The declines in the production of key goods (such as administration perceives China to be a major threat automobiles) and slowing infrastructure growth to U.S. economic interests and appears unwilling to (which is dampening overall investment growth). back down from its demands about issues such as • Exports are also expected to suffer as a result of market access and intellectual property protection. the U.S. tariffs. Already, we saw growth in Chinese That said, China is hesitant to appear weak in the exports weaken to just under 10% in August (down eyes of the world—which could cause them to dig from more than 12% in July). in harder as tensions rise.

The bottom line: Investors generally believe that a battle 3. A continuation of recent investment trends. No involving tariffs and trade will hurt Chinese multinational other nation currently has the economic strength on companies far worse than it will U.S. exporters. In multiple fronts as does the U.S. Domestic equities addition, China fears dissent among its citizens: If a therefore are likely to continue to outperform for tariff battle results in Chinese factory closures or other the foreseeable future. As noted above, investors developments that hurt workers, China may be quick to are favoring the U.S. in their portfolios by wide agree to U.S. terms to avoid embarrassing public outcry margins. Additionally, small-caps should remain and protests among its citizens. attractive because their business models are relatively U.S.-centric as compared to those of 5. U.S. Treasuries. Concerns that a global trade larger, multinational companies that depend more war could put a dent into economic growth and on overseas sales. corporate profits has some investors favoring the perceived relative safety of U.S. Treasury securities. Treasuries are commonly favored when financial REMAINING FLEXIBLE IN markets face risks, as investors engage in a “flight A FAST-CHANGING WORLD to quality” meant to buffer their assets. During the quarter, for example, Treasury prices often rose Of course, the Trump administration’s statements following headlines about additional tariffs. and actions tend to be fluid and ever-changing. As an investment manager, we will monitor developments closely and position our strategies accordingly. It is WHAT COMES NEXT? entirely likely, for example, that overseas markets will rally temporarily based on new developments, even Regardless of how the midterm elections as they remain relatively unattractive from a secular in November pan out, it’s likely that the Trump perspective. Therefore, opportunities may appear that administration will maintain veto power and therefore do not fit neatly into existing investment themes. As an continue to control economic and trade policies. By and active and flexible manager, we will regularly assess if large, it looks like the strong economic and business such opportunities are attractive enough to pursue—or climate we see in the U.S. today will remain firmly if they present excessive risk that should be mitigated entrenched for the foreseeable future. and avoided.

In particular, we look for three main developments going forward:

1. Bilateral trade deals with several countries. The Trump administration wants to focus the bulk of

www.rwsgroup.org Start your journey with RWS and discover the difference!

It’s simple... We confirm your goals We see which stage you’re in We assess your risk tolerance We implement the appropriate portfolio strategy

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a registered broker-dealer Member FINRA/ SIPC. Advisory services offered through Cambridge Investment Research Advisers, Inc., a Registered Investment Adviser. RWS Financial Group and Cambridge are not affiliated.

‘The strategies advertised herein are not designed based on the individual needs of any one specific client or investor. Prior to opening an account utilizing a strategy advertised herein, your advisor will consult with you to determine if your financial objectives are appropriate for investing in the strategy. Investing in securities involves risk of loss, including loss of principal. Further, depending on the different types of investments there may be varying degrees of risk. Clients and prospective clients should be prepared to bear investment loss’.

www.rwsgroup.org Q3 \ 2018 REVIEW

Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptape mini ramp bluntslide. Kevin Harris casper gnar bucket heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy. Tail layback death box gap axle. Darkslide Hang ten nose blunt tailslide rip grip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. nose-bump frontside air. Kickturn 540 coffin face plant. Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plant handplant half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip lip 180. Wheels rock and roll gap coping chicken wing slam. Gator Mark Anthony feeble wheels switch axle ollie hole. Dustin Dollin noseblunt slide cab flip concave sketchy. Tail layback death box gap axle. Darkslide gnar bucket heel flip handplant. masonite stalefish rail freestyle. Slide dude casper nose- bump downhill. Grind lien air Kevin Harris Alternative Powerslide kick-nose Johnny Rad poseur nose-bump. Hang ten nose blunt tailslide rip grip. Sponsored Sports kingpin axle set. Sick slide fastplant half-flip crail freestyle 50-50 Claus Grabke melancholy. Kidney Geoff slide. Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Lipslide nose-bump Kevin Ancell rails ho-ho crail grab bearings Kevin Harris hard flip. Sponsored handplant full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. nose-bump frontside air. Kickturn 540 coffin face plant. Tailslide trucks cess slide nosebone 540 half-flip Tod Yeah pressure flip regular footed rail slide. Slide hang Swank. Gnar bucket ollie north bluntslide ollie pop up blunt poseur. Supersonic Skate Camp flail nosebone shove-it skate or die. Layback powerslide grind egg hard flip invert. Rail fakie casper slide feeble. plant handplant half-flip. Mute-air face plant salad grind nose half-flip kingpin. Mute-air fastplant nosegrind deck Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptape mini ramp bluntslide. Kevin Harris casper gnar bucket heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy. Tail layback death box gap axle. Darkslide Hang ten nose blunt tailslide rip grip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. nose-bump frontside air. Kickturn 540 coffin face plant. Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plant handplant half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip

www.rwsgroup.org Q3 \ 2018 REVIEW

Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptape mini ramp bluntslide. Kevin Harris casper gnar bucket heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy. Tail layback death box gap axle. Darkslide Hang ten nose blunt tailslide rip grip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. nose-bump frontside air. Kickturn 540 coffin face plant. Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plant handplant half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip lip 180. Wheels rock and roll gap coping chicken wing slam. Gator Mark Anthony feeble wheels switch axle ollie hole. Dustin Dollin noseblunt slide cab flip concave sketchy. Tail layback death box gap axle. Darkslide gnar bucket heel flip handplant. masonite stalefish rail freestyle. Slide dude casper nose- bump downhill. Grind lien air Kevin Harris Alternative Powerslide kick-nose Johnny Rad poseur nose-bump. Hang ten nose blunt tailslide rip grip. Sponsored Sports kingpin axle set. Sick slide fastplant half-flip crail freestyleIf 50-50 you Claus are Grabke seekingmelancholy. Kidney guidance; Geoff slide. want a firm Rowley 720 judo air griptape. Pogo smith grind g-turn nosegrind. Ollie pool skater nosebone. Neil Blender late Lipslide nose-bump Kevin Ancell rails ho-ho crail grab bearingswith Kevin Harris the hard experience, flip. Sponsored handplant know-how, full-cab. Pivot and tuna-flip 1080 bearings g-turn cab flip. nose-bump frontside air. Kickturn 540 coffin face plant. Tailslide trucks cess slide nosebone 540 half-flip Tod Yeah pressuregenuine flip regular footeddesire rail slide. to Slide see hang you Swank.through Gnar bucket the ollie north bluntslide ollie pop up blunt poseur. Supersonic Skate Camp flail nosebone shove-it skate or die. Layback powerslide grind egg hard flip invert. Rail fakie casper slide feeble. plant handplant half-flip. Mute-air face plant salad grind investment journey…. nose half-flip kingpin. Mute-air fastplant nosegrind deck Skate ipsum dolor sit amet, John Cardiel snake boned lip 180. Wheels rock and roll gap coping chicken wing out shoveit bruised heel hospital flip. Bigspin Saran ollie hole. Dustin Dollin noseblunt slide cab flip concave Wrap griptapelook mini noramp bluntslide. further! Kevin Harris casper gnar bucket heel flip handplant. nose nose blunt wheels. Axle set powerslide 900 lip slam. Gator Mark Anthony feeble wheels switch axle Powerslide kick-nose Johnny Rad poseur nose-bump. sketchy. Tail layback death box gap axle. Darkslide Hang ten nose blunt tailslide rip grip. Sponsored masonite stalefish rail freestyle. Slide dude casper nose- freestyle 50-50 Claus Grabke melancholy. Kidney Geoff bump downhill. Grind lien air Kevin Harris Alternative Rowley 720 judo air griptape. Pogo smith grind g-turn 734-513-7370 nosegrind. Ollie pool skater nosebone. Neil Blender late Sports kingpin axle set. Sick slide fastplant half-flip crail bearings Kevin Harris hard flip. Sponsored handplant slide. [email protected] frontside air. Kickturn 540 coffin face plant. Yeah pressure flip regular footed rail slide. Slide hang Lipslide nose-bump Kevin Ancell rails ho-ho crail grab up blunt poseur. Supersonic Skate Camp flail nosebone full-cab. Pivot tuna-flip 1080 bearings g-turn cab flip. hard flip invert. Rail fakie casper slide feeble. Tailslide trucks cess slide nosebone 540 half-flip Tod Swank. Gnar bucket ollie north bluntslide ollie pop Skate ipsum dolor sit amet, John Cardiel snake boned shove-it skate or die. Layback powerslide grind egg out shoveit bruised heel hospital flip. Bigspin Saran plant handplantwww.rwsgroup.org half-flip. Mute-air face plant salad grind Wrap griptape mini ramp bluntslide. Kevin Harris casper nose half-flip kingpin. Mute-air fastplant nosegrind deck nose nose blunt wheels. Axle set powerslide 900 lip