Anatomy of a Recession Presentation

Home , Economic expansion, Profit (accounting), Recession

The Anatomy of a Recession: What to Look for and Where We’re Headed

First Quarter 2021

Past performance is no guarantee of future results. Financial term and index definitions are available in the appendix. 1 Probabilities vs. Possibilities The Wall of Worry

Equity Valuations Fed Policy Error Civil Unrest

Trade Wars North Korea Escalation

Inflation COVID-19 Sovereign Debt Crisis

Depression Dollar Strengthens

Corporate Leverage China Over-Tightening

Populism EM Problems Intensify

2 Panic Attacks

800 MSCI ACWI

700 2/10 Yield Tariffs Scheduled Curve Potential for Last $300B of Inversion Second Imports Wave Trade War Quitaly Fed US Escalation Fears Communication Error Election Concerns 600 Endgame Trade Panic War Escalates Fiscal Trump Trade Cliff Impeachment War Brent Short Fears Scare Accelerates Bottoms Volatility at $27.88 Japan Unwind Goes China 500 NIRP Brexit COVID-19 Shutdown Pandemic Rate N. Korea Goes Hike Crisis U.S. Gov’t Global Scare Shutdown WTI Bottoms 400 2016 2017 2018 2019 2020

“The definition of insanity is doing the same thing over and over again and expecting a different result.” - Attributed to Albert Einstein

Data as of Dec. 31, 2020. Source: MSCI. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 3 Effects of Panic Attacks on Average Investors 20 Years Annualized Returns (1999-2019) 12

10 9.9%

8 7.7%

5.6%

4 4.5% 4.0% 3.4% 2.9% 2 2.2%

0 REITs Gold U.S. Stock Government International Homes Average Investor Inflation Related Bonds Equities

Investment Returns

Source: Bloomberg, June 30, 2019. Average asset allocation investor return is based on an analysis by DALBAR, Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Indices shown are as follows: REITs are represented by the NAREIT Equity REIT Index, U.S. Stocks are represented by the S&P 500 Index, International Equities are represented by the MSCI EAFE Index, Government-Related Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index, Homes are represented by U.S. existing home sales median price, Gold is represented by the U.S. dollar spot price of one troy ounce, Inflation is represented by the Consumer Price Index. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance is no guarantee of future results. 4 U.S. Recession Recovery Dashboard

• 9 variables have historically foreshadowed a durable recovery • The overall signal suggests the economy has started a new economic expansion

Data as of Dec. 31, 2020. Source: FactSet, Bloomberg, Conference Board, Census Bureau, Federal Reserve, FRBPA, Chicago Fed, ISM, Dept. of Labor, Bloomberg/Barclays, AAII, Investors Intelligence, and Moody’s. 5 Historic Earnings Surprise Earnings Beats in 2Q20 & 3Q20 Were Much Stronger than the Last Recovery

25%

20%

15%

10%

5% S&PEPS Surprise Relative Expectations to (%)

2Q10 4Q11 2Q13 4Q14 2Q16 4Q17 2Q19 2Q09 4Q09 4Q10 2Q11 2Q12 4Q12 4Q13 2Q14 2Q15 4Q15 4Q16 2Q17 2Q18 4Q18 4Q19 2Q20

-5%

 Earnings have handily beat expectations and helped power the market's rally.

Data as of Sept. 30, 2020, latest available as of Dec. 31, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 6 Retail Sales Suggest V-Shaped Recovery

110

COVID-19 Crisis Dot-Com Bubble Global Financial Crisis 105 6 Months 16 Months 34 Months

100

U.S. U.S. HeadlineRetail Sales (Peak Month 100) = 80

75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Number of Months from Peak

2001 2008 2020

 Strong stimulus measures have supported a robust recovery in consumer spending.

Data as of Nov. 30, 2020, latest available as of Dec. 31, 2020. Source: U.S. Census Bureau, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 7 Winter is Coming U.S. COVID-19 Cases and Deaths

250,000 15,000

200,000 12,000 U.S. Daily Deaths Daily U.S.

150,000 9,000

100,000 6,000 U.S. U.S. NewCases

50,000 3,000

0 0 Mar. Mar. Mar. Apr. Apr. May May June June July July Aug. Aug. Sept. Sept. Oct. Oct. Nov. Nov. Dec. Dec. 1 16 31 14 30 15 30 14 29 14 29 13 28 12 27 12 27 11 26 11 26 U.S. New Cases - 7-Day Moving Average (LHS) U.S. Daily Deaths - 7-Day Moving Average (RHS)

 The virus remains a key concern for investors, particularly as the Northern Hemisphere enters colder months.  Better awareness and protocols have significantly reduced mortality rates, making full lockdowns less likely.

Data as of March 1 – Dec. 31, 2020. Source: Our World in Data, European Centre for Disease Control (ECDC), Covid Tracking Project. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 8 Labor Market Losing Steam

4,781 5,000 2,725 1,761 1,493 711 610 245 0

-1,373 ?

-5,000

-10,000

Farm Payroll Farm (Thousands) -

-15,000

-20,000 Change Change inTotal Non -20,787

-25,000 2020 2021 March April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb.

 The pace of the labor recovery has recently cooled as the U.S. economy combats the fall/winter surge of COVID-19.

Data as of Nov, 30, 2020. Source: Department of Labor, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 9 U.S. Recession Risk Indicators

• 12 variables have historically foreshadowed a looming recession • Job sentiment, jobless claims, wage growth, profit margins and truck shipments signal risk right now

Data as of December 31, 2020. Source: BLS, Federal Conference Board, and Bloomberg. The ClearBridge the years prior to January 2016 are based on how the Reserve, Census Bureau, ISM, BEA, American Recession Risk Dashboard was created in January underlying data was reflected in the component Chemistry Council, American Trucking Association, 2016. References to the signals it would have sent in indicators at the time. 10 U.S. Recession Risk Indicators

• 12 variables have historically foreshadowed a looming recession • Job sentiment, jobless claims, wage growth, profit margins and truck shipments signal risk right now

Data as of Dec. 31, 2020. Source: BLS, Federal Reserve, Census Bureau, ISM, BEA, American Chemistry Council, American Trucking Association, Conference Board, and Bloomberg. The ClearBridge Recession Risk Dashboard was created in January 2016. References to the signals it would have sent in the years prior to January 2016 are based on how the underlying data was reflected in the component indicators at the time. 11 U.S. Recession Risk Dashboard Case Study: 2018-2020

3,400 3,231 3,200

2,942 3,000 3,100

2,800 2,718 S&P 500 S&P 2,600

2,400 Overall Signal: 2,507 Overall Signal: Overall Signal:    2,200 Q2 2018 Q4 2018 Q2 2019 Q4 2019 Q2 2020 Housing Permits     Job Sentiment     Jobless Claims     

Consumer Retail Sales      Wage Growth     Commodities    ISM New Orders     Profit Margins

Activity    Business Business Truck Shipments      Credit Spreads     Money Supply  

Financial Yield Curve    

Source: BLS, Federal Reserve, Census Bureau, ISM, BEA, American Chemistry Council, American Trucking Association, Conference Board, and Bloomberg. The ClearBridge Recession Risk Dashboard was created in January 2016. References to the signals it would have sent in the years prior to January 2016 are based on how the underlying data was reflected in the component indicators at the time. 12 Vaccines to Accelerate Herd Immunity

Estimated Major Biopharma Vaccine Supply (Persons) 6,000

5,097 5,000

4,000

3,000

2,097

People (Millions) People 2,000 1,400 993 1,000 607

35 0 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Total 2021

 Herd immunity could be reached by late 2Q or early 3Q in the U.S. with several vaccines already approved and more coming in 2021.  By focusing on the most vulnerable, economic activity could begin to improve well ahead of herd immunity being achieved.

Data as of Dec. 31, 2020. Source: Jefferies Research. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 13 Consumer Balance Sheets Flush

$600

$500

$400 Total Excess Savings: $1.4T

$300 Billions

$200

$100

$0 Jan. 2020 Feb. 2020 Mar. 2020 Apr. 2020 May 2020 June 2020 July 2020 Aug. 2020 Sept. 2020 Oct. 2020

Pre-COVID Level Excess Savings (Non-Annualized)

 The inability to spend and government transfer payments have resulted in an abundance of consumer savings.  As the economy renormalizes, some of these reserves will be drawn which should further fuel the recovery.

Data as of Oct. 30. 2020, latest available as of Dec. 31, 2020. Source: Bureau of Economic Analysis. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 14 Corporate Balance Sheets Flush

$2.25 S&P 500 Cash and Equivalents

$2.00

$1.75

$1.50

$1.25

$1.00 S&PCash500 and Equivalents (Trillions)

$0.75 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20

 Corporations have accumulated approximately $500 billion in additional cash since the onset of the pandemic.  As the economy renormalizes, these funds could be redeployed into capex, dividends, and share repurchases.

Data as of Dec. 31, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 15 Inventory Rebuild, Economic Tailwind?

1.70

1.65

1.60

1.55

1.50 Inventory/Sales Ratio

1.45

1.40

1.35

1.30

U.S. Manufacturing and Trade Trade and Manufacturing U.S. 1.25

1.20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Recession Total Business Inventories/Sales Ratio

 Inventory levels relative to sales have not been this depleted since 2014.  Businesses will likely re-stock inventories in anticipation of growing demand, providing further economic upside in 2021.

Data as of Oct. 30, 2020. Source: U.S. Census Bureau, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 16 The New (Old) Normal?

Best growth in 20 years 4%

Best growth since 2004 3%

0% U.S. U.S. Real GDP

-1%

-2%

-3%

-4% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 E E E

 Following the COVID-19 GDP collapse, 2021 is expected to see the strongest growth in 20 years.  This strength is currently expected to persist into 2022 with the best GDP growth since 2004.

Data as of Nov, 30, 2020, latest available as of Dec. 30, 2020. Source: BEA, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 17 QE Forever?

160%

Japan 140% 135.2%

120%

100%

80% Eurozone 70.6% 60%

40% United States

39.8% SizeofCentral Bank BalanceSheet asa% of GDP 20%

0% 2003 2006 2010 2014 2017

 The Fed’s smaller balance sheet as a % of GDP affords policymakers greater flexibility to continue to support the recovery.  The Fed’s current QE program ($120B/month) is much greater than any post-GFC QE program.

Data as of Dec. 31, 2020. Source: FactSet., FRED, Bloomberg, Bank of Japan. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 18 The Fed's New Framework

2.5%

Fed’s 2% Target 2.0%

1.5% CorePCE YoY

1.0%

0.5% 2008 2012 2016 2020

Avg. Inflation Target

Fed’s Starting Point 2008 2012 2016 Cumulative Shortfall 6.9% 4.1% 1.6%

3-Year Horizon 4.3% 3.4% 2.5%

5-Year Horizon 3.4% 2.8% 2.3%

10-Year Horizon 2.7% 2.4% 2.2%

 Inflation has consistently undershot the Fed's 2% target, prompting a change of their framework to average 2% inflation over the medium term.  Should the economy normalize faster than anticipated, the Fed could find itself behind the curve.

Data as of Nov. 30, 2020, latest available as of Dec. 31, 2020. Source: Federal Reserve Bank of St. Louis, BEA, Bloomberg. Personal Consumption Expenditures (PCE) excluding food and energy. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 19 Not The Global Financial Crisis: Labor

NFIB Small Business Hiring Plans U.S. Job Openings

30% 100% 8,000 100% 90% 90% 7,000 20% 80% 80% 70% 70% 6,000 10% 60% 60% 50% 5,000 50% 0% 40% 40% Thousands 4,000 30% 30% -10% 20% 20% 3,000 10% 10% -20% 0% 2,000 0% 2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020

Recession NFIB Small Business Hiring Plans Recession U.S. Job Openings

Source: FactSet, NFIB. Source: DOL, FactSet.

 Post-GFC, it took until 2014 for the labor market to recover to pre-crisis levels.  The recovery from the COVID-19 recession has been much quicker.

Data as of Nov. 30, 2020. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 20 Not The Global Financial Crisis: Confidence

NFIB - Small Business Optimism Index 110 100%

90%

105 80%

70% 100

60%

95 50%

40%

90 30%

20% 85

10%

80 0% 2004 2006 2008 2010 2012 2014 2016 2018 2020

Recession NFIB- Small Business Optimism Index

 Similar to the labor market, small business optimism has recovered much quicker relative to the post-GFC recovery.

Data as of Nov. 30, 2020. Source: FactSet, NFIB. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 21 Business Formation Anomaly

25% 200

180 20% 160 15% 140 10% 120

5% 100

80 0% 60 -5% 40

U.S. U.S. BusinessFormation Applications (YoY) -10% 20

-15% 0 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020

Recession U.S. Business Formation Applications

 The number of applications to form new businesses has skyrocketed despite the recession.  This could be an important driver of job creation and GDP growth as the expansion unfolds.

Data as of Dec. 31, 2020. Source: U.S. Census. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 22 2009 Demographic Headwind

U.S. Population by Age: 2009

5,000,000 Boomers Exiting Prime Spending/Earning Years 4,500,000

4,000,000

3,500,000

3,000,000 Boomers Exiting Workforce 2,500,000

2,000,000

1,500,000

1,000,000

500,000

0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Millennials Generation X Boomers

 In the wake of the GFC, poor demographic trends were a headwind to economic growth as the Baby Boomers aged out of the workforce.

 The smaller size of Gen X meant fewer individuals in their prime spending and earning years.

Source: U.S. Census Bureau. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 23 2019 Demographic Tailwind Similar to 1994

U.S. Population by Age

5,000,000 Millennials Entering Peak Economic Years 4,500,000

4,000,000

3,500,000 Baby Boomers Heading Towards Retirement 3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+ 1994 2019

 Similar to the mid-1990s, demographics should be a tailwind for economic growth as the Millennials enter their prime earning and spending years.  This impulse should be somewhat dampened compared to 1994 due to the larger cohort of retirees today.

Tech Bubble Global Financial Crisis COVID-19

80%

70%

60%

50%

40%

30% EPS increase EPS increase

% Change % 20% ?

10%

-10% P/E decrease P/E decrease ?

-20% +9 Mo +12 Mo +12 Mo +12 Mo +9 Mo +12 Mo +12 Mo +12 Mo +9 Mo +12 Mo S&P 500 27.9% 10.8% 11.7% 2.5% 62.0% 13.5% -1.9% 15.9% 67.9% ? Returns EPS P/E

 In the nine months following recessionary troughs, multiple expansion has been an outsized contributor to returns.  As the recovery matures, earnings typically drive stock upside as multiples contract.

Data as of Dec. 31, 2020. Source: FactSet, S&P. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 25 Can Year-End 2020 Strength Continue?

S&P 500 Price Return

S&P 500 Date 3 Month 6 Month 12 Month November-December Price Return

1954 13.6% 1.7% 14.0% 26.4% 1962 11.6% 5.5% 9.9% 18.9% 1970 10.5% 9.0% 8.4% 10.8% 1985 11.3% 13.1% 18.7% 14.6% 1998 11.9% 4.6% 11.7% 19.5% 2020 14.9% ? ? ?

Average 6.8% 12.5% 18.1%

% Positive 100% 100% 100%

 Following 10%+ rallies in November and December, stocks have typically continued to deliver strong gains in the subsequent year.

Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 26 Market Returns During Economic Expansions Following the End of Recessions, Equities Typically Do Quite Well

S&P 500 Returns During Economic Expansions

Trough Month S&P 500 Level Peak Month S&P 500 Level Duration (Months) Change Secular Trend

Nov. 30, 1970 87.2 Nov. 30, 1973 95.9 36 10.0% Secular Bear Mar. 31, 1975 83.4 Jan. 31, 1980 115.1 58 38.1% Secular Bear July 31, 1980 121.7 Jul. 31, 1981 130.9 12 7.6% Secular Bull Nov. 30, 1982 138.5 Jul. 31, 1990 356.2 92 157.1% Secular Bull Mar. 28, 1991 375.2 Mar. 30, 2001 1160.3 120 209.2% Secular Bull Nov. 30, 2001 1139.5 Dec. 31, 2007 1468.4 73 28.9% Secular Bear Jun. 30, 2009 919.3 Feb. 28, 2020 2954.2 128 221.3% Secular Bull

Average: 74 96.0%

Secular Bull Average: 88 148.8%

Secular Bear Average: 56 25.7%

 We continue to believe stocks are in the midst of a secular bull market. If correct, this would bode well for equity investors in the coming years.

Source: FactSet, NBER. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 27 New Secular Bull Market?

S&P 500 4096 1980-2000 All-Time Highs: 500 1024 Cumulative Return: 1950-1970 1,261.2% All-Time Highs: 365

Cumulative Return: 451.9% 2010-Present Scale)

- 256 All-Time Highs: 275 Cumulative Return: 237% 64

16 S&P 500 Index S&PIndex 500 (Log 1970-1980 2000-2010 All-Time All-Time 4 Highs: 35 Highs: 13 1930-1950 Cumulative Cumulative All-Time Highs: 0 Return: Return: Cumulative Return: -22.2% 17.2% -24.1% 1 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Secular Bear: Average Drawdown -46.1% Secular Bull: Average Drawdown -26.1%

 In the 12 months following an all-time high, stocks have historically been up 8.6% on average with positive returns 71% of the time.

Secular bear market average drawdown includes selloff beginning September 1929. Data as of Dec. 31, 2020. Source: Bloomberg, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 28 One Year Outlook Themes That Will Drive the Market Over the Next 12 Months

Market Recovery Risks Valuations International Concentration

Currency Demographics Volatility

29 Recovery Risks

Not for distribution to the general public. Confidential and proprietary information. 30 Could Rising Rates Be a Black Swan?

Distribution of Sell Side 10-Year Yield Forecasts for Year End 2021 25

20 18

15 14

# of # Forecasts 10 Just 4 of 58 analysts believe yields will exceed 1.5% next year.

5 4

0 <1% 1% to 1.25% 1.25% to 1.5% >1.5%

 Consensus expectations for 2021 are skewed towards a modest pickup in Treasury rates.  If economic growth surprises to the upside, long rates could follow which would likely require a recalibration of equity market leadership.

Source: Strategas. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 31 Trade Détente May Fall Flat

Top Trading Partners 2020 $700

$600

$500

$400

$300 TotalTrade (Billions) $200

$100

$0 Mexico Canada Japan Germany S. Korea U.K. France Taiwan Vietnam Brazil Australia

U.S. China

 Multilateral trade negotiations with China could prove tricky given China's role as a key partner for many countries outside of North America.

Data as of Nov, 30, 2020, latest available as of Dec. 31, 2020. Source: Census, General Administration of Customs China. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 32 Dichotomy in the Housing Market

330 11%

310 10% Due Past Installments with Loans Mortgage of %

290 9%

270 8%

250 7%

230 6%

210 5%

190 4% Weekly Mortgage Weekly Mortgage Applications (Thousands)

170 3%

150 2% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(MOV 13W) MBA*, Weekly Mortgage Applications, Purchase Index, SA, Index - U.S. (LHS) MBA*, All Mortgage Loans With Installments Past Due - U.S. (RHS)

 While lower rates have fueled new mortgage applications, delinquencies have also risen to levels last seen in the wake of the housing bubble.

*MBA = Mortgage Bankers Association. Data as of Dec. 18, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 33 Inflation Unlikely Near Term

Money Velocity Tends to Move with Inflation

5% 3.0%

2.5% 0% 2.0%

1.5% -5%

1.0% (YoY) CPI Core

-10% 0.5%

0.0% -15% Velocityof Money (YoY) -0.5%

-1.0% -20% -1.5%

-25% -2.0% 2000 2005 2010 2015 2020

Velocity of Money (20m Lead) (LHS) Core CPI (RHS)

 Although Fed actions have substantially increased the supply of money, the velocity of money has collapsed.  This suggests inflation will remain muted in the near term.

Data as of Sept. 30, 2020, latest available as of Dec. 31, 2020. Source: Federal Reserve Bank of St. Louis, DOL, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 34 U.S. Debt Levels Set to Rise Higher

Federal Debt Held by the Public Since 1790 U.S. Budget as a % of GDP Since 1929

200 10%

180 5% 160 0% 140 -5% 120

100 -10% 2009 GFC

80 -15%

U.S. GDP % as ofU.S. Debt COVID-19 60 -20% 40 -25% 20 WW II

0 of(Annual) Deficit GDP or % as Surplus Federal -30% 1790 1815 1840 1865 1890 1915 1940 1965 1990 2015 2040 1929 1939 1949 1959 1969 1979 1989 1999 2009 2019

 Barring a change in spending, U.S. debt levels will grow substantially in the coming decades.

Budget as % of GDP data as of June 30, 2020, latest available as of Dec. 31, 2020. Source: Bloomberg, CBO, Deutsche Bank, FRED. Future debt levels are based on a Congressional Budget Office forecast. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 35 Valuations

Not for distribution to the general public. Confidential and proprietary information. 36 Market Annual Returns Distribution of S&P 500 Total Returns Since 1926

35 35 1927 1928 1933 1935 30 1936 1938 1942 1943 1945 1950 25 1951 1954 1955 21 1958 1961 20 1926 1944 1963 1949 1967 1975

Years 1952 1959 1976 1980 15 14 14 1964 1965 1982 1929 1947 1968 1983 1932 1948 1971 1985 1934 1956 1972 1989 1939 1960 1979 1991 10 1940 1970 1986 1995 1946 1978 1988 1996 1953 1984 1993 1997 6 1962 1987 2004 1998 5 1930 1969 1992 2006 1999 5 2003 1931 1941 1977 1994 2010 1937 1957 1981 2005 2012 2009 1974 1966 1990 2007 2014 2013 2002 1973 2000 2011 2016 2017 2008 2001 2018 2015 2020 2019 0 <-20% -20% - 10% -10% - 0% 0% - 10% 10% - 20% >20% S&P 500 Annual Total Return Ranges

As of Dec. 31, 2020. Source: Strategas Research Partners. 37 Price/Earnings Is Not The Only Indicator To Watch

26 Sept. 2009 24 23.2

20 Dec. 2007 17.5 18

10 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Recession S&P 500 Price/Earnings Ratio

Data as of Dec. 31, 2020. Source: Bloomberg. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 38 Index Composition Supports Higher P/Es Cyclical Sector Representation is at 100-Year Low

90%

80%

70%

60%

50%

% of % S&P500 40%

30%

20%

10% 1926 1936 1946 1956 1966 1976 1986 1996 2006 2016 Cyclicals (Financials, Industrials, Materials, Energy) Growth, Stability and Defense (Tech, Comm., Health Care, Staples, Discretionary, Utilities, REITs)  Less-volatile sectors are typically rewarded with higher multiples. These groups make up a near-record share of the S&P 500 today.

As of Dec. 31, 2020. Source: Cornerstone Macro. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 39 Dividend-Paying Equities Attractive

80%

70%

60%

50%

40%

30%

20%

10%

% of % S&P500 Stocks Dividend w/ Yield Year >30 Treasury Yield 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

 49% of S&P 500 stocks now have a dividend yield greater than the 30-year Treasury.

As of Dec. 31, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 40 Just How Stretched are Valuations?

Current vs. Historical P/E Waterfall 25

2.0x = 22.5x + 1.5x 20 + Current 2.0x Other P/E + 2021 EPS 1.0x "Catch-Up" 16.0x + Interest Sector Rate Impact 15 Historical Mix Impact Average

P/E NTMS&P 500P/E Multiple

5 Historical Sector Interest 2021 EPS Current Average P/E Mix Impact Rate Impact "Catch-Up" Other P/E  Current valuations appear rich relative to history. Much of this can be explained by sector mix differences, lower interest rates, and an expected earnings "catch-up" in 2021.

Source: Bloomberg, FactSet, Federal Reserve, Moody’s, and S&P. Note: NTM = next twelve months; Historical Average P/E represents 1995-present. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 41 Equities Attractive Relative to Bonds

Equity Risk Premium Average 12-month Forward S&P Return by (1960 – Current) ERP Tranche (1960 – Current)

800 18%

15.7% 16% 600

14% 12.9% 400 12% Current Stocks More Attractive 10.3% Current: 200 10% 242 8.0% 8% 7.3% 0 6.4% 6% -200

Stocks Less Attractive 4% 3.3% Average 12 Month Forward S&P Return S&P Forward Month 12 Average S&P Earnings 10YYield Treasury Less Yield S&P Earnings -400 2%

0% -600 Less than -200 -100 0 100 200 Greater 1960 1970 1980 1990 2000 2010 2020 -200 to -100 to 0 to 100 to 200 to 300 than 300

 The valuation of stocks (in bond yield terms) relative to Treasurys is attractive.  Historically, the S&P 500 has delivered above-average returns from current ERP levels.

Data as of Dec. 31, 2020. Source: Bloomberg, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 42 Market Concentration

Not for distribution to the general public. Confidential and proprietary information. 43 Historic Run for Growth

60%

40%

20%

-20% Excess Annualized Return

-40%

-60% 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Russell 1000 Growth Minus Russell 1000 Value (12 Month Rolling Monthly Return)

 Growth's relative outperformance over the past year is now even larger than during the peak of the dot-com era.

Russell 1000 Growth vs. Russell 1000 Value (Difference in Sector Weight)

Financials -18%

Industrials -9%

Utilities -5%

Energy -4% Value Materials Overweight -4%

Consumer Staples -3%

Real Estate -3%

Health Care 0%

Communication Services 1% Growth Consumer Discretionary 9% Overweight

Information Technology 35%

-20% -10% 0% 10% 20% 30% 40%

 The performance of Financials and Industrials relative to Technology and Discretionary explains a large share of Growth/Value leadership.

December 1972 March 2000 Current

NTM NTM Nifty Fifty P/E* Dot-Com Darlings FAANGM P/E P/E Coca-Cola 46.4 Intel 44.3 Facebook 26.1 McDonald’s 71.0 Cisco 126.3 Amazon 72.6 Texas Instruments 39.5 EMC 80.0 Apple 32.5 IBM 35.5 Microsoft 57.1 Netflix 59.5 Xerox 45.8 Oracle 107.2 Google 28.4 Polaroid 94.8 Nortel 92.0 Microsoft 31.2 Average 55.5 Average 84.5 Average 41.7 S&P 500 18.9 S&P 500 23.8 S&P 500 22.5

 Although FAANGM trades at a large premium to the market, past bubbles have seen even more inflated valuations.

*Actual P/E ratios; forward P/Es unavailable for this period. NTM = next twelve months. Data as of Dec. 31, 2020. Source: FactSet; “Valuing Growth Stocks: Revisiting the Nifty Fifty” by Jeremy Siegel, AAII Journal, October 1998. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 46 Are Valuations Justified by Earnings?

S&P 500 Earnings Share vs. Market Cap Share 8%

Apple

6% Microsoft

Amazon

4% Google

Facebook

2% Shareof Total Market Cap

-2% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Share of Total Earnings

 The 5 largest stocks are expected to account for 20% of 2021 earnings.

Total Market Cap Share of Top 1% Largest Companies*

United States (S&P 500) 21.7

Korea (KOSPI) 45.5

China (MSCI) 32.8

Japan (TOPIX ETF)** 28.0

Europe (MSCI) 10.8

Germany (MSCI) 9.2

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Share of Market Cap

 The top 1% of companies often make up a large share of the market cap in global indices.

 Contrary to common wisdom, the concentration of mega-cap Tech in the S&P 500 is not an outlier.

* Total weight of companies with market caps larger than 99% of the companies held within the benchmark. ** Data as of Aug. 31, 2020. Data as of Dec. 31, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 48 International

International investments are subject to special risks, including currency fluctuations and social, economic and political Notuncertainties, for distribution which to could the general increase public. volatility. These risks are Confidentialmagnified in andemerging proprietary markets. information. 49 U.S. vs. International Equity Performance

3.5 U.S. Outperformed U.S. 178.9% 3.0 Outperformed 174.9%

2.5

U.S. U.S. Outperformed 2.0 77.9%

1.5

1.0 Differences Between Indexes

0.5 390.5% 95.8% International International Outperformed Outperformed 0.0 1978 1983 1988 1993 1998 2003 2008 2013 2018

 Geographic leadership tends to persist for multiple years.

S&P 500 vs. MSCI EAFE. Data as of Dec. 31, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 50 Dollar Regimes Coincide With Global Equity Leadership

Relative Stock Price: U.S. vs. Rest of World (Rolling 1-Year Periods) 40

Year Year Relative Performance (%) - -10

-20

-30 Dollar Bull Dollar Bear Dollar Bull

-40 U.S. U.S. vs. Restof World One 1993 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

 Periods of sustained dollar strength have aligned with U.S. equity outperformance.  Dollar weakness could lead to a shift in global equity market leadership.

Data as of Dec. 31, 2020. MSCI U.S. Index vs. MSCI All Country World ex.-U.S. Index in U.S. dollar terms. One year rolling periods. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 51 Weaker Dollar Supercharges Non-U.S. Stocks

Dollar’s Impact on Asset Classes Since 1974 40%

35.1 35%

30%

25%

20% 18.8

15% 13.1 12.1

8.6

10% 7.6 Rolling Annualized Return 5.5 5%

0% -0.7 -5% S&P 500 Gross Return Investment Grade Bonds MSCI EAFE MSCI EM (Since 2001)

Average when Dollar is Up Average when Dollar is Down

 International equities tend to outperform during periods of dollar weakness.

Data as of Dec. 31, 2020. MSCI EAFE and MSCI EM are net returns; MSCI EM data starts in 2001. Investment Grade Bonds refers to the Bloomberg Barclays U.S. Corporate Investment Grade Bond Index. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 52 European Earnings Reign Supreme

25%

15%

-5% EU EU U.S. Minus Annual EPSGrowth -15%

-25% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E

 European EPS growth has only outpaced the U.S. once since 2007.  2021 is expected to be the second time which could mark a shift in leadership.

Outstanding Euro-Denominated Bonds

2.5

2.0

1.5

1.0 €Trillions Euro

0.5

0.0

EIB

Italy

ESM

EFSF

Spain

Malta

Latvia

France

Cyprus

Ireland

Greece

Austria

Estonia

Finland

Belgium

Slovenia

Portugal

Germany

Lithuania

Netherlands

Luxembourg Slovak Republic

 Joint issuance of Eurozone debt creates a more integrated fiscal union which bodes well for the Euro's long-term prospects.

 This milestone could act as a catalyst for European assets to embed lower risk premiums going forward.

EIB = European Investment Bank,; EFSF = European Financial Stability Facility; ESM = European Stability Mechanism. Data as of June 30, 2020., latest available as of Dec. 31, 2020. Source: FactSet, Eurostat. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 54 The Rise of China

40% Increasing Chinese Contribution to 35% Global GDP

30%

25%

20%

15%

Contribution Contribution to Global GDP Growth 10%

0% 1990 - 1994 1995 - 1999 2000 - 2004 2005 - 2009 2010 - 2014 2015 - 2019

China U.S.  Over the last 25 years, China has become an increasingly important driver of global growth while the U.S. has become less integral.

 In 1995, China had two Fortune 500 companies compared to the U.S.’s 148. Today, China is home to 124 versus 121 for the U.S.

Data as of Dec. 31, 2019, latest available as of Dec. 31, 2020. Source: World Bank. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 55 Corporations Have Been the Largest Buyers of Equities

Cumulative Equity Flows 2Q 2009 – 4Q 2019

Non-financial corporations

ETF

Foreign sector

Mutual Fund

Other Domestic Buyers

Pension

Households

-2 -1 0 1 2 3 4 Trillions ($)

 One of the key drivers over the last cycle was corporate buybacks.  Buybacks could slow as corporations prioritize capex and future growth initiatives over shareholder return of capital early in the new business cycle.

Data as of Dec. 31, 2019. Source: Federal Reserve Bank, Deutsche Bank. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 56 Currency

Not for distribution to the general public. Confidential and proprietary information. 57 U.S. Dollar Cycle

Trade-Weighted U.S. Dollar

180 14 years 17 years 18 years?

160

140

120

Index Index Mar 1973=100 100

60 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018

 U.S. dollar cycles typically last approximately 16 years.  History suggests that the dollar may be approaching an inflection point.

As of Dec. 31, 2020. Source: Federal Reserve Bank of St. Louis, Federal Reserve and FactSet. Major Currencies, Index Mar 1973=100, Monthly, Not Seasonally Adjusted. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 58 Twin Deficits: Budget and Trade

40% 10

8 30% 6

20% 4 Deficits Twin

5Year Change 2

- 10%

0 - 5 Year Change Year 5 0% -2

-10% -4

-6 -20% Real Trade Weighted Dollar -8

-30% -10 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Real Trade Weighted Dollar (Lagged 2 Years, LHS) Twin Deficits as a % of GDP (RHS)

 Twin deficits show the dollar should weaken over the next several years.

Data as of Sept. 30, 2020, most recent available as of Dec. 31, 2020. Source: BEA, Federal Reserve, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 59 Growth Differentials Drive Greenback

4% 25%

20% 3%

15%

2% Trade Weighted Dollar (YoY) Dollar Weighted Trade 10%

1% 5% U.S. U.S. GDP(Nominal YoY) - 0% 0%

-5% -1% -10%

U.S. U.S. GDP G7 vs. ex -2% -15%

-3% -20% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S. GDP vs. G7 ex-U.S. GDP (Nominal YoY - LHS) Trade Weighted Dollar (YoY - RHS)

 The fate of the dollar is influenced by how fast the U.S. is growing vs. other major economies.

Data as of Sept. 30, 2020, latest available as of Dec. 31, 2020. Source: BEA, Bloomberg, Economic & Social Research Institute Japan, German Federal Statistical Office, INSEE National Statistics Office of France, ISTAT, STCA Statistics Canada, UK Office for National Statistics. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 60 The U.S. Dollar Dominates the International Monetary System

70% 62.2 62.7

60% 56.3

50%

39.9 40% 35.7

30% 23.4 23.2 20.1

20% Shareof the International System 10% 4.9 3.2 3.0 2.4 1.6 0.0 0.0 1.2 0% International Debt International Loans Global Payment Currency Foreign Exchange Reserves

USD EUR JPY Renminbi

 The greenback is firmly entrenched as the world's reserve currency.

Data as of June 2018. Source: European Central Bank, BofA Merrill Lynch Global Research. 61 Demographics

Not for distribution to the general public. Confidential and proprietary information. 62 The Earnings and Spending Lifecycle U.S. Consumption by Age (2018)

$120 120 109.4

$100 96.6 100 88.3

$80 74.1 75.4 80 71.2 66.2 60.7 $60 56.5 56.3 60

Thousands 43.2 38.8 $40 40 32.0 32.3

$20 20

$0 0 <25 25 to 34 35 to 44 45 to 54 55 to 64 65 to 74 >75

Average Annual Expenditures Income Before Taxes

 Individuals typically reach their peak earnings and spending years between the ages of 35 and 54.  As a result, the share of the population in this age range has a strong influence on economic growth and financial markets.

Data as of Sept. 2019. Source: Consumer Expenditure Survey, U.S. Bureau of Labor Statistics. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 63 Middle vs. Young (MY) Ratio

Demographics Foreshadow Equity Returns (over 16 years) 0.5 16%

0.4

14% S&P 500: 16 500: S&P 0.3 Correlation = 0.89 12% 0.2

10% -

0.1 Return YearAnnualized Year Change Year

- 0 8%

-0.1 6% -0.2 MY MY Ratio: 16 4% -0.3 2% -0.4

-0.5 0% 1955 1965 1975 1985 1995 2005 2015 2025 2035

MY Ratio (LHS) Projected MY Ratio (LHS) S&P 500 (RHS)

 A growing share of middle-age (35-49), relative to younger (20-34), workers has historically coincided with stronger equity market returns.  The demographic profile of the U.S. suggests a healthy environment for stocks well into the 2030s.

Source: Census Bureau, S&P, and Bloomberg. Note: Census Bureau Forecast is based on 2017 National Population Projections. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 64 U.S. Demographic Profile Among Developed World’s Best

25% 25.00%

19% 20% 20.00% 15% 15% 15.00% 11% 10% 10.00% 6% 5% 5% 4% 5.00% 0% 1% 0% 0.00%

-5% -5.00% -4% -4%

-10% -10.00%

Change Change inWorking Age Population -15% -13% -14% -15.00%

-18% -20% -19% -20.00%

-25% -25.00% Japan Germany Italy France United Kingdom United States Canada

Actual (2000 - 2019) Projected (2020 - 2039)

 Fear of “Japanification” in the U.S. may be overblown due to a more favorable demographic profile.

Data as of Dec. 18, 2020, most recent as of Dec. 31, 2020. Source: World Bank. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 65 Volatility

Not for distribution to the general public. Confidential and proprietary information. 66 Volatility Does Not Equal a Financial Loss Unless You Sell

50%

40%

30% Median 20% Annualized Total Return 10% +15.4%

0% Median Intra-Year -10% Price Decline -20% -10.0%

-30%

-40%

-50% 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

S&P 500 Calendar Year Total Return S&P 500 Largest Intra-Year Price Decline (%)

Cumulative Annualized

Excluding 10 Best Days Excluding 10 Best Days Decade Price Return Price Return Per Decade Per Decade

1930 -42% -79% -5% -15%

1940 35% -14% 3% -2%

1950 257% 167% 14% 11%

1960 54% 14% 4% 1%

1970 17% -20% 2% -2%

1980 227% 108% 13% 8%

1990 316% 186% 15% 12%

2000 -24% -62% -3% -10%

2010 190% 95% 11% 7%

Average Since 1930 114% 44% 6% 1%

 Investors that missed the 10 best days in a given decade would have seen 70% lower returns over the course of that decade on average.  28% of the best days (5% or more) took place in the first two months of a bull market.

Data as of March 31, 2020. Source: FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 68 Can You Time the Market?

Buy & Hold vs. Market-Timing Since 1936 (Growth of $100)

100,000

Cumulative Return: $21,934 10,000 Cumulative Return: $8,848

1,000

Cumulative Returns Scale) (Log ($) 100

10 1936 1946 1956 1966 1976 1986 1996 2006 2016

Cumulative Return: Buy & Hold Cumulative Return: Sell 10 Months Before Peak, Buy 10 Months After Trough

 Since 1936, an investor that consistently sold 10 months prior to a market peak and bought back 10 months after the trough was worse overall than a buy and hold investor.

Data as of April 30, 2019, 10 months before current prior market peak. Source: Yardeni Research. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 69 Typical Market Leadership in a Downturn

Less Defensive Most Defensive

Large Cap Value Large Cap Large Cap Growth Large -13.8% 35% -12.9% 85% -12.1% 77% Avg. Perf. Hit Rate Avg. Perf. Hit Rate Avg. Perf. Hit Rate

Mid Cap Value Mid Cap Mid Cap Growth

Mid -15.1% 19% -14.6% 23% -14.0% 31% Market Cap Market Avg. Perf. Hit Rate Avg. Perf. Hit Rate Avg. Perf. Hit Rate

Small Cap Value Small Cap Small Cap Growth

Small -15.7% 15% -15.1% 19% -14.5% 39% Less DefensiveLess Avg. Perf. Hit Rate Avg. Perf. Hit Rate Avg. Perf. Hit Rate

Least Value Blend Growth Defensive Investment Style

Note: Average performance: average performance during selloffs of 5% or more, Hit Rate: Hit rate of outperformance during 5%+ selloffs, 2005 – present. Benchmarks used: Large Value: S&P 500 Value, Large Blend: S&P 500, Large Growth: S&P 500 Growth; Mid Value: S&P 400 Value, Mid Blend: S&P 400, Mid Growth: S&P 400 Growth; Small Value: S&P 600 Value, Small Blend: S&P 600, Small Growth: S&P 600 Growth. Outperformance frequency calculated relative to S&P 1500 index. Source: S&P, Bloomberg. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 70 Which Equities Do Well Following Selloffs? Following the Last Seven Major Market Drawdowns, Some Sectors Have Rebounded More Strongly

Relative Performance Hit Rate

Utilities -18% Utilities 14%

Consumer Staples -15% Consumer Staples 14%

Energy -15% Energy 14%

Comm. Services -11% Comm. Services 57%

Health Care -9% Health Care 29%

Materials 0% Materials 57%

Cons. Discretionary 6% Cons. Discretionary 71%

Industrials 6% Industrials 71%

Financials 15% Financials 71%

IT 23% IT 86%

-30% -20% -10% 0% 10% 20% 30% 0% 20% 40% 60% 80% 100%

 Following periods of market turmoil, more cyclical sectors such as IT, Financials, Industrials, and Consumer Discretionary have historically tended to deliver better relative performance.

Source: FactSet. Note: Market Drawdowns defined as pullbacks of 15% or greater in S&P 500 since 1987. Hit rate defined as % of severe declines with relative outperformance vs. S&P 500 12 months after each decline. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. 71 Glossary of Terms

BEA: Bureau of Economic Analysis Black Swan: An unlikely and unpredictable event with potentially extreme consequences for markets. Bloomberg Barclays US Aggregate Bond Index: an unmanaged index of U.S. investment-grade fixed-income securities. Bloomberg Barclays US Corporate Investment Grade Bond Index: an unmanaged index of U.S. investment-grade corporate bond securities. Capex (Capital expenditures): corporate spending on productive assets (such as buildings, machinery and equipment, vehicles) intended to increase capacity or efficiency for more than one accounting period. CPI (Consumer Price Index): measure of the average change in U.S. consumer prices over time in a fixed market basket of goods and services as determined by U.S. Bureau of Labor Statistics. EPS (Earnings per Share): the portion of a company's profit allocated to each outstanding share of common stock. ERP (Equity Risk Premium): the excess return that an individual stock or the overall stock market provides over a risk-free rate. ERP tranche refers to statistical segments of ERP data used for relative comparison. FAANGM: Shorthand term for a group of leading technology stocks including Facebook, Apple, Amazon, Netflix, Google/Alphabet, and Microsoft. GDP: Gross Domestic Product GFC (Great Financial Crisis): the severe economic and market downturn experienced in 2007-2008. DAX: Blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Fed (Federal Reserve Board): the U.S. central bank, responsible for policies designed to promote full economic growth, full employment, and price stability. IFO: The Ifo Institute for Economic Research is a Munich-based research institution. Mortgage Bankers Association (MBA) Purchase Index: measure of relative change over time in mortgage applications for property purchases MSCI All Country World Index: unmanaged index of large- and mid-cap stocks in developed and emerging markets. MSCI EM Index: unmanaged index of large- and mid-cap stocks in 27 emerging market countries. MSCI EAFE Index: unmanaged index of equity securities from developed countries in Western Europe, the Far East, and Australasia. MSCI USA Index: unmanaged index of US large- and mid-cap equity securities. NAREIT All-Equity REITS Total Return Index: free-float-adjusted market capitalization weighted index that includes all tax qualified REITS listed in the NYSE, AMEX and NASDAQ National Markets. NFIB (National Federation of Independent Business): a U.S. small business advocacy association, representing over 350,000 small and independent business owners.

72 Glossary of Terms

NFIB Small Business Optimism Index: measure of small business sentiment produced by the National Federation of Independent Business based on its monthly survey of small business owners. P/E Ratio: Price/Earnings ratio PMI: Purchasing Manager’s Index Quantitative easing (QE): Monetary policy implemented by a central bank in which it increases the excess reserves of the banking system through the direct purchase of debt securities. Russell 1000 Growth Index: unmanaged index of large-cap stocks chosen for their growth orientation. Russell 1000 Value Index: unmanaged index of large-cap stocks chosen for their value orientation. Shibor: Shanghai Interbank Offered Rate S&P MidCap 400 Index: unmanaged index of 400 US mid-cap stocks S&P 400 Growth Index: unmanaged index of mid-cap stocks having higher price-to-book ratios relative to the S&P 400 MidCap as a whole. S&P 400 Value Index: unmanaged index of mid-cap stocks having lower price-to-book ratios relative to the S&P 400 MidCap as a whole. S&P 500 Growth Index: unmanaged index of large-cap stocks selected based on sales growth, the ratio of earnings change to price and momentum. S&P 500 Value Index: unmanaged index of large-cap stocks selected based on the ratios of book value, earnings, and sales to price. S&P 600 Index: unmanaged index of 600 US small-cap stocks S&P 600 Growth Index: unmanaged index of US small-cap growth stocks, selected based on sales growth, the ratio of earnings change to price, and momentum. S&P 600 Value Index: unmanaged index of US small-cap value stocks, selected based on ratios of book value, earnings, and sales to price. S&P 500 Index: Unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. VIX: VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange's CBOE Volatility Index, a popular measure of the stock market's expectation of volatility based on S&P 500 index options. Yield Curve: Comparison of interest rates at a point in time of bonds with equal credit quality but different maturity dates. YoY: Year Over Year U.S. Treasurys: Direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

73 Biographies

Industry ClearBridge Name and Position Education, Experience and Professional Designations Experience Tenure

Josh Jamner CFA 11 years • Joined ClearBridge in • Member of the CFA Institute Vice President, 2017 • RBC Capital Markets - Assistant Vice President, Associate Strategist - U.S. Equity Investment Strategy • Bessemer Trust - Assistant Vice President, Client Portfolio Analyst Analyst • BA in Government from Colby College

Jeffrey Schulze CFA 15 years • Joined ClearBridge in • Member of the CFA Institute Director, Investment 2014 • Lord Abbett & Co., LLC – Portfolio Specialist Strategist • BS in Finance from Rutgers University

74 Additional Important Information

Past performance is no guarantee of future results. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444 ©2021 Legg Mason Investor Services, LLC, member FINRA, SIPC. “Anatomy of a Recession” is a trademark of ClearBridge Investments, LLC. Legg Mason Investor Services, LLC and ClearBridge All Investors in Hong Kong and Singapore: Investments, LLC are subsidiaries of Franklin Resources, Inc. This material is provided by Legg Mason Asset Management Hong Kong Limited/ Franklin All opinions and data included in this presentation are as of January 2021 unless noted Templeton Investments (Asia) Limited in Hong Kong and Legg Mason Asset Management otherwise and are subject to change. The opinions and views expressed herein are of the Singapore Pte. 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Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One This material has not been reviewed by any regulatory authority in Korea or Taiwan. Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland. If the Press would like to re-edit the press release from their own point of view, it should base on the public information provided by the Legg Mason Investments (Taiwan) and the All Qualified Investors in Switzerland: information contained in such press releases shall be not over-promising or exaggerating. In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) All Investors in the Americas: GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA. Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc. Prospectus, the Key Investor Information documents and the annual and semi-annual reports of All Investors in Australia and New Zealand: the Company may be obtained free of charge from the representative in Switzerland. This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 All investors in the UK: 839, AFSL 204827). The information in this document is of a general nature only and is not In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, intended to be, and is not, a complete or definitive statement of matters described in it. It has registered office 201 Bishopsgate, London EC2M 3AB. not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. 983020-CBAX539422 75