WEALTH SOLUTIONS GROUP

Baird Recommended Equity Portfolio Quarterly Report for 2Q21

The Recommended Portfolio rose 10.2% (gross of PWM Equity Research Kathy Carey, CFA fees) during the second quarter, outperforming the Ron Freisleben, CPA S&P 500’s total return of 8.5% (includes dividends). Erin Welcenbach Contact: 414-765-3690 • [email protected]

July 8, 2021

Portfolio Changes Though we sold a handful of companies (and decreased positions in many more), our cash balance declined across the quarter as we reinvested the proceeds into long-term favorites and a handful of new names.

Across Q2, we sold full positions in Xilinx (XLNX), Aptiv (APTV), and Fiserv (FISV). While we continue to like the long- term outlook for all three, various overhangs and lack of meaningful near-term catalysts led us to sell. We also trimmed positions in NVIDIA (NVDA), Apple (AAPL), Amazon (AMZN), Abbott Labs (ABT), Edward Lifesciences (EW), Thermo Fisher Scientific (TMO), Generac (GNRC), and Danaher (DHR). In each case we trimmed growth-oriented names that had Covid-related price appreciation. Though we still like the long-term prospects for most of these companies, we chose to fund moves into more cyclically-oriented positions.

We initiated positions in MasTec (MTZ), Enphase Energy (ENPH), DR Horton (DHI), HCA Healthcare (HCA), Truist Financial (TFC), and S&P Global (SPGI). Our earliest move was adding Enphase, a leader in the US residential solar inverter market. The company is an early-stage secular growth story settling into a nascent and duopolistic industry. We love the long-term growth outlook here.

The rest of our buys are more cyclical in nature. DR Horton is the nation’s largest homebuilder and should continue to benefit from strength in US housing. Truist and S&P Global both increase our exposure to Financials, TFC being a more traditional banking play and SPGI a leading provider of information solutions and data analytics. HCA is the leading operator of acute care hospitals in the US, which we believe will benefit from economic reopening and continued scale advantages. MasTec is a leading US engineering and construction company. We also added to Caterpillar (CAT) and DuPont (DD), two recent favorites that should continue to benefit from the cyclical economic upswing.

Market and Portfolio Performance The S&P 500 returned 8.5% in 2Q21 as widespread vaccination, reopening momentum, and stimulus tailwind propelled markets higher. Broad indices were given a boost by the resurgence of Growth amid a drop in anxiety over longer-term interest rates and inflation. Equities were also spurred on by rising 2021 S&P 500 earnings estimates, which are nearing $200 after troughing at $123 a year ago. Forward margin estimates continue to rise despite concerns for inflationary pressures.

For the second quarter, the Baird Recommended Portfolio outperformed, with a total return of ~10.2% vs. 8.5% for the S&P 500. Real Estate (+13.1%), Technology (+11.6%), and Energy (11.3%) led the pack. Aside from Energy, cyclically-oriented sectors like Materials (+5.0%) and Industrials (+4.5%) took a breather. Only Utilities (-0.4%) were negative on the quarter.

Year to date, the portfolio trails the benchmark by 1.4%, with a total return (includes the impact of dividends) of 13.9% vs.15.3%. Stock selection across 5 of 11 sectors delivered positive relative performance to the portfolio. Cash subtracted about 0.34 percentage points from the portfolio’s performance for the year. Robert W. Baird & Co. Incorporated Please see page 4 for important disclosures Page 1 of 4 Baird Recommended Equity Portfolio

Energy (+45.6%) retains clear market leadership, while Financials (+25.7%) and Real Estate (+23.3%) continued to perform strongly after lagging early in the pandemic. Outside of weak performance from defensive sectors like Consumer Staples (+5.0%) and Utilities (+2.4%), most sectors have performed well. And in fact, the weakness from these rate- sensitive areas is key to our belief that rates ultimately head higher and keep the reflation trade going near-term.

Performance results are total returns including dividends, annualized for multiyear periods. Net performance is intended to show the effect of a hypothetical account fee of 1%. See page 4 for further disclosures. The S&P 500 is an unmanaged common stock index; direct investment in indices is not available. Performance results for the Recommended Portfolio are hypothetical and would have been obtained only if each issue had been purchased when recommended and sold when removed from the Portfolio. We do not imply that future performance will be equally attractive or that losses are not possible using these stocks. Returns are calculated by APL.

S&P 500 and Baird Recommended Portfolio performance calculations are total returns, which include the impact of dividends. Future dividends are not guaranteed and can be lowered or suspended by companies.

Market Commentary and Outlook If 1Q21 was about skyrocketing rates, the second quarter was colored by rising inflation as CPI (and related metrics) saw some of the strongest year-over-year price increases in decades. It was a potent cocktail of reopening momentum, continued supply-side shortages, and supply-chain issues, all super-charged by base effect comparisons from pandemic lows. While margins remain strong for now, mentions of inflation have started to pop up in corporate commentary with more regularity, while the discussion of “transitory or not” has captured the investors’ (and the Fed’s) attention.

Still, market-based inflation expectations remain tame, while continuously low bond yields and Growth outperformance suggest that we may not be returning to 1970s-era inflation after all. Suppressed bond yields are especially surprising given the hot inflation data and continued expectation for near-term economic strength. While peak growth/inflation worries might have something to do with it (GDP expected to peak in Q2, while stimulus tailwinds should continue to fade), many also suspect bond-buying by the Fed, pensions, foreign investors, etc. is keeping yields artificially low.

Even more curious than lower yields is the relative underperformance from rate-sensitive sectors like Staples and Utilities (while Financials—which see higher rates flow directly to the bottom line—have held up quite well). To our partners at Strategas, this suggests that the cycle-high in Treasury rates (~1.75% on the 10-yr) hasn’t yet occurred, and that yields will head higher in the near future. The Fed’s newly hawkish tone might support that thesis, as well.

In the meantime, signs of life from Growth stocks are a boon to the portfolio. Though we’ve been positioning for stronger economic growth and cyclical outperformance for the better part of the last year, we remain overweight Growth and Quality. While our portfolio does not intentionally tilt toward either Growth or Value, we explicitly favor high quality companies, even through stretches of relative underperformance. As we transition from a multiples-driven, early-cycle expansion into an earnings-driven, mid-cycle phase, we think the Quality factor will again outperform.

Elsewhere, the market is right at all-time highs—up 95%+ off the 2020 lows—but is narrowing out (weakening breadth) and entering a difficult seasonal stretch. While we remain bullish overall, it wouldn’t surprise us to see an uptick in volatility and relative weakness in Q3. Should this play out, we’ll use any pullbacks to add to long-term favorites and companies that are positioned well for the near- to intermediate-term. We view minor corrections inside of structural bull markets as great buying opportunities. Page 2 of 4 BAIRD'S RECOMMENDED PORTFOLIO Portfolio S&P Purchase Purchase 6/29/21 % 52 Week Market NTM Rev NTM EPS NTM NTM Dividend Ticker Company Name % % Date Price Price Change High Low Cap Growth Growth P/E EV/EBITDA Yield ($) ($) (%) ($) ($) ($mil) (%) (%) (x) (x) (%) Communication Services 8.2% 11.2% GOOG Alphabet Inc. Class C 4.0% Multiple 502.28 2520.37 401.8 2555.92 1383.96 1,663,092 22.1 25.1 27.4 15.4 0.0 DIS Walt Disney Company 1.8% Multiple 168.17 173.93 3.4 203.02 109.93 316,019 20.5 93.9 40.0 23.7 0.0 FB Facebook, Inc. Class A 2.4% Multiple 106.64 351.89 230.0 358.14 218.47 997,772 25.8 22.4 24.7 13.5 0.0 Consumer Discretionary 13.5% 12.3% AMZN Amazon.com, Inc. 4.1% Multiple 1076.35 3448.14 220.4 3554.00 2675.03 1,738,979 22.3 32.0 53.9 19.4 0.0 DPZ Domino's Pizza, Inc. 1.7% Multiple 381.36 463.45 21.5 467.40 319.71 17,996 6.0 10.2 33.3 24.9 0.8 HD Home Depot, Inc. 2.1% Multiple 89.38 318.24 256.1 345.69 246.09 338,371 5.5 12.3 22.1 15.5 2.1 DHI D.R. Horton, Inc. 1.8% Multiple 96.37 90.51 -6.1 106.89 53.50 32,627 21.3 22.0 7.8 5.6 0.9 NKE NIKE, Inc. Class B 2.4% Multiple 93.78 155.95 66.3 156.40 95.11 246,394 12.2 20.4 35.4 26.4 0.7 SBUX Starbucks Corporation 1.4% 3/1/21 108.03 112.27 3.9 118.98 71.82 132,288 11.8 36.2 32.3 20.3 1.6 Consumer Staples 3.8% 5.8% STZ Constellation Brands Cl A 2.0% Multiple 196.26 230.98 17.7 244.75 160.63 44,537 1.7 6.3 22.1 16.8 1.3 COST Costco Wholesale Corp. 1.8% Multiple 117.25 398.79 240.1 400.47 300.14 176,293 8.0 8.6 35.2 19.5 0.8 Energy 2.3% 2.8% PXD Pioneer Natural Resources Co. 2.3% Multiple 117.44 158.66 35.1 175.37 76.58 38,705 48.5 108.1 11.6 6.0 1.4 Financials 12.8% 11.3% BAC Bank of America Corp 3.0% Multiple 29.72 40.89 37.6 43.49 22.39 350,399 3.3 25.8 13.3 nmf 1.8 BLK BlackRock, Inc. 2.7% Multiple 200.93 873.53 334.7 890.00 531.39 133,236 12.6 12.9 21.7 15.3 1.9 CB Chubb Limited 1.3% 1/15/21 155.19 158.40 2.1 179.01 111.93 71,231 2.8 29.3 13.1 nmf 2.0 JPM JPMorgan Chase & Co. 3.0% Multiple 44.93 154.14 243.1 167.44 90.78 466,632 -0.4 14.6 12.3 nmf 2.3 SPGI S&P Global, Inc. 1.5% 6/30/21 410.58 410.58 0.0 414.77 303.50 98,909 6.2 9.3 30.7 21.1 0.8 TFC Truist Financial Corporation 1.3% 6/1/21 61.78 55.30 -10.5 62.69 33.47 74,370 -2.1 21.6 13.0 nmf 3.3 Healthcare 13.0% 13.0% ABT Abbott Laboratories 1.4% Multiple 82.28 117.21 42.5 128.54 88.43 208,261 5.9 12.5 25.7 19.9 1.5 DHR Danaher Corporation 2.2% Multiple 80.56 270.87 236.2 273.08 171.40 193,206 13.8 19.1 29.6 21.1 0.3 EW Edwards Lifesciences Corp. 1.9% Multiple 82.95 103.59 24.9 105.58 66.87 64,395 14.4 16.5 43.8 33.7 0.0 HCA HCA Healthcare Inc 1.4% 5/17/21 211.50 205.88 -2.7 217.36 92.06 69,369 6.1 13.9 14.1 8.9 0.9 IQV IQVIA Holdings Inc 2.6% Multiple 102.01 244.09 139.3 248.74 137.00 46,783 12.6 22.8 26.0 18.0 0.0 TMO Thermo Fisher Scientific Inc. 1.6% Multiple 111.14 508.24 357.3 532.57 349.59 199,752 5.1 0.8 24.0 19.3 0.2 ZTS Zoetis, Inc. Class A 1.9% Multiple 117.69 187.99 59.7 188.53 132.06 89,251 10.5 14.7 38.9 26.5 0.5 Industrials 12.6% 8.5% CAT Caterpillar Inc. 1.8% Multiple 230.74 215.10 -6.8 246.69 124.01 117,829 13.8 33.6 19.6 11.8 2.1 GNRC Generac Holdings Inc. 2.8% Multiple 121.93 410.42 236.6 412.65 118.64 25,838 26.9 30.0 38.3 25.6 0.0 MTZ MasTec, Inc. 1.5% 4/1/21 93.70 105.20 12.3 122.33 36.81 7,818 18.0 7.7 18.7 9.4 0.0 OSK Oshkosh Corp 1.7% 1/15/21 94.01 122.36 30.2 137.47 66.74 8,396 10.1 27.5 15.2 9.6 1.1 ROK Rockwell Automation, Inc. 2.5% Multiple 210.48 283.58 34.7 289.52 206.57 32,917 8.1 10.2 29.1 21.5 1.5 UNP Union Pacific Corporation 2.3% Multiple 199.45 218.65 9.6 231.26 164.36 145,250 7.5 15.4 21.5 14.7 2.0 Information Technology 26.9% 27.5% ADBE Adobe Inc. 2.3% Multiple 266.14 590.75 122.0 591.80 416.29 282,379 17.6 17.1 44.4 33.3 0.0 AAPL Apple Inc. 5.3% Multiple 6.75 136.33 1919.7 145.09 89.14 2,275,025 9.2 13.0 26.0 19.7 0.6 ENPH Enphase Energy, Inc. 1.6% 4/1/21 162.16 185.71 14.5 229.04 46.61 25,201 47.3 38.3 78.7 61.5 0.0 KEYS Keysight Technologies Inc 1.8% Multiple 62.08 155.79 151.0 155.88 90.62 28,701 8.6 13.1 24.8 18.3 0.0 MA Mastercard Incorporated Cl A 2.6% Multiple 16.75 368.00 2097.0 401.50 281.20 364,705 19.9 28.0 40.3 30.3 0.5 MSFT Microsoft Corporation 5.5% Multiple 92.66 271.40 192.9 271.65 196.25 2,044,069 12.3 7.6 32.4 21.5 0.8 NVDA NVIDIA Corporation 3.2% 3/31/20 263.60 801.07 203.9 806.50 370.66 499,067 28.9 32.9 48.4 39.2 0.1 PYPL PayPal Holdings Inc 2.7% Multiple 78.36 292.76 273.6 309.14 164.33 343,913 21.0 23.1 55.0 38.8 0.0 CRM salesforce.com, inc. 1.9% Multiple 145.43 245.81 69.0 284.50 181.93 227,620 21.0 -9.9 60.8 26.9 0.0 Materials 3.2% 2.6% DD DuPont de Nemours, Inc. 1.9% 3/1/21 70.32 77.13 9.7 87.27 50.74 41,044 -10.6 14.5 19.1 11.5 1.6 ECL Ecolab Inc. 1.3% 2/16/21 219.88 208.09 -5.4 230.00 181.25 59,501 6.4 23.2 36.7 20.9 0.9 Real Estate 0.0% 2.6% Utilities 1.9% 2.5% NEE NextEra Energy, Inc. 1.9% Multiple 26.42 74.08 180.4 87.69 59.38 145,304 8.5 8.7 28.1 17.0 2.1 Cash 1.8% Earnings and revenue growth estimates are Factset Consensus estimates. P/E is price/earnings ratio; EV/EBITDA is the Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization ratio Dividend yield equals indicated annual dividend (most recently paid common dividend annualized for the next 12 months) divided by current stock price. NTM = Next 12 Months; nmf = not meaningful

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Appendix – Important Disclosures Research reports on the companies identified in this report are provided by Baird, Credit Suisse, and/or S&P Capital IQ, and are available to clients through their Baird Financial Advisor. This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation or need of any particular client and may not be suitable for all types of investors. Recipients should consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report. Investment Recommendations: The goal of Baird’s Recommended Portfolio is to focus on high-quality companies with strong fundamental characteristics and management teams, attractive growth prospects, and reasonable price-appreciation expectations. The Portfolio is derived using a top-down approach starting with the macroeconomic and market outlooks, and industry sector weightings are taken into account. The Recommended Portfolio is intended as a long-term investment strategy. There are no guarantees that any of the recommended stocks’ share prices will increase and there is risk in any investment, including the potential for loss of principal. The securities discussed in the Recent Portfolio Changes section do not necessarily represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. The model results do not reflect actual trading and therefore may not reflect the impact that material economic and market factors might have had on the investment decision making had actual money been managed. The model net performance reflects the inclusion of a hypothetical 1.0% account fee which is representative of a median fee based on average account assets. Actual fees charged may differ. The model net fee performance is intended to provide an appropriate example of the impact fees would have on this model portfolio. If this model is implemented through a brokerage account, the gross model performance presented herein is most relevant, but bear in mind it does not reflect commissions or other transaction costs. Disclaimers This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. At least one of the analysts involved in the preparation of these materials has an ownership stake in the following companies: AAPL, ABT, AMZN, CAT, CRM, FISV, HD, JPM, MA, MSFT

ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST The S&P 500 unmanaged common stock index is used to measure and report performance of the domestic large-cap sector of the stock market; direct investment in the index is not available. Similarly, the Dow Jones Industrial Average, NYSE Composite index, and Russell 2000 are unmanaged common stock indices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available. Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Securities and Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations may differ from Australian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers and not Australian laws. Copyright 2021 Robert W. Baird & Co. Incorporated. Other Disclosures UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W Baird Limited holds an ISD passport. This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not be distributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has an office at Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the Financial Conduct Authority requirements, this investment research report is classified as objective. Robert W. Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FCA requirements and not Australian laws. Applicable disclosures regarding the equities discussed can be accessed at http://www.rwbaird.com/research-insights/research/coverage/third-party-research-disclosures.aspx.

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