Global Strategy Quadrant February 1, 2019

Steven Wieting Chief Investment More Early 2016 than Early 2018 Strategist and Chief Economist  Financial markets have roared higher in early 2019 but we still see strong pockets of long-term +1-212-559-0499 opportunity. Sentiment and positioning are very different from early 2018 when investors were [email protected] overconfident. Early 2018 followed an unusually strong and smooth year of investment returns.  We added Asian and US equity exposure. Equities in emerging Asia remain nearly 19% below year- Malcolm Spittler Maya Issa ago levels. We took the opportunity to add about 1% of our total world asset allocation to these equity Joseph Fiorica markets and a portion of developed Asia. We closed an underweight position in US equities that we held Investment Strategy during the fourth quarter 2018 and shifted certain European equity markets down to neutral.

Ken Peng  EM breadth points to gains. The share of emerging market equities in a rising trend recently turned Head – Asia Investment the corner, showing improving breadth. The last time the “breadth” trend changed from weakening to Strategy improving was early 2016, before further sustained gains.

Catherine Cheung  The monetary outlook has eased. The Federal Reserve signaled a more cautious approach to Asia Investment tightening US monetary policy this week, which historically has been positive for equities and fixed Strategy income. After nine rate hikes, US short-term rates still trounce most of the world’s fixed income yields.

Jeffrey Sacks  We see opportunity in US fixed income. Short-term investment grade opportunities exist at higher Head – EMEA yields than long-term US Treasuries and at roughly 100 basis points above cash. We allocated a full Investment Strategy further percentage point to short- and intermediate-term investment grade US bonds.

Shan Gnanendran  We put our remaining tactical cash position to work. Our increased allocations to equities and fixed EMEA Investment income has eliminated our overweight cash position. Our overall global fixed income position is neutral for Strategy the first time since late 2012, heavily weighted to the US and EM.

Jorge Amato  We believe asset allocation will provide a more suitable mix of safety and opportunity. This Head - Latin America follows the rare conditions in 2018, when nearly all global asset classes fell. While our global equity Investment Strategy tactical weighting is now higher at +2%, we don’t expect to increase this sharply as we would at the start of a new economic recovery cycle. (Our peak equity overweight in the current cycle was about +8%). Charles Reinhard Head - North America  Trade friction remains a key market risk. Hopes have risen for a US-China agreement that will at Investment Strategy least defer a rise in tariffs on $200 billion of Chinese exports. While we expect Europe’s sluggish recovery

Kris Xippolitos to endure and perhaps benefit from a US-China accord, the regional economic expansion has slowed Head – Fixed Income despite ECB stimulus having peaked. Brexit risks are priced in, but still sizeable and unpredictable. Strategy  Cyclical sectors are key to the ongoing rebound. Having driven the decade-long equity bull market,

Joseph Kaplan cyclicals have also powered global equities’ rally since late December, outperforming defensives once Fixed Income Strategy again. The nascent equity recovery’s continuation will depend heavily on cyclical sectors.

Wietse Nijenhuis  US investment grade corporate bonds offer some of the best risk-adjusted value in fixed income. Head - Equity Strategy Short-dated yields above 3% remain compelling versus lower yielding non-US bonds. US high yield bonds had their best January since 2009, with spreads moving back below historical averages. While we remain comfortable with underlying credit fundamentals, relative value favors hard currency (USD) emerging market debt.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NOT CDIC INSURED • NOT GOVERNMENT INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

st GIC – January 31 Asset Classes – Global USD with Alternatives Level 3 The Citi Private Bank Global Investment Committee eliminated our 2% tactical cash weighting at our January 31 meeting, reallocating -2 -1 0 1 2 the proceeds equally between global equities and fixed income. This leaves our allocation to global equities 2% overweight and fixed income neutral. Following widespread Fixed Income declines across asset classes in 2018, we see selective Developed Sovereign → opportunities across both low-risk and higher-risk assets over the coming 12-18 months. As such, we expect an improved Developed Investment Grade Corporates → performance from well-diversified global portfolios in 2019. As highlighted recently (New Year Opportunities Amid Old Business High Yield ← Cycle Risks) the periods following 20% declines in equity markets have → most often been followed by strong one- and two-year Emerging Market Sovereigns returns. Negative returns in US equities after such periods have occurred only in three out of nine occasions in the past six decades, all during economic crises. Equities While the strength of the financial market snapback in early 2019 is unlikely to be sustained, bearish investor, sentiment and positioning Developed Equities suggest greater room for positive surprises in the coming year than at this time last year. US → The still-modest scope of our equity overweight reflects our view that US Large Cap → while the economic expansion remains intact, global economic growth is unlikely to accelerate significantly, and asset prices are not deeply US SMID Cap depressed overall. The market correction of 2018 was not in any way indicative of a new economic recovery cycle. Non-US ←

After a year of widespread fears of trade disruption and a weakening Europe ← global economy, the twelve-month trailing return on emerging Asian equities stands at -16%. Ongoing trade disputes between the US, Asia ex-Japan → China, and others remain a significant risk. However, we see the valuation decline as an opportunity to invest in this dynamic region Japan where global investors are generally very underexposed. We expect Chinese policy stimulus to offset trade disruptions in time. Meanwhile, Emerging Market Equity → the US Federal Reserve’s newfound caution with policy tightening should help most global markets, emerging markets in particular. However, the Fed may eventually resume modest additional monetary policy tightening if trade disputes are resolved and US growth proves Cash ← enduring (our base case). Commodities On a net basis, we increased our overweight in emerging Asia by nearly one percentage point across six countries. We expect to continue building this allocation over time. Allocations as of January 31, 2019 Meanwhile, European growth has slowed partly on external risks -2 = very underweight; -1 = underweight; 0 = neutral including China’s slowdown and to some extent, Brexit uncertainty. We 1 = overweight; 2 = very overweight expect the sluggish Eurozone economic recovery to persist. Certain Arrows indicate changes from previous GIC meeting securities and industry sectors offer attractive valuation and income. However, both the pace of regional growth and political instabilities at a time of peak European monetary stimulus drove our shift in allocation in favor of Asia. Overweights were retained in Germany and Switzerland. We reduced overweights to select European markets that are less sensitive to any improvements on the trade front. The GIC also closed a small underweight position in US equities held over the course of 4Q 2018, returning to neutral. We continue to favor larger- cap securities with stronger balance sheets. The GIC added further to our overweight position in short- and intermediate-term investment grade US fixed income. This already represents our largest single overweight allocation across all global asset classes. This includes consumer asset backed securities. Within our fixed-income allocation, this generally improved bond quality and diversification from corporate sector risks. Similarly, after a very strong rebound, we shifted our small overweight position in US high yield to add further to our emerging markets fixed-income overweight. After nine Federal Reserve interest rate hikes, short-term US yields significantly exceed long-term sovereign bond yields in other developed markets, where we remain underweight. Meanwhile, the extra return on certain short-term US investment grade instruments exceeds cash yields by 100 basis points, creating a stable and positive real return opportunity. While we invest across the maturity spectrum and particularly in certain segments of fixed income where yield curves are steep, long-term US Treasury yields offer little premium over short-term yields. We retain a neutral - or fully invested - allocation to long-term US Treasuries given their role in dampening portfolio volatility, but believe US recession fears are premature. In both fixed income and equities, we continue to favor higher quality income-generating assets even amid market recovery - see Outlook 2019 for more).

Global Strategy: Quadrant  February 1, 2019 2

More Early 2016 than Early 2018 Over the past year, investors “fell out of love with risk.” As our colleagues in Citi From “love” to “panic”, Research might put it, the “euphoria” investors felt at the start of 2018 has turned to emotional markets have “panic”. We see a limited opportunity in this after US and global equities fell about created some 20% from their 2018 highs to their late December low point. opportunities after the 20% fall in global So unlike 2017’s stellar performance that made investing in 2018 difficult – the weaker equities. returns of the past year raise the probability of a better 2019. With a lower 2019 entry- point than we expected in our Outlook 2019 we are estimating a “most likely” global equity total return of +10% this year. With markets already up 5% in January, our full year view conservatively weighs the Weak 2018 returns set significant policy and political threats global markets still face against the likelihood up markets for a that 2018’s record high for US corporate profits is followed by yet another record high stronger year, but in 2019. We see expansion – albeit a slower one – rather than recession this year. In slowing growth should the case of positive surprises in the realm of politics and international relations, we put limits on the scale of would easily expect larger equity gains, perhaps “front-loaded” ones (as we saw in gains. response to Fed Chairman Powell’s FOMC press conference). When Fearful... By the turn of last year, a small majority of investment advisors turned “bearish” for the first time since 2013’s “taper tantrum” period and very likely repositioned portfolios for gloom (see figure 1). Subsequent one-year returns from such periods in the past decade have averaged +20%. In a longer data set over the past six decades, one-year ahead gains following an Even including some of initial 20% drop have averaged 10%. Poignantly, the median return is a much stronger the worst periods in 23%. The large “skew” between the median and average is driven by three especially market history, the year bad periods: 1) The Arab oil embargo of 1973, which drove simultaneous recession following a 20% drop tends to be a good one. and inflation 2) The equity bubble period of 2000, with history’s highest broad equity valuations and 3)The systemic financial collapse of 2008 (see figure 2). As a base case view, we do not foresee conditions matching these three extraordinary However, the chance of negative historic periods. Still, the chance of a political “black swan” is never zero a “black swan” is never (See “The Case of the Missing Black Swan”). The present “tariff war” is the first for the zero. post-World War II period. Brexit too suggests a fragmentation after a long period of increasing economic integration and cooperation. On the monetary front, Europe and Japan have particularly little policy flexibility to ease more effectively in response to a new economic shock. Today’s economic circumstances bear unique risks. Against this backdrop, we keep a probability-weighted moderate gain in equities as our base-case expectation. This is also in keeping with our outlook for slower, but positive economic growth and profit gains late in an economic expansion period.

Global Strategy: Quadrant  February 1, 2019 3

Figure 1: Net Bullish Investor Sentiment and S&P 500 Figure 2: S&P 500 Return after a 20% Drop Date Bear Market Fwd 12m Fwd 24m Reached Return Return 10/21/1957 31% 46% 5/28/1962 26% 45% 8/29/1966 24% 33% 1/29/1970 11% 21% 11/27/1973 -27% -5% 2/22/1982 31% 39% 10/19/1987 23% 60% 3/12/2001 -1% -29% 7/9/2008 -29% -17% Average 10% 21% Median 23% 33% Min -29% -29% Max 31% 60% Source: Haver Analytics as of February 1, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. As already noted, cheaper markets offer a stronger base-case return opportunity. Given this, the Citi Private Bank Global Investment Committee sees the opportunity to invest portfolio cash more fully. This is even while adding asset class diversification to help safeguard portfolios. Our overall equity allocation rises to +2.0% from +1.0%. Global fixed income rises from -1.0% to neutral. This is the first time the FI allocation globally has not been underweight since late 2012. These relatively balanced overall allocations show a much greater degree of discrimination beneath the surface, as we will describe. With a growing share of long beaten down, emerging markets showing signs of Long beaten-down stabilization amid persistent growth, we shifted our allocation upwards for emerging emerging markets are Asia (ex Japan and India). This comes at the expense of developed Europe (see stabilizing. figures 3-4). Standout beneficiaries from trade war relief remain in parts of Europe, such as Germany (see figure 5). We retain this particular overweight along with Switzerland. However, we cut the remainder of the region to neutral overall. Political uncertainties are generally on the rise in Europe as a whole. Even a successful Brexit deal would come with economically significant transition costs.

Figure 4: European Economic Pace (Coincident Indicators) Figure 3: Share of EM Equities above 200 day Average and ECB policy rate

Source: Factset and Haver Analytics as of January 31, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.

Global Strategy: Quadrant  February 1, 2019 4

Figure 5: German DAX vs China Equities

Source: Bloomberg as of January 28, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.

Pros and Cons Favor Balance - Safeguarding Assets

The Fed has heard The recent drop in equities briefly approached a scope consistent with discounting markets, and now is conditions just short of a pending recession. The mismatch between immediate being “patient”. economic data, earnings results, and equity prices was among the starkest on record (see figure 6). However, this “refresh” in valuation is of little benefit to the longevity of expansions in the US and other developed economies. The chance that the US Federal Reserve snuffs out recovery in a burst of overconfidence has been reduced substantially. The use of the term “patient” and dovish tone of the January Fed statement and Chairman Powell’s press conference gave markets more confidence that the Fed would not be on “autopilot”, but Fed policy risk remains (see figure 7). With earnings high and the economy at full The US economy and corporate earnings levels are high, not low and depressed. The employment the US return environment from the economic low point of 2009 has been extraordinary. US cannot offer another returns from 2019 onwards will not have the “bust-to-boom” gains to repeat once “bust to boom” decade. again - not until a new bust occurs. We therefore cannot assume a multi-year, uninterruptible bull market as we could early in a new economic expansion period (see figure 8).

Global Strategy: Quadrant  February 1, 2019 5

Figure 6: S&P 500 Price and EPS (Year-to-Year % Change) Figure 7: Private share of US treasury holdings vs Fed share Household Treasury Holdings as % of Financial Assets (Left) Fed Treasury Holdings as % of Total Outstanding (Right) 5% 20% 18% 4% 16% 14% 3% 12% 10% 2% 8% 6% 1% 4%

2% % of Treasuries Outstanding

% % of Household FinancialAssets 0% 0% '80 '85 '90 '95 '00 '05 '10 '15

Source: Thompson Reuters and Haver Analytics as of January 25, 2019. Source: Haver Analytics as of January 25, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. Figure 8: S&P 500 EPS vs Long Run Trend (Log Terms)

Source: Thompson Reuters and Haver Analytics as of January 25, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. After nine Fed rate hikes, US and certain EM credit yields are increasingly compelling, (see figure 9 and section below). Despite interest rate pressures driving down many long-term bond prices in 2018, fixed income protected diversified portfolios against larger and more widespread declines driven by equities. Global multi-asset benchmark portfolios lost 5.5% in 2018. The equities component lost 9.7%, with higher volatility, which we expect to persist (see figure 10).

Global Strategy: Quadrant  February 1, 2019 6

Figure 9: Short-term IG Corporate Bonds and Municipals Figure 10: S&P 500 Annual Sharpe Ratio

Sharpe Ratio Sharpe

Source: The YieldBook as of January 25, 2019. Source: Haver Analytics as of January 25, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.

Opportunistic Weighting vs Medium-Term Allocation As discussed in “The Missing Black Swan” even when half of the most extreme negative market events of the past century are embedded in results, investors who bought equities after a 20% drop significantly outperformed those who sold at this threshold (see figure 11). The 7% year-to-date rise in the S&P 500 suggests we are seeing the same in the present case. With equities falling late last year, weightings in Private Bank Multi Asset Class Portfolios drifted to underweight positions. To correct portfolios toward our modest overweight, equities were purchased during the past month. At the current juncture, we still see additional “bounce back” in equities ahead, partly to match the upward correction in credit markets (see figure 12). While highly unpredictable outcomes on the international relations and policy front remain, we see a more constructive growth and valuation environment even after the sharp rebound.

Figure 11: Equity Portfolio Total Returns Over 5 Years Figure 12: Bounce Back in Cyclical Assets Following 20% Market Declines

Source: Haver Analytics as of January 28, 2019. Source: Factset as of January 25, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. of any specific investment. Past performance is no guarantee of future results. Real results may vary. Real results may vary.

Global Strategy: Quadrant  February 1, 2019 7

Viewed through the timing lens of tactical allocations, the mix between equities and bonds always seems in a perpetual state of “too high” or “too low,” never just right. When equities have risen, hindsight would suggest investors should have had all the eggs in the stock market basket. When equities fall, none. Yet the value of having both is underrated while avoiding the impossible prospect of short-term market timing Despite the allure of is misunderstood. market timing, staying Earning the majority of the total return in equities over long horizons requires staying invested is necessary to invested to earn and reinvest growing dividends. Meanwhile, short-term gains and earn the majority of the losses are bunched closely together, confounding market timers (see figures 13-14.). total long-run returns. Most importantly, we believe, the highest risk-adjusted returns along with above average absolute returns are earned in diversified multi-asset class portfolios.

Figure 13 S&P 500 Returns With and Without Dividend Figure 14: Monthly S&P 500 Returns Reinvestment

Source: Haver Analytics as of February 1, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.

Figure 15: The Highest Earning Market Has Never Led for Two Decades in a Row

Source: Citi Private Bank, Bloomberg as of January 2019; See glossary for asset class definitions; Asset Allocation boxes use AVS Level 3 Strategic Weights. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only. Past performance is no guarantee of future results. Real results may vary. Diversification does not ensure a profit or protect against loss. Note: The risk-adjusted return is the Sharpe Ratio, which is calculated as the excess return over short-term treasuries divided by the standard deviation.

Global Strategy: Quadrant  February 1, 2019 8

Still, we believe investors should be much more confident in holding equity positions now than at this time last January, a time of overconfidence. However, as fixed income holdings protected investors in 2018, we expect the high risk/low risk “barbell” of equities and fixed income to continue proving valuable in the current setting. Beyond the “bounce” of many low quality, cyclical assets, we see much more enduring value in secular growth industries and “Asian development” opportunities - consistent with our Outlook 2019’s “Unstoppable Trends.” After some changes beneath the surface, our asset allocation has moved even further in the direction of reflecting these themes.

Tale of Three Regions: US, Asia, Europe Recent political and policy risks have risen to the point where the US economic Diverging regional expansion is actually threatened. The US-led trade war is hampering its domestic outlooks producers, with 50% of US manufacturing industry comments citing the negative impact of tariffs in the venerable Institute for Supply Management December 2018 report. Not just a mere risk, the trade war is spilling into the performance of US businesses operating in China. While Apple Inc. commented on January 3 that China’s slowing economy accounted for a dramatic plunge in its smartphone sales, the reported increases in smartphone sales from local Chinese competitors suggests the comments at least somewhat underplayed the two country’s relations (see figures 16-17).

Figure 16: S&P 500 Sector Revenue Exposure to China Figure 17: Smart phone sales change in China 3q/3q 2018

16% 14.5% Apple 14%

12% Xiaomi 10%

8% OPPO 6% 5.5% 4.6% % % of Revenues 4.3% 4.3% 4.0% 3.8% 3.8% 4% Huawei 2.0% 1.7% 2% 0.7% 0.0% 0% Vivo

-15% -10% -5% 0% 5% 10% 15% 20%

Source: Haver Analytics and Bloomberg as of January 29, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. This should not be construed as a recommendation of companies discussed. Asian assets reflected policy risks far earlier than did US ones in 2018. For China, economic difficulties and deeply negative sentiment are enough to encourage the Chinese policy leadership to make concessions. Moreover, a more balanced current account, more concessions may open industrial policy, more protection of intellectual property (IP) and lower trade eventually prove market barriers are consistent with its longer-term goals (see Asia Strategy: Step out of the positive. darkness). They are just happening more quickly. In addition to the payback for frontloaded exports, China’s domestic consumption is also under pressure due to tighter credit, particularly in autos. These are likely to offset the impact of stronger investment in 1Q 2019, which is when we expect the economy to find a bottom (see figure 18). Chinese authorities have stepped up policy easing since Dec 2018. The central bank Substantial new cut the reserve requirement broadly by 100bps in January, with more likely to come. monetary and fiscal Falling inflation may enable rate cuts as well. Additional local government bond easing is in place.

Global Strategy: Quadrant  February 1, 2019 9

issuance were authorized and expedited. Tax cuts have been implemented for households, while business tax cuts including the VAT, corporate income taxes and other fees are likely forthcoming in 1Q. Additional fiscal stimulus could amount to over CNY 1 trillion.

Figure 18: Although policy has begun to lift fixed investment, Figure 19: Autos accounted for the majority of the slowdown consumption and export weakness may take longer to reverse in China’s retail sales in 2018, while the rest grew at about 10% % Fixed Asset Investment % % Autos Retail Sales yoy % 30 50 60.0 25.0 Retail Sales Retail Sales ex-Autos 25 Export Growth (Right) 40 30 40.0 20.0 20 20 15 20.0 15.0 10 10 0 0.0 10.0 5 -10

0 -20 -20.0 5.0 10 12 14 16 18 09 10 11 12 13 14 15 16 17 18 19 Note: CPI data included China, Hong Kong, India, Indonesia, Korea, Malaysia, Note: Asian policy rates include China, HK, Taiwan, South Korea and Pakistan, Philippines, Singapore, Taiwan and Thailand. Source: Statistics Thailand. Source: Central banks for US and Asian countries, Haver Analytics, agencies of Asian countries, Haver Analytics, as of December 2018. as of December 2018

At the start of 2018, global investors have taken full positions in popular names in EM Asia, particularly in large Chinese internet stocks. These amounted to 4.1% at its peak in January 2018, up from 2.8% at the start of 2017. Now, half of that buildup has been unwound, and a recovery started at the end of 2018. From a broader perspective, China and other Asia ex-Japan equities remain under- represented in global benchmarks, and are likely to see rising allocations in benchmarks. Chinese equities amount to about 13% of global market cap, while they only account for 4% of global benchmark weight. MSCI is set to quadruple China’s onshore listed A-shares weight in its benchmark, which would be significant in terms of inflows. The rest of Asia ex-Japan is also under-represented, although not to the same extent. One remaining risk that could be under-rated is the chance the US issues a new Political Trade risks ultimatum deadline to China at the end of the period for an agreement to forestall remain a potential rising US tariffs on March 1. Both sides have encouraged speculation that a deal will “spoiler”. be reached. However, both the full scope of US demands and China’s willingness to agree are unknown. On February 17, the US will make an announcement regarding the national security risks posed by European auto imports. If US tariffs rise, the EU has promised to retaliate. Tariffs on steel and aluminum from most of the world’s exporters to the US remain in force despite trade accords with Canada and Mexico. Those accords have yet to be ratified by the US Congress. With Europe at both peak stimulus and peak growth rates, we eliminated our small overweight in the region. As discussed above, European trade sensitive firms could easily benefit from a US trade deal with China, some by more than from a trade deal with Europe itself. Germany’s innovative robotics firms and the future of electric vehicles from key manufacturers look promising. European pharmaceuticals trade at discounted valuations relative to US peers, even after absorbing greater regulatory costs, which are a forward-looking risk in the US.

Global Strategy: Quadrant  February 1, 2019 10

We do not expect political earthquakes in Europe. Still the constant tremors from each country and the general political disorder most on display in the UK argue for a less robust cyclical recovery in general. Over a long time horizon, dividends will likely generate the majority of returns for the region’s equities. In contrast, China’s tightening measures coming into 2018 just ahead of US tariffs set broader Asia up for an inordinately weak year for returns last year, far in excess of actual growth deterioration. We take advantage of this to raise broad regional weightings as China eases monetary and fiscal policy. Policy easing seems likely to continue even if a trade truce is reached with the US in roughly a months’ time.

Figure 20: Calendar of Key Events in 2019 Date Event Date Event Jan 29-30 FOMC Meeting Jun 06 ECB Meeting February Fed Chairman Powell Testifies to Congress Jun 18-19 FOMC Meeting Feb 07 BoE Meeting Jun 19-20 BoJ Meeting US Investigation into national security effect of imports Jun 28-29 G20 Meeting Feb 17 of autos is due July Fed Chairman Powell Testifies to Congress March Congress Potentially voting on USMCA Trade deal Jul 25 ECB Meeting Mar 02 Debt Ceiling Reinstated Jul 29-30 BOJ Meeting Mar 01 Review Meeting on US-China tariff war truce Jul 30-31 FOMC Meeting Mar 06 ECB and BoC Meeting Aug 01 BoE Meeting Mar 14-15 BOJ Meeting Aug 22-25 Jackson Hole Symposium Mar 19-20 FOMC Meeting Sep 09 ECB Meeting Mar 21 BoE Meeting Sep 11-12 Belt and Rod Summit Mar 29 Official Brexit Date Sep 17-18 FOMC Meeting April Potential start of trade deal negotiation with UK Sep 19-20 BoJ Meeting Likely April Bo'ao Forum in Asia Sep 19 BoE Meeting US Treasury FX Report (includes follow up on China October Japanese Consumption Tax Hike April as a currency manipulator) Oct 24 ECB Meeting April Start of trade negotiation between EU and UK. Oct 29-30 FOMC Meeting Second Belt and Road Forum for International Oct 30-31 BoJ Meeting April Cooperation Oct 31 Draghi's term ends as ECB President Apr 10 ECB Meeting Nov 07 BoE Meeting Apr 20-22 IMF Meeting in Washington DC Nov 30 Tusk's term as European Council President Expires Apr 24-25 BOJ Meeting Dec 10-11 FOMC Meeting Apr 30 - May 1 FOMC Meeting Dec 18-19 ECB Meeting Apr-May Indian General Election Dec 19 BoJ and BoE Meeting Tariffs on the remaing $267b of Chinese imports could Early May go into effect. May 02 BoE meeting May 18 Deadline to act on February autos tariff report May 23-26 EU Parliament Elections Source: Bloomberg as of January 29, 2019.

Attention value shoppers Over the last few years, identifying value in global fixed income markets had been a Kris Xippolitos Head – Fixed Income relative discussion. To be sure, quantitative easing by major developed central banks Strategy had done an excellent job keeping absolute yields low and credit spreads below historical averages. While periodic events had helped fuel moments of high volatility Joseph Kaplan Fixed Income Strategy and risk aversion, the affirmation of supportive financial and economic fundamentals ultimately proved that cheaper valuations were indeed an opportunity. Today, this market dynamic is being challenged. The Federal Reserve has been tightening policy since 2015, while also reducing the size of their balance sheet. Along with a flatter US Treasury curve, markets have questioned how much longer the US economic expansion has left. The European Central Bank has also ended their bond purchase program, while growth is slowing and inflation is falling. Of course, trade wars and political instability are also adding to investor uncertainties.

Global Strategy: Quadrant  February 1, 2019 11

In our view, today’s market should encourage investors to consider greater portfolio diversification. Incorporating global opportunities, with varying degrees of duration exposure, appears to be the most prudent strategy in an uncertain world. Here are our favorite values in global fixed income today, along with those we prefer to ignore. Best Values – US investment grade (IG) corporates For a brief moment in late December, US IG corporate spreads widened to their highest levels since June 2016. This rise culminated with a 70bp move that began in early 2018, and left valuations looking much cheaper. Markets have since adjusted, as IG corporate benchmark spreads have moved back in-line with their long-term average of 130bp. However, index yields remain elevated at 4.1%, near their highest levels in eight years (see figures 21 and 22). Figure 21: US IG corporate spreads closer to fair value Figure 22: US IG corporate bond yield at multi-year high

Source: Bloomberg Barclays Indices as of January 29, 2019. Source: Bloomberg Barclays Indices as of January 29, 2019. While “fair value” in spreads may not seem like an overly impressive opportunity, it is still vastly different from the 80bp index spread level of one year ago. Yes, rising corporate leverage has been notable over the last several years, though we have begun to see signs of stability. Indeed, IG companies are issuing less debt and the ferocity of debt funded share buybacks has declined.

Worth watching, is the growth in lower-rated IG bonds, where BBB-rated debt now makes up 50% of the entire IG corporate universe. However, many of these issuers are either well-capitalized (banking), have greatly de-levered (energy), or considered defensive by nature (consumer staples, communications, healthcare). While concerns over the direction of the US economy should not be minimized, the risks to IG performance appears skewed to the upside, in our view. Especially upon a resolution on US/China trade issues and a potentially slower Federal Reserve. Currently, the Global Investment Committee has an over-weight in both short-term and intermediate-term maturities (1-10 years). Best Values – Short-term US Treasury debt Similar to US IG corporates, the US Treasury market also offers attractive value at the short-end of the yield curve. Despite declining expectations of future Fed tightening, 2- year Treasury bonds offer some of the highest sovereign yields in the developed world. Even at 2.45%, 2-year US yields are higher than nearly every other developed market 10-year bond (see figure 23).

Global Strategy: Quadrant  February 1, 2019 12

Figure 23: 2yr US Treasury yields above long-duration international peers

Source: Bloomberg as of January 29, 2019. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. For illustrative purposes only. Past performance is no guarantee of future results. Real results may vary. Of course, shorter-dated bonds come with much less interest rate risk. If a pause in Fed tightening allows the US economic recovery to extend even further, this could pressure longer-term yields higher. Short-rates may rise also, but the lower sensitivity to rising rates would keep prices relatively stable. Best Values – Emerging markets (US dollar denominated) After a weak 2018, emerging market debt has started the New Year off fast. Spreads have moved sharply tighter, with global benchmarks tightening 60bp over the last month. In turn, external USD sovereign bond markets have already gained 3.6% this year, led by Latin America (+4.8%). While this may not characterize a market that offers much value, we point out that index spreads widened more than 150bp since the tights in February 2018. Even when considering the recently rally, the average spread of the JP Morgan Emerging Sovereign Bond Index (ESBI) is 380bp, which is still 25bp wider than its long-term average. More notable, global EM spreads are wider than similarly rated US high yield bonds by nearly 100bp (see figure 24).

Figure 24: 2yr US Treasury yields above long-duration international peers

Source: Bloomberg Barclays Indices, JPM as of January 29, 2019.

Global Strategy: Quadrant  February 1, 2019 13

While trade war uncertainties can negatively affect investor risk sentiment, we remain constructive on the overall EM growth outlook. Moreover, a dovish US Federal Reserve can also be supportive for EM appetites. However, oil and political volatility are still important risks and requires a selective approach. We are currently overweight Latin America and Asia, while underweight Eastern Europe and Africa. Best Values – Securitized debt Fixed income securities backed by underlying loans comes in many shapes and sizes. The largest – and better-known – securitized market consists of US agency mortgage- backed securities (MBS), which are bonds backed by home mortgage loans and guaranteed by US government sponsored enterprises (GSE). These securities are highly rated (AA+) and tend to have a high correlation to US Treasury markets. However, there are many types of securitized assets that offer various investment opportunities. Non-agency MBS (securities also backed by residential mortgages, though issued by financial institutions and not guaranteed by a GSE) and asset- backed securities (ABS) offer varying degrees of risk, higher yields and lower correlations to more traditional bond and equity markets. In particular, high quality consumer ABS offers compelling yields when compared to similar duration IG corporate bonds (see figure 25). Backed by consumer-related collateral (i.e., auto loans, credit card receivables), these types of assets tend to exude safe-haven attributes and have historically provided attractive risk-adjusted returns (see figure 26). More importantly, the US consumer has been deleveraging since the Global Financial Crisis, unlike the private sector, where corporate leverage has been rising. As we stress portfolio diversification, ABS is becoming an asset class that we think checks all the boxes, good yield, high quality, low correlation.

Figure 25: Yields across securitized and credit markets Figure 26: Sharpe ratios across asset classes

Source: Bloomberg as of January 29, 2019. Source: Bloomberg Barclays Indices as of January 29, 2019.

Least Value – European sovereigns The average Eurozone (EZ) sovereign bond yield is 0.8%. Excluding the periphery countries, the average yield drops down to 0.45%. With the European Central Bank (ECB) maintaining negative deposit rates since 2014, and not likely to hike rates until 2020, one-third of all outstanding EZ bonds still yield less than zero (see figure 27). We maintain steep underweights in EZ bond markets.

Global Strategy: Quadrant  February 1, 2019 14

Figure 27: Markets not pricing in rate hikes until 2020

Source: Bloomberg as of January 29, 2019.

Most fixed income investors tend to prioritize income generation when constructing bond portfolios. That said we tend to favor opportunities in US bond markets where yields are meaningfully higher, and with much shorter durations. Although total return buyers can still generate positive performance if low yields move lower, the risk is greater. With absolute EZ yields already so low, even subtle moves higher can have a significant impact on total returns, as there is much less cash flow to help offset any decline in price. Currency hedges can certainly boost the value proposition for lower yielding EZ debt, though we find these opportunities more attractive in euro credit markets and through active strategies.

The message from cyclicals vs. defensives Wietse Nijenhuis Cyclical sectors propelled the most recent leg of the ten-year long global equity bull Head - Equity Strategy market, outperforming defensives by 39% in total return terms between July 2016 and

Joseph Fiorica February 2018, before trade fears and signs of moderating global economic growth Global Investment facilitated a rotation towards more defensive sectors. Broad-based cyclicals Strategy outperformance came to a halt around in the first half of 2018 as trade tensions escalated, leading us to down downgrade cyclicals versus defensives to neutral from outperform in the July edition of our Equity Market Monthly (see Trade Tensions Escalate, But Are Markets Underpricing Risks?). Since then, the global economy has continued to slow. Chinese data in particular, but also European and US economic indicators have softened. Our 30 country composite PMI indicator now stands at close to 52, having peaked around 55 at the end of 2017. While the direction for global macro data has been down, we expect it to stabilize in the months ahead. This matters for cyclicals and defensives, whose performance maps quite well against broad macro trends. Investor capitulation during December – which saw sentiment surveys such as the AAII (American Association of Individual Investors) and the S&P 500 put/call ratio reach extremes – suggested a narrative of further economic malaise ahead. However, this view is inconsistent with cyclicals recent outperformance. Figure 28 shows the nascent rotation back toward cyclical sectors at the expensive of defensives; either a more severe global downturn is imminent, or investors became too bearish too quickly in Q4. We believe the latter is more likely. Indeed, the greatest positive earnings surprises so far in the ongoing fourth quarter reporting season in the US have been in the

Global Strategy: Quadrant  February 1, 2019 15 industrials sector, arguably the best proxy for economic growth. Aerospace and defense and select airlines in particular reporting better-than expected numbers. Figure 28: Cyclicals vs. Defensives: the rotation back towards cyclicals recently suggests global growth concerns were overdone

Source: Refinitiv as of January 30, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. Regionally, EM outperformance is sending the same message With a long-term beta to global equities of 1.25, the recent outperformance of emerging markets supports the recovery in cyclical sectors discussed above. Since September 2018 EM equities have outperformed, behaving uncharacteristically defensive during fourth quarter 2018 global market turbulence. EM equities were already down 19% from their January 2018 highs by the time the global market rout kicked off early October, making incremental sellers of the asset class hard to find, even amid widespread investor panic. By the time US equities had slumped almost 20%, EM equities were down “just” 8% and have now recovered all of Q4’s losses (see figure 29). EM equity weakness last year was concentrated in Asia and the technology sector. Asia was responsible for three quarters of the overall 14% negative return for the asset class last year, while by sector technology and consumer discretionary were the biggest drags. From our point of view, the countries and sectors which detracted the most from performance last year are precisely the areas we believe long-term investors should seek to build exposure to, with current weakness offering a great opportunity. Under-ownership of the asset class (as exhibited by EM’s uncharacteristic defensiveness in fourth quarter 18) only compliments the story further. In terms of weightings, equity investors should allocate 12% of their global equity portfolio to EM just to be neutral. The reality is that global funds currently allocate only around half of that to the asset class, while many others are likely to be even more underweight (see figure 30). In fact, global equity funds have never been more underweight relative to benchmark in sixteen years’ worth of data.

Global Strategy: Quadrant  February 1, 2019 16

Figure 29: EM bulls were extinct by the time Q4 sell-off Figure 30: Global Funds Are Heavily Underweight EM started

Source: Refinitiv as of January 30, 2019. Source: Refinitiv as of February 1, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. of any specific investment. Past performance is no guarantee of future results. Real results may vary. Real results may vary. We think this is a mistake and caution against underweighting EM equities, where we believe some of the best long-term equity returns will be generated. Cheap valuations and fund flows returning to the asset class should encourage investors with shorter investment horizons, as should the fact that earnings and share prices have disconnected (see figure31). For investors taking a longer view, around half of global GDP (and growing) comes from those EM countries that account for just 12% of the global equity benchmark. By contrast, the US’ share of global GDP is 15% vs. a 55% weight in equity indices (on a purchasing power parity weighted basis). The two-year period between early 1999 and 2001 saw EM equities form a double bottom relative to DM equities (see figure 32). We may be witnessing the same pattern in recent years, possibly setting the stage for an extended period of superior performance relative to developed market equities.

Figure 32: Performance has disconnected from earnings Figure 31: EM equities may have bottomed relative to DM EM

Source: Refinitiv as of January 30, 2019. Source: Refinitiv as of January 30, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. of any specific investment. Past performance is no guarantee of future results. Real results may vary. Real results may vary.

Global Strategy: Quadrant  February 1, 2019 17

Aligning DM allocations to a bullish EM view Given our expectations for a stabilization in China and broader EM, we see opportunities in companies which generate a large portion of their revenues from China. As we illustrate in figure 33 below, US shares that generate at least 10% of their sales from mainland China fell alongside Chinese equities throughout much of the second half of 2018, and have seen a sharp recovery so far in 2019. Chinese shares on the other hand have lagged China-exposed US names. We think both investments present an attractive entry-point from both a valuation and fundamental standpoint. The world’s two largest economies are both economically and financially intertwined. The China-exposed US names we isolate comprise nearly 20% of the S&P 500 by market cap and include some of the world’s largest and most profitable firms. US multinationals, whose supply chains travel through China stand to benefit from a potential de-escalation of trade tensions and resurgence of fiscal and monetary stimulus orchestrated by the Chinese government. Indeed, financial performance reflects these close economic ties. Over the last year, the correlation of weekly returns in the MSCI USA and China indices has been 0.68, up from 0.13 in mid-2017. Given that one of the greatest sources of uncertainty for the global economy remains the US-driven trade war, resolution of this conflict would likely mean continued correlation between the US and Chinese assets going forward. Considering all of these factors, the GIC raised its allocations to US large caps to a modest overweight alongside its upgrade to EM equities this week.

Figure 33: A bottom in China exposed shares is likely behind Figure 34: Mainland China is the single largest source of us S&P 500 foreign revenue

Global Strategy: Quadrant  February 1, 2019 18

Charles Reinhard When the Fed Pauses Head - North America Investment Strategy

Joseph Fiorica A few weeks ago, financial markets were staring in the face of three major US Global Investment headwinds: Strategy

1. US government partial shutdown 2. Fed balance sheet normalization thought to be on “autopilot” 3. US-China trade impasse Progress has since transpired on two of these three fronts. First, the federal government has reopened through at least mid-February. Second, Fed Chairman Powell has clarified the US central bank’s patience on raising rates along with its flexibility on reducing the size of its balance sheet. It now looks as though the Fed will refrain from raising rates until its June meeting. Importantly, if correct this pause will occur alongside a positively sloped yield curve. By contrast, recessions have historically occurred after Fed tightening led to an inverted yield curve (see figure 35). In the few instances when the Fed stopped tightening for at least six months before inverting or coming close to inverting the yield curve, US equities and credit produced handsome returns over the next year (see figure 36). A Fed pause could push back the date of the next recession.

Figure 35: US Treasury Yield Curve and Periods of Figure 36: Markets Cheer When the Fed Pauses Before Recession Inverting the Curve

Source: Haver Analytics as of January 29, 2019. Source: Haver Analytics as of January 29, 2019. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. What about the third headwind? The US and China are currently engaged in trade discussions with the hope of reaching an agreement by a March 2 deadline to avoid new tariffs. The two countries placed tariffs on $250 billion in goods last year before agreeing to de-escalate tensions and work towards ironing out a deal. We will be watching the upcoming developments closely, with the view that markets will react to the tone and optics of the talks as well to their substance. Stay tuned!

Global Strategy: Quadrant  February 1, 2019 19

Portfolio allocations

This section shows the strategic and tactical asset allocations. The Quant Research & Global Asset Allocation (QRGAA) team creates strategic asset allocations using the CPB Adaptive Valuations Strategy (AVS) methodology on an annual basis. Global Investment Committee (GIC) provides underweight and overweight decisions to AVS’s Global USD without Hedge Funds Risk Level 3 portfolio. QRGAA then creates tactical allocations for risk levels 1,2,4 and 5. These are included below. Also included below are Global USD with Hedge Funds and 10% illiquids PE & RE (Private Equity and Real Estate) for risk levels 2,3,4 and 5. The below strategic/tactical allocations are reflective of the January 31, 2019 GIC meeting. Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 2 Risk Level 2 is designed for investors who emphasize capital preservation over return on investment, but who are willing to subject some portion of their principal to increased risk in order to generate a potentially greater rate of return on investment

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 4.0 2.7 -1.3 Equities 9.8 11.1 1.3 Fixed Income 68.4 68.4 0.0 Developed Equities 7.8 8.8 0.9 Developed Developed Large Cap Equities 6.7 7.5 0.9 61.8 60.4 -1.4 Investment Grade Americas 4.4 5.0 0.5 Developed National, US All 4.2 4.7 0.5 Supranational and Regional 46.0 42.1 -3.9 Canada 0.2 0.3 0.0 Americas 18.1 21.9 3.8 EMEA 1.4 1.6 0.2 EMEA 18.9 14.5 -4.4 UK 0.4 0.5 0.0 UK 3.3 2.7 -0.6 Germany 0.2 0.2 0.0 Core Europe 8.8 6.9 -1.9 France 0.2 0.3 0.0 Peripheral Europe 6.2 4.5 -1.7 Switzerland 0.2 0.2 0.0 Others 0.6 0.4 -0.1 Benelux 0.1 0.1 0.0 Asia 9.0 5.7 -3.3 Scandi 0.1 0.1 0.0 Asia (ex Japan) 0.3 0.3 0.0 Spain 0.1 0.1 0.0 Japan 8.7 5.4 -3.4 Italy 0.0 0.1 0.0 Supranational 0.0 0.0 0.0 Others 0.0 0.0 0.0 Developed Corporate Asia 0.9 1.0 0.1 15.7 18.3 2.6 Investment Grade Australasia 0.2 0.2 0.0 Americas 10.4 13.6 3.2 Far East ex Japan 0.1 0.2 0.1 US 9.7 12.9 3.2 Japan 0.6 0.7 0.1 Developed Small/ Canada 0.7 0.7 0.0 Mid Cap Equities 1.1 1.2 0.1 EMEA 5.3 4.7 -0.6 Americas 0.6 0.7 0.0 Europe (ex UK) 4.4 4.0 -0.4 EMEA 0.3 0.3 0.0 UK 0.9 0.7 -0.2 Europe (ex UK) 0.2 0.3 0.0 Asia 0.1 0.1 0.0 UK 0.1 0.1 0.0 Developed High Yield 2.0 2.0 0.0 Asia 0.2 0.2 0.0 Americas 1.6 1.6 0.0 Asia (ex Japan) 0.0 0.0 0.0 EMEA 0.4 0.4 0.0 Japan 0.1 0.1 0.0 Emerging Market Debt 4.7 6.0 1.4 Emerging All Cap Equities 2.0 2.4 0.4 Americas Americas 1.5 2.2 0.7 0.2 0.3 0.1 Brazil 0.1 0.2 0.0 EMEA 2.4 2.2 -0.2 Mexico 0.0 0.0 0.0 Asia 0.7 1.6 0.9 Other 0.0 0.1 0.0 Hybrid Investments 7.8 7.8 0.0 EMEA 0.2 0.1 -0.1 Hedge Funds 7.8 7.8 0.0 Turkey 0.0 0.0 0.0 Real Assets 0.0 0.0 0.0 Russia and Eastern Europe 0.1 0.1 0.0 Commodities 0.0 0.0 0.0 South Africa 0.1 0.1 0.0 Private Equity 5.0 5.0 0.0 Other 0.0 0.0 0.0 Real Estate 5.0 5.0 0.0 Asia 1.6 2.0 0.4 China 0.8 1.0 0.2 India 0.2 0.2 0.0 South Korea 0.2 0.3 0.1 Taiwan 0.2 0.2 0.1 Other Emerging Asia 0.2 0.2 0.1 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 20

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 2 - Tactical Allocations

Global Equities Cash (-1.3%) 2.7% Real Estate (0.0%) Global Fixed Income 5.0%

Commodities (0.0%) Hedge Funds 0.0% Private Equity (0.0%) 5.0%

Commodities Hedge funds (0.0%) 7.8%

Private Equity Emerging all cap equities

Real Estate (0.4%) 2.4% Developed national, supranational and Cash Developed small/mid cap regional (-3.9%)

equities (0.1%) 42.1% 1.2% Developed large cap equities (0.9%) 7.5%

Emerging market debt (1.4%) 6.0% Developed high yield (0.0%) Developed corporate 2.0% investment grade (2.6%) 18.3%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +1.3%, global fixed income has a neutral position with cash underweight at -1.3%.

Within fixed income, developed government debt remains the largest underweight at -3.9%, with US government debt at an overweight position. Developed corporate investment grade fixed income has an overweight at +2.6% driven by overweight in US corporate investment grade fixed income.

Emerging market debt has an overweight position of +1.4% with both Asia and LatAm debt at overweight positions.

Within equities, developed large cap equities have an overweight of +0.9% driven by overweight in US large cap equities; emerging market equities have an overweight of 0.4% with both Asia and LatAm equities at overweight positions.

Private Equity and Real Estate are both neutral, each with 5% allocation.

Global Strategy: Quadrant  February 1, 2019 21

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 3

Risk Level 3 is designed for investors with a blended objective who require a mix of assets and seek a balance between investments that offer income and those positioned for a potentially higher return on investment. Risk Level 3 may be appropriate for investors willing to subject their portfolio to additional risk for potential growth in addition to a level of income reflective of his/her stated risk tolerance.

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 2.0 0.0 -2.0 Equities 37.9 39.9 2.0 Fixed Income 38.3 38.3 0.0 Developed Equities 33.2 34.3 1.1 Developed Developed Large Cap Equities 28.4 29.7 1.2 Investment Grade 33.8 32.6 -1.1 Americas 18.9 19.5 0.6 Developed National, US All 17.9 18.5 0.6 Supranational and Regional 25.2 22.0 -3.2 Canada 1.0 1.0 0.0 Americas 9.9 12.8 2.9 EMEA 5.8 6.1 0.3 UK 1.7 1.8 0.0 EMEA 10.3 6.9 -3.5 Germany 0.8 0.9 0.1 UK 1.8 1.3 -0.5 France 1.0 1.0 0.0 Core Europe 4.8 3.3 -1.5 Switzerland 0.9 1.0 0.1 Peripheral Europe 3.4 2.1 -1.3 Benelux 0.4 0.4 0.0 Others 0.3 0.2 -0.1 Scandi 0.5 0.5 0.0 Asia 4.9 2.3 -2.6 Spain 0.3 0.3 0.0 Asia (ex Japan) 0.2 0.2 0.0 Italy 0.2 0.2 0.0 Japan 4.8 2.1 -2.6 Others 0.1 0.1 0.0 Supranational 0.0 0.0 0.0 Asia 3.7 4.0 0.3 Developed Corporate Australasia 0.7 0.7 0.0 Investment Grade 8.6 10.7 2.1 Far East ex Japan 0.5 0.7 0.3 Japan Americas 5.7 8.4 2.7 2.5 2.6 0.0 Developed Small/ US 4.8 4.6 -0.2 5.3 8.0 2.7 Mid Cap Equities Canada 0.4 0.4 0.0 Americas 2.7 2.5 -0.2 EMEA 2.9 2.3 -0.6 EMEA 1.3 1.4 0.0 Europe (ex UK) 2.4 2.0 -0.4 Europe (ex UK) 1.0 1.0 0.0 UK 0.5 0.3 -0.2 UK 0.3 0.3 0.0 Asia 0.0 0.0 0.0 Asia 0.7 0.7 0.0 Asia (ex Japan) Developed High Yield 2.0 2.0 0.0 0.2 0.2 0.0 Japan 0.6 0.6 0.0 Americas 1.6 1.6 0.0 Emerging All Cap Equities 4.6 5.6 0.9 EMEA 0.4 0.4 0.0 Americas 0.5 0.8 0.3 Emerging Market Debt 2.5 3.6 1.1 Brazil 0.3 0.4 0.1 Americas 0.8 1.4 0.6 Mexico 0.1 0.1 0.0 EMEA 1.3 1.1 -0.2 Other 0.1 0.2 0.1 Asia 0.4 1.2 0.8 EMEA 0.5 0.1 -0.4 Hybrid Investments 11.8 11.8 0.0 Turkey 0.0 0.0 0.0 Hedge Funds 11.8 11.8 0.0 Russia and Eastern Europe 0.2 0.1 -0.2 Real Assets 0.0 0.0 0.0 South Africa 0.2 0.1 -0.1 Other 0.0 0.0 0.0 Commodities 0.0 0.0 0.0 Asia 3.7 4.7 1.0 Private Equity 5.0 5.0 0.0 China 1.9 2.3 0.3 Real Estate 5.0 5.0 0.0 India 0.4 0.5 0.0 South Korea 0.5 0.8 0.3 Taiwan 0.4 0.6 0.2 Other Emerging Asia 0.4 0.6 0.2 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 22

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 3 - Tactical Allocations

Global Equities Cash (-2.0%) 0.0% Real Estate (0.0%) Global Fixed Income 5.0%

Developed national, Commodities (0.0%) Hedge Funds 0.0% Private Equity (0.0%) supranational and 5.0% regional (-3.2%) 22.0% Commodities

Hedge funds (0.0%) Private Equity 11.8%

Real Estate

Cash Emerging all cap equities (0.9%) Developed corporate 5.6% investment grade (2.1%) 10.7% Developed small/mid cap equities (-0.2%) 4.6% Developed high yield

Emerging market debt (0.0%) (1.1%) 2.0% Developed large cap 3.6%

equities (1.2%) 29.7%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +2.0%, global fixed income has a neutral position with cash underweight at -2.0%.

Within fixed income, developed government debt remains the largest underweight at -3.2%, with US government debt at an overweight position. Developed corporate investment grade fixed income has an overweight position of +2.1% driven by overweight in US corporate investment grade fixed income.

Emerging market debt has an overweight position of +1.1% with both Asia and LatAm debt at overweight positions.

Within equities, developed large cap equities have an overweight of +1.2% while developed small/mid cap equities have an underweight of -0.2%; emerging market equities have an overweight position of +0.9% with both Asia and LatAm equities at an overweight positions.

Private Equity and Real Estate are both neutral, each with 5% allocation.

Global Strategy: Quadrant  February 1, 2019 23

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 4

Risk Level 4 is designed for investors with a blended objective who require a mix of assets and seek a balance between investments that offer income and those positioned for a potentially higher return on investment. They are willing to subject a large portion of their portfolio to greater risk and market value fluctuations in anticipation of a potentially greater return on investment. Investors may have a preference for investments or trading strategies that may assume higher-than-normal market risks and/or potentially less liquidity with the goal (but not guarantee) of commensurate gains.

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 2.0 0.0 -2.0 Equities 55.3 57.3 2.0 Fixed Income 18.7 18.7 0.0 Developed Equities 48.3 49.0 0.7 Developed Developed Large Cap Equities 41.3 42.4 1.1 Investment Grade 16.7 16.1 -0.6 Americas 27.4 27.8 0.4 Developed National, US All 25.9 26.3 0.4 Supranational and Regional 12.4 10.7 -1.7 Canada 1.5 1.5 0.0 Americas 4.9 6.4 1.5 EMEA 8.5 8.8 0.3 UK 2.5 2.5 0.0 EMEA 5.1 3.3 -1.8 Germany 1.1 1.3 0.2 UK 0.9 0.6 -0.3 France 1.4 1.4 0.0 Core Europe 2.4 1.6 -0.8 Switzerland 1.3 1.4 0.1 Peripheral Europe 1.7 1.0 -0.7 Benelux 0.6 0.6 0.0 Others 0.2 0.1 -0.1 Scandi 0.8 0.8 0.0 Asia 2.4 1.0 -1.4 Spain 0.4 0.4 0.0 Asia (ex Japan) 0.1 0.1 0.0 Italy 0.3 0.3 0.0 Japan 2.4 0.9 -1.4 Others 0.1 0.1 0.0 Supranational 0.0 0.0 0.0 Asia 5.4 5.8 0.4 Developed Corporate Australasia 1.0 1.0 0.0 Investment Grade 4.3 5.4 1.1 Far East ex Japan 0.7 1.1 0.4 Japan Americas 2.8 4.3 1.4 3.7 3.7 0.0 Developed Small/ US 2.6 4.1 1.5 Mid Cap Equities 7.0 6.6 -0.4 Canada 0.2 0.2 0.0 Americas 4.0 3.6 -0.4 EMEA 1.4 1.1 -0.3 EMEA 1.9 1.9 0.0 Europe (ex UK) 1.2 1.0 -0.2 Europe (ex UK) 1.5 1.5 0.0 UK 0.2 0.1 -0.1 UK 0.5 0.5 0.0 Asia 0.0 0.0 0.0 Asia 1.1 1.1 0.0 Developed High Yield 0.0 0.0 0.0 Asia (ex Japan) 0.3 0.3 0.0 Japan 0.8 0.8 0.0 Americas 0.0 0.0 0.0 Emerging All Cap Equities 7.1 8.4 1.3 EMEA 0.0 0.0 0.0 Americas 0.7 1.1 0.4 Emerging Market Debt 2.0 2.6 0.6 Brazil 0.5 0.7 0.2 Americas 0.6 1.0 0.4 Mexico 0.2 0.2 0.0 EMEA 1.0 0.7 -0.3 Other 0.1 0.3 0.2 Asia 0.3 0.9 0.5 EMEA 0.8 0.2 -0.5 Hybrid Investments 14.0 14.0 0.0 Turkey 0.0 0.0 0.0 Hedge Funds 14.0 14.0 0.0 Russia and Eastern Europe 0.4 0.1 -0.3 Real Assets 0.0 0.0 0.0 South Africa 0.3 0.1 -0.2 Other 0.0 0.0 0.0 Commodities 0.0 0.0 0.0 Asia 5.6 7.0 1.5 Private Equity 5.0 5.0 0.0 China 2.9 3.4 0.5 Real Estate 5.0 5.0 0.0 India 0.7 0.7 0.0 South Korea 0.8 1.2 0.4 Taiwan 0.6 0.9 0.3 Other Emerging Asia 0.6 0.8 0.3 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 24

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 4 - Tactical Allocations

Cash (-2.0%) 0.0% Global Equities Real Estate (0.0%) Developed national, Private Equity (0.0%) 5.0% supranational and

Global Fixed Income 5.0% regional (-1.7%) 10.7% Commodities (0.0%)

Hedge Funds 0.0%

Developed corporate investment grade (1.1%)

Commodities 5.4% Hedge funds (0.0%) 14.0% Developed high yield Private Equity (0.0%) 0.0%

Real Estate Emerging market debt (0.6%) Cash Emerging all cap equities 2.6% (1.3%)

8.4%

Developed small/mid cap equities (-0.4%) Developed large cap 6.6% equities (1.1%) 42.4%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +2.0%, global fixed income has a neutral position with cash underweight at -2.0%.

Within fixed income, developed government debt has an underweight of -1.7% with US government debt in overweight position; developed corporate investment grade fixed income has an overweight of +1.1% driven by US corprate investment grade fixed income.

EM fixed income has a small overweight position of 0.6% with both Asia and LatAm debt in overweight positions.

Within equities, developed large cap equities equities have an overweight position of +1.1% while developed small/mid cap equities have an underweight of -0.4%.

Emerging equities have an overweight position of +1.3% with both Asia and LatAm equities at overweight positions.

Private Equity and Real Estate are both neutral, each with 5% allocation.

Global Strategy: Quadrant  February 1, 2019 25

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 5

Risk Level 5 is designed for investors who emphasize return on investment. They are willing to subject their entire portfolio to greater risk and market value fluctuations in anticipation of a potentially greater return on investments. Investors may have a preference for investments or trading strategies that may assume higher than-normal market risks and/or potentially less liquidity with the goal (but not guarantee) of commensurate gains. Clients may engage in tactical or opportunistic trading, which may involve higher volatility and variability of returns.

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 0.70.0 0.0 0.0 Asia 7.2 7.5 0.3 Fixed income 0.0 0.0 0.0 Australasia 1.4 1.3 -0.1 Developed Investment Far East ex Japan 0.9 1.4 0.5 Grade 0.0 0.0 0.0 Japan 4.9 4.7 -0.2 Developed national, supranational and regional 0.0 0.0 0.0 Developed Small/Mid Cap Equities 9.3 8.4 -0.9 Developed Corporate Investment Grade 0.0 0.0 0.0 Americas 5.3 4.6 -0.7 Americas 0.0 0.0 0.0 EMEA 2.6 2.5 -0.1 EMEA 0.0 0.0 0.0 Europe (ex UK) 2.0 1.9 -0.1 Europe (ex UK) 0.0 0.0 0.0 UK 0.6 0.6 0.0 UK 0.0 0.0 0.0 Asia 1.4 1.4 -0.1 Asia 0.0 0.0 0.0 Asia (ex Japan) 0.3 0.3 0.0 Asia (ex Japan) 0.0 0.0 0.0 Japan 1.1 1.0 0.0 Japan 0.0 0.0 0.0 Emerging all Cap Equities 9.5 10.9 1.5 Developed high yield 0.0 0.0 0.0 Americas 1.0 1.5 0.5 Americas 0.0 0.0 0.0 Brazil 0.6 0.9 0.2 EMEA 0.0 0.0 0.0 Mexico Asia 0.0 0.0 0.0 0.2 0.2 0.0 Emerging market debt 0.0 0.0 0.0 Other 0.2 0.4 0.2 Americas 0.0 0.0 0.0 EMEA 1.0 0.3 -0.7 EMEA 0.0 0.0 0.0 Turkey 0.1 0.0 -0.1 Asia 0.0 0.0 0.0 Russia and Eastern Europe 0.5 0.1 -0.4 Equities 74.0 74.0 0.0 South Africa 0.4 0.1 -0.3 Global Developed Equities 64.5 63.1 -1.5 Other 0.0 0.0 0.0 Developed Large Cap Asia 7.5 9.2 1.7 Equities 55.2 54.6 -0.6 China 3.9 4.4 0.5 Americas 36.6 35.8 -0.8 India US All 34.7 33.9 -0.8 0.9 0.9 0.0 Canada 2.0 1.9 -0.1 South Korea 1.1 1.5 0.5 EMEA 11.3 11.3 0.0 Taiwan 0.9 1.2 0.4 UK 3.4 3.3 -0.1 Other Emerging Asia 0.7 1.1 0.4 Germany 1.5 1.7 0.2 Hybrid Investments 16.0 16.0 0.0 France 1.9 1.8 -0.1 Hedge Funds 16.0 16.0 0.0 Switzerland 1.7 1.8 0.1 Real Assets Benelux 0.8 0.0 0.0 0.0 0.0 Scandi 1.0 1.0 0.0 Commodities 0.0 0.0 0.0 Spain 0.5 0.5 0.0 Gold 0.0 0.0 0.0 Italy 0.4 0.4 0.0 Private Equity 5.0 5.0 0.0 Others 0.2 0.2 0.0 Real Estate 5.0 5.0 0.0 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 26

Global USD with Hedge Funds and 10% illiquids (PE & RE): Risk Level 5 - Tactical Allocations

Developed national, Global Equities Cash (0.0%) supranational and 0.0% Developed corporate regional (0.0%) Global Fixed Income Real Estate (0.0%) 0.0% investment grade (0.0%) 5.0% 0.0%

Hedge Funds Private Equity (0.0%) 5.0%

Commodities Commodities (0.0%) 0.0%

Private Equity

Real Estate Hedge funds (0.0%) 16.0% Cash

Developed large cap equities (-0.6%) 54.6% Emerging all cap equities (1.5%) 10.9%

Developed small/mid cap equities (-0.9%) 8.4%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities, global fixed income and cash are all at neutral position.

Within global equities, developed equities have an underweight position of -1.5% with both large cap and small/mid cap equities underweight; emerging market equities have an overweight position of +1.5% with both Asia and LatAm equities at overweight positions.

With global fixed income, all positions are neutral.

Private Equity and Real Estate are both neutral, each with 5% allocation.

Global Strategy: Quadrant  February 1, 2019 27

Global USD without Hedge Funds: Risk Level 1

Risk Level 1 is designed for investors who have a preference for capital preservation and relative safety over the potential for a return on investment. These investors prefer to hold cash, time deposits and/or lower risk fixed income instruments.

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 6.0 5.2 -0.8 Developed High Yield 6.6 6.6 0.0 Fixed Income 94.0 94.0 0.0 Developed Americas 5.1 5.1 0.0 Investment Grade 80.8 79.7 -1.1 1.5 1.5 0.0 Developed National, EMEA Supranational and Regional 60.2 57.1 -3.1 Emerging Market Debt 6.6 7.7 1.1 Americas 23.7 26.8 3.1 EMEA 24.7 21.2 -3.5 Americas 2.1 2.7 0.6 UK 4.3 3.8 -0.5 EMEA 3.4 3.3 -0.1 Core Europe 11.5 10.0 -1.5 Peripheral Europe 8.1 6.8 -1.4 Asia 1.0 1.7 0.7 Others 0.7 0.6 -0.1 Equities 0.0 0.8 0.8 Asia 11.8 9.1 -2.7 Asia (ex Japan) 0.4 0.4 0.0 Developed Equities 0.0 0.7 0.7 Japan 11.4 8.7 -2.7 Supranational 0.0 0.0 0.0 Emerging Equities 0.0 0.1 0.1 Developed Corporate Investment Grade 20.6 22.6 2.0 Hybrid Investments 0.0 0.0 0.0

Americas 13.6 16.0 2.5 Hedge Funds 0.0 0.0 0.0 US 12.7 15.1 2.4 Canada 0.9 0.9 0.0 Real Assets 0.0 0.0 0.0 EMEA 6.9 6.5 -0.4 Commodities 0.0 0.0 0.0 Europe (ex UK) 5.7 5.5 -0.3 UK 1.2 1.0 -0.2 Total 100.0 100.0 0.0 Asia 0.1 0.1 0.0 Asia (ex Japan) 0.1 0.1 0.0 Japan 0.0 0.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 28

Global USD without Hedge Funds: Risk Level 1 - Tactical Allocations

Developed small/mid cap Emerging all cap equities Commodities (0.0%) Developed large cap equities (0.1%) (0.1%) 0.1% 0.0% Global Equities equities (0.6%) 0.1% 0.6% Cash (-0.8%) Emerging market debt 5.2% Global Fixed Income

(1.1%) 7.7%

Hedge Funds Developed high yield (0.0%) Commodities 6.6%

Cash

Developed corporate Developed national, investment grade (2.0%) supranational and regional 22.6% (-3.1%) 57.1%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +0.8% with global fixed income at a neutral position. Cash is underweight by -0.8%.

Within fixed income, developed government debt has an underweight position of -3.1% with overweight in US government fixed income. Developed corporate investment grade fixed income has an overweight at +2.0% driven by overweight in US corporate investment grade fixed income.

Emerging market debt has an overweight position of +1.1% with both Asia and LatAm debt at overweight positions.

Overweight in global equities is mainly driven by overweight in developed market equities.

Global Strategy: Quadrant  February 1, 2019 29

Global USD without Hedge Funds: Risk Level 2

Risk Level 2 is designed for investors who emphasize capital preservation over return on investment, but who are willing to subject some portion of their principal to increased risk in order to generate a potentially greater rate of return on investment.

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 4.0 2.7 -1.3 Equities 30.0 31.4 1.3 Fixed Income 66.0 66.0 0.0 Developed Equities 26.2 27.0 0.8 Developed Developed Large Cap Equities 22.4 23.3 0.9 Investment Grade 59.3 58.0 -1.3 Americas 14.9 15.3 0.5 Developed National, US All 14.1 14.5 0.4 Supranational and Regional 44.2 40.4 -3.8 Canada 0.8 0.8 0.0 Americas 17.4 21.0 3.6 EMEA 4.6 4.8 0.2 UK 1.4 1.4 0.0 EMEA 18.1 14.0 -4.2 Germany 0.6 0.7 0.1 UK 3.1 2.5 -0.6 France 0.8 0.8 0.0 Core Europe 8.5 6.6 -1.8 Switzerland 0.7 0.7 0.0 Peripheral Europe 6.0 4.3 -1.6 Benelux 0.3 0.3 0.0 Others 0.5 0.4 -0.1 Scandi 0.4 0.4 0.0 Asia 8.7 5.4 -3.2 Spain 0.2 0.2 0.0 Asia (ex Japan) 0.3 0.3 0.0 Italy 0.2 0.2 0.0 Japan 8.4 5.1 -3.2 Others 0.1 0.1 0.0 Supranational 0.0 0.0 0.0 Asia 2.9 3.1 0.2 Developed Corporate Australasia 0.6 0.6 0.0 Investment Grade 15.1 17.6 2.5 Far East ex Japan 0.4 0.5 0.1 Japan Americas 10.0 13.0 3.1 2.0 2.0 0.0 Developed Small/ US 9.3 12.4 3.1 Mid Cap Equities 3.8 3.7 -0.1 Canada 0.6 0.7 0.0 Americas 2.2 2.1 -0.1 EMEA 5.1 4.5 -0.6 EMEA 1.1 1.1 0.0 Europe (ex UK) 4.2 3.8 -0.4 Europe (ex UK) 0.8 0.8 0.0 UK 0.9 0.7 -0.2 UK 0.2 0.3 0.0 Asia 0.1 0.1 0.0 Asia 0.6 0.6 0.0 Asia (ex Japan) Developed High Yield 2.0 2.0 0.0 0.1 0.1 0.0 Japan 0.4 0.4 0.0 Americas 1.6 1.6 0.0 Emerging All Cap Equities 3.9 4.4 0.5 EMEA 0.4 0.4 0.0 Americas 0.4 0.5 0.1 Emerging Market Debt 4.6 5.9 1.3 Brazil 0.3 0.3 0.1 Americas 1.5 2.2 0.7 Mexico 0.1 0.1 0.0 EMEA 2.4 2.2 -0.2 Other 0.1 0.1 0.1 Asia 0.7 1.6 0.8 EMEA 0.4 0.2 -0.2 Hybrid Investments 0.0 0.0 0.0 Turkey 0.0 0.0 0.0 Hedge Funds 0.0 0.0 0.0 Russia and Eastern Europe 0.2 0.1 -0.1 South Africa Real Assets 0.0 0.0 0.0 0.2 0.1 -0.1 Other 0.0 0.0 0.0 Commodities 0.0 0.0 0.0 Asia 3.0 3.6 0.6

China 1.6 1.8 0.2 India 0.4 0.4 0.0 South Korea 0.4 0.6 0.1 Taiwan 0.3 0.5 0.1 Other Emerging Asia 0.3 0.4 0.1 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 30

Global USD without Hedge Funds: Risk Level 2 - Tactical Allocations

Cash (-1.3%) Global Equities Commodities (0.0%) 2.7% 0.0%

Global Fixed Income Emerging all cap equities

(0.5%)

Hedge Funds Developed small/mid cap 4.4%

equities (-0.1%)

Commodities 3.7%

Cash

Developed large cap equities (0.9%) Developed national,

23.3% supranational and regional (-3.8%) 40.4%

Emerging market debt Developed high yield Developed corporate (1.3%) (0.0%) investment grade (2.5%) 5.9% 17.6% 2.0%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +1.3% with global fixed income at a neutral position. Cash has an underweight position of -1.3%.

Within fixed income, developed government debt has an underweight position of -3.8% with overweight in US government debt, developed corporate investment grade fixed income has an overweight of +2.5% driven by overweight in US corporate investment grade fixed income.

EM fixed income has a small overweight position of +1.3% with both Asia and LatAm debt at overweight positions.

Within equities, developed large cap equities have an overweight position of +0.9% while developed small/mid cap equities have an underweight of -0.1%; emerging equities have an overweight position of +0.5% with overweight in EM Asia and EM LatAm.

Global Strategy: Quadrant  February 1, 2019 31

Global USD without Hedge Funds: Risk Level 3

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 2.0 0.0 -2.0 Equities 60.4 62.4 2.0 Fixed Income 37.6 37.6 0.0 Developed Equities 52.9 53.6 0.7 Developed Developed Large Cap Equities 45.3 46.4 1.1 Investment Grade 33.2 32.0 -1.1 Americas 30.1 30.5 0.4 Developed National, US All 28.4 28.8 0.4 Supranational and Regional 24.7 21.6 -3.2 Canada 1.6 1.6 0.0 Americas 9.7 12.6 2.8 EMEA 9.3 9.6 0.3 UK 2.8 2.8 0.0 EMEA 10.1 6.7 -3.4 Germany 1.3 1.5 0.2 UK 1.8 1.3 -0.5 France 1.5 1.5 0.0 Core Europe 4.7 3.2 -1.5 Switzerland 1.4 1.5 0.1 Peripheral Europe 3.3 2.0 -1.3 Benelux 0.6 0.6 0.0 Others 0.3 0.2 -0.1 Scandi 0.8 0.8 0.0 Asia 4.8 2.2 -2.6 Spain 0.4 0.4 0.0 Asia (ex Japan) 0.2 0.2 0.0 Italy 0.3 0.3 0.0 Japan 4.7 2.1 -2.6 Others 0.1 0.1 0.0 Supranational 0.0 0.0 0.0 Asia 5.9 6.3 0.4 Developed Corporate Australasia 1.1 1.1 0.0 Investment Grade 8.5 10.5 2.0 Far East ex Japan 0.8 1.2 0.4 Japan Americas 5.6 8.2 2.6 4.0 4.0 0.0 Developed Small/ US 7.7 7.3 -0.4 5.2 7.9 2.6 Mid Cap Equities Canada 0.4 0.4 0.0 Americas 4.4 4.0 -0.4 EMEA 2.8 2.2 -0.6 EMEA 2.1 2.1 0.0 Europe (ex UK) 2.3 1.9 -0.4 Europe (ex UK) 1.6 1.6 0.0 UK 0.5 0.3 -0.2 UK 0.5 0.5 0.0 Asia 0.0 0.0 0.0 Asia 1.2 1.2 0.0 Asia (ex Japan) Developed High Yield 2.0 2.0 0.0 0.3 0.3 0.0 Japan 0.9 0.9 0.0 Americas 1.6 1.6 0.0 Emerging All Cap Equities 7.5 8.8 1.3 EMEA 0.4 0.4 0.0 Americas 0.8 1.2 0.4 Emerging Market Debt 2.4 3.5 1.1 Brazil 0.5 0.7 0.2 Americas 0.8 1.4 0.6 Mexico 0.2 0.2 0.0 EMEA 1.3 1.0 -0.2 Other 0.1 0.3 0.2 Asia 0.4 1.1 0.7 EMEA 0.8 0.2 -0.6 Hybrid Investments 0.0 0.0 0.0 Turkey 0.0 0.0 0.0 Hedge Funds 0.0 0.0 0.0 Russia and Eastern Europe 0.4 0.1 -0.3 Real Assets 0.0 0.0 0.0 South Africa 0.3 0.1 -0.2 Other 0.0 0.0 0.0 Commodities 0.0 0.0 0.0 Asia 5.9 7.4 1.5

China 3.1 3.6 0.5 India 0.7 0.7 0.0 South Korea 0.8 1.2 0.4 Taiwan 0.7 1.0 0.3 Other Emerging Asia 0.6 0.9 0.3 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 32

Global USD without Hedge Funds: Risk Level 3 - Tactical Allocations

Cash (-2.0%) Commodities (0.0%) 0.0% Global Equities 0.0%

Developed national, Global Fixed Income Emerging all cap equities supranational and (1.3%) regional (-3.2%) Hedge Funds 8.8% 21.6%

Developed small/mid cap

Commodities equities (-0.4%) 7.3%

Cash

Developed corporate investment grade (2.0%) 10.5%

Developed high yield (0.0%) 2.0% Developed large cap equities (1.1%) Emerging market debt 46.4% (1.1%) 3.5%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +2.0%, global fixed income has a neutral position with cash underweight at -2.0%

Within fixed income, developed government debt has an underweight position of -3.2%, with US government debt at an overweight position. Developed corporate investment grade fixed income has an overweight at +2.0% driven by overweight in US corporate investment grade fixed income.

Emerging market debt has an overweight positon of +1.1% with both Asia and LatAm debt at overweight positions.

Within equities, developed large cap equities have an overweight position of +1.1% while developed small/mid cap equities have an underweight of -0.4%.

Emerging market equities have an overweight of +1.3% with both Asia and LatAm debt at overweight positions.

Global Strategy: Quadrant  February 1, 2019 33

Global USD without Hedge Funds: Risk Level 4

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 2.0 0.0 -2.0 Equities 79.1 81.1 2.0 Fixed Income 18.9 18.9 0.0 Developed Equities 69.0 69.2 0.3 Developed Developed Large Cap Equities 59.0 59.9 0.9 Investment Grade 16.9 16.3 -0.6 Americas 39.2 39.3 0.2 Developed National, US All 37.1 37.2 0.2 Supranational and Regional 12.6 10.9 -1.7 Canada 2.1 2.1 0.0 Americas 5.0 6.5 1.5 EMEA 12.1 12.4 0.3 UK 3.6 3.6 0.0 EMEA 5.2 3.3 -1.9 Germany 1.6 1.9 0.3 UK 0.9 0.6 -0.3 France 2.0 2.0 0.0 Core Europe 2.4 1.6 -0.8 Switzerland 1.8 1.9 0.1 Peripheral Europe 1.7 1.0 -0.7 Benelux 0.8 0.8 0.0 Others 0.2 0.1 -0.1 Scandi 1.1 1.1 0.0 Asia 2.5 1.0 -1.4 Spain 0.6 0.6 0.0 Asia (ex Japan) 0.1 0.1 0.0 Italy 0.4 0.4 0.0 Japan 2.4 1.0 -1.4 Others 0.2 0.2 0.0 Supranational 0.0 0.0 0.0 Asia 7.7 8.2 0.5 Developed Corporate Australasia 1.5 1.4 0.0 Investment Grade 4.3 5.4 1.1 Far East ex Japan 1.0 1.5 0.6 Japan Americas 2.8 4.3 1.5 5.3 5.2 -0.1 Developed Small/ US 2.7 4.1 1.5 Mid Cap Equities 10.0 9.3 -0.7 Canada 0.2 0.2 0.0 Americas 5.7 5.1 -0.6 EMEA 1.4 1.1 -0.3 EMEA 2.8 2.7 0.0 Europe (ex UK) 1.2 1.0 -0.2 Europe (ex UK) 2.1 2.1 0.0 UK 0.3 0.1 -0.1 UK 0.7 0.6 0.0 Asia 0.0 0.0 0.0 Asia 1.5 1.5 0.0 Developed High Yield 0.0 0.0 0.0 Asia (ex Japan) 0.4 0.4 0.0 Japan 1.2 1.1 0.0 Americas 0.0 0.0 0.0 Emerging All Cap Equities 10.1 11.9 1.7 EMEA 0.0 0.0 0.0 Americas 1.1 1.6 0.5 Emerging Market Debt 2.0 2.6 0.6 Brazil 0.7 0.9 0.3 Americas 0.6 1.0 0.4 Mexico 0.2 0.2 0.0 EMEA 1.0 0.7 -0.3 Other 0.2 0.4 0.3 Asia 0.3 0.9 0.5 EMEA 1.1 0.3 -0.8 Hybrid Investments 0.0 0.0 0.0 Turkey 0.1 0.0 -0.1 Hedge Funds 0.0 0.0 0.0 Russia and Eastern Europe 0.5 0.1 -0.4 Real Assets 0.0 0.0 0.0 South Africa 0.4 0.1 -0.3 Other 0.0 0.0 0.0 Commodities 0.0 0.0 0.0 Asia 8.0 10.0 2.0

China 4.2 4.8 0.6 India 1.0 1.0 0.0 South Korea 1.1 1.7 0.5 Taiwan 0.9 1.3 0.4 Other Emerging Asia 0.8 1.2 0.4 Total 100.0 100.0 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 34

Global USD without Hedge Funds: Risk Level 4 - Tactical Allocations

Cash (-2.0%) Commodities (0.0%) 0.0% Global Equities 0.0% Developed national, supranational and Emerging all cap equities Global Fixed Income (1.7%) regional (-1.7%) 11.9% 10.9%

Hedge Funds Developed corporate investment grade (1.1%) Commodities 5.4%

Developed small/mid cap Developed high yield Cash equities (-0.7%)

(0.0%) 9.3% 0.0%

Emerging market debt (0.6%) 2.6%

Developed large cap

equities (0.9%) 59.9% Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities have an overweight position of +2.0%, global fixed income has a neutral position with cash underweight at -2.0%.

Within fixed income, developed government debt has an underweight at -1.7% with US government debt at overweight position; developed corporate investment grade fixed income has an overweight of +1.1% driven by overweight in US corporate investment grade fixed income.

EM fixed income has a small overweight position of 0.6% with both Asia and LatAm debt at overweight positions.

Within equities, developed large cap equities have an overweight position of +0.9% while developed small/mid cap equities have an underweight at -0.7%.

Emerging equities have an overweight position of +1.7% with both Asia and LatAm at overweight positions.

Global Strategy: Quadrant  February 1, 2019 35

Global USD without Hedge Funds: Risk Level 5

Strategic Tactical* Active Strategic Tactical* Active Classification (%) (%) (%) Classification (%) (%) (%) Cash 0.0 0.0 0.0 Asia 9.7 10.1 0.4 Fixed income 0.0 0.0 0.0 Australasia 1.8 1.8 -0.1 Developed Investment Far East ex Japan 1.2 1.9 0.7 Grade 0.0 0.0 0.0 Japan 6.6 6.4 -0.2 Developed national, supranational and regional 0.0 0.0 0.0 Developed Small/Mid Cap Equities 12.6 11.4 -1.2 Developed Corporate Investment Grade 0.0 0.0 0.0 Americas 7.2 6.2 -1.0 Americas 0.0 0.0 0.0 EMEA 3.5 3.4 -0.1 EMEA 0.0 0.0 0.0 Europe (ex UK) 2.7 2.6 -0.1 Europe (ex UK) 0.0 0.0 0.0 UK 0.8 0.8 0.0 UK 0.0 0.0 0.0 Asia 1.9 1.9 -0.1 Asia 0.0 0.0 0.0 Asia (ex Japan) 0.5 0.4 0.0 Asia (ex Japan) 0.0 0.0 0.0 Japan 1.5 1.4 -0.1 Japan 0.0 0.0 0.0 Emerging all Cap Equities 12.8 14.8 2.0 Developed high yield 0.0 0.0 0.0 Americas 1.3 2.0 0.6 Americas 0.0 0.0 0.0 Brazil 0.9 1.2 0.3 EMEA 0.0 0.0 0.0 Mexico Asia 0.0 0.0 0.0 0.3 0.3 0.0 Emerging market debt 0.0 0.0 0.0 Other 0.2 0.5 0.3 Americas 0.0 0.0 0.0 EMEA 1.4 0.4 -1.0 EMEA 0.0 0.0 0.0 Turkey 0.1 0.0 -0.1 Asia 0.0 0.0 0.0 Russia and Eastern Europe 0.7 0.2 -0.5 Equities 100.0 100.0 0.0 South Africa 0.6 0.2 -0.4 Global Developed Equities 87.2 85.2 -2.0 Other 0.0 0.0 0.0 Developed Large Cap Asia 10.1 12.4 2.3 Equities 74.6 73.8 -0.8 China 5.3 6.0 0.7 Americas 49.5 48.4 -1.1 India US All 46.9 45.8 -1.0 1.2 1.2 0.0 Canada 2.7 2.6 -0.1 South Korea 1.4 2.1 0.6 EMEA 15.3 15.3 0.0 Taiwan 1.2 1.6 0.5 UK 4.6 4.4 -0.2 Other Emerging Asia 1.0 1.5 0.5 Germany 2.1 2.4 0.3 Hybrid Investments 0.0 0.0 0.0 France 2.5 2.4 -0.1 Hedge Funds 0.0 0.0 0.0 Switzerland 2.3 2.4 0.1 Real Assets Benelux 1.0 1.0 0.0 0.0 0.0 0.0 Scandi 1.4 1.3 -0.1 Commodities 0.0 0.0 0.0 Spain 0.7 0.7 0.0 Gold 0.0 0.0 0.0 Italy 0.5 0.5 0.0 Total 100.0 100.0 0.0 Others 0.2 0.2 0.0

Active = the difference between tactical and strategic allocations. Minor differences may result due to rounding.

Global Strategy: Quadrant  February 1, 2019 36

Global USD without Hedge Funds: Risk Level 5 - Tactical Allocations

Global Equities Emerging all cap equities

(2.0%)

Global Fixed Income 14.8%

Hedge Funds

Commodities

Cash

Developed small/mid cap equities (-1.2%) 11.4%

Developed large cap equities (-0.8%) 73.8%

Figures in brackets are active allocations. All allocations are subject to change at discretion of the GIC of the Citi Private Bank.

Core Positions

Global equities, global fixed income and cash are all at neutral position.

Within global equities, developed equities have an underweight position of -2.0% with developed large cap equities underweight of -0.8% and developed small/mid cap equities underweight of -1.2%.

Emerging equities have an overweight position of +2.0% with both Asia and LatAm at overweight positions.

With global fixed income, all positions are neutral.

Global Strategy: Quadrant  February 1, 2019 37

Asset Allocation Definitions Asset classes Benchmarked against Global equities MSCI All Country World Index, which represents 48 developed and emerging equity markets. Index components are weighted by market capitalization. Global bonds Bloomberg Barclays Capital Multiverse (Hedged) Index, which contains the government -related portion of the Multiverse Index, and accounts for approximately 14% of the larger index. Hedge funds HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe. It comprises all eligible hedge fund strategies; including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage and relative value arbitrage. The strategies are asset-weighted based on the distribution of assets in the hedge fund industry. Commodities Dow Jones-UBS Commodity Index, which is composed of futures contracts on physical commodities traded on US exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). The major commodity sectors are represented including energy, petroleum, precious metals, industrial metals, grains, livestock, softs, agriculture and ex-energy. The Thomson Reuters / Core Commodity Index is designed to provide timely and accurate representation of a long-only, broadly diversified investment in commodities through a transparent and disciplined calculation methodology. Cash Three-month LIBOR, which is the interest rates that banks charge each other in the international inter-bank market for three-month loans (usually denominated in Eurodollars). Equities Developed market large MSCI World Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed cap to measure the equity market performance of the large cap stocks in 23 developed markets. Large cap is defined as stocks representing roughly 70% of each market’s capitalization. All Country Ex US MSCI All Country ex US, which is free-float adjusted and weighted by market capitalization. The index is designed to measure the equity market performance of the large cap stocks in all countries excluding the US. US Standard & Poor’s 500 Index, which is a capitalization-weighted index that includes a representative sample of 500 leading companies in leading industries of the US economy. Although the S&P 500 focuses on the large cap segment of the market, with over 80% coverage of US equities, it is also an ideal proxy for the total market. Europe ex UK MSCI Europe ex UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large cap stock performance in each of Europe’s developed markets, except for the UK UK MSCI UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large cap stock performance in the UK Japan MSCI Japan Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large cap stock performance in Japan. Asia Pacific MSCI Asia Pacific ex Japan Large Cap Index, which is free-float adjusted and weighted by market capitalization. ex Japan The index is designed to measure the performance of large cap stocks in Australia, Hong Kong, New Zealand and Singapore. Developed market small MSCI World Small Cap Index, which is a capitalization-weighted index that measures small cap stock performance in 23 and mid-cap (SMID) developed equity markets. Emerging market MSCI Emerging Markets Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure equity market performance of 22 emerging markets. Bonds Developed sovereign Citi World Government Bond Index (WGBI), which consists of the major global investment grade government bond markets and is composed of sovereign debt, denominated in the domestic currency. To join the WGBI, the market must satisfy size, credit and barriers-to-entry requirements. In order to ensure that the WGBI remains an investment grade benchmark, a minimum credit quality of BBB–/Baa3 by either S&P or Moody's is imposed. The index is rebalanced monthly. Emerging sovereign Citi Emerging Market Sovereign Bond Index (ESBI), which includes Brady bonds and US dollar -denominated emerging market sovereign debt issued in the global, Yankee and Eurodollar markets, excluding loans. It is composed of debt in Africa, Asia, Europe and Latin America. We classify an emerging market as a sovereign with a maximum foreign debt rating of BBB+/Baa1 by S&P or Moody's. Defaulted issues are excluded. Supranationals Citi World Broad Investment Grade Index (WBIG)—Government Related, which is a subsector of the WBIG. The index includes fixed rate investment grade agency, supranational and regional government debt, denominated in the domestic currency. The index is rebalanced monthly. Corporate Citi World Broad Investment Grade Index (WBIG)—Corporate, which is a subsector of the WBIG. The index includes investment grade fixed rate global investment grade corporate debt within the finance, industrial and utility sectors, denominated in the domestic currency. The index is rebalanced monthly. Corporate Bloomberg Barclays Global High Yield Corporate Index. Provides a broad-based measure of the global high yield fixed high yield income markets. It is also a component of the Multiverse Index and the Global Aggregate Index. Securitized Citi World Broad Investment Grade Index (WBIG)—Securitized, which is a subsector of the WBIG. The index includes global investment grade collateralized debt denominated in the domestic currency, including mortgage -backed securities, covered bonds (Pfandbriefe) and asset-backed securities. The index is rebalanced monthly. Moody's Baa Corporate Bond Index is an investment bond index that tracks the performance of all bonds given a Baa rating by Moody's Investors Service. BAML US Corporate index (Bank of America Merrill Lynch) tracks the performance of US dollar denominated investment grade rated corporate debt publically issued in the US domestic market.

Global Strategy: Quadrant  February 1, 2019 38

Other miscellaneous definitions Asset Backed Securities A security whose income payments and hence value are derived from and collateralized (or "backed") by a specified (ABS) pool of underlying assets such as consumer credit card debt or auto loans. Commercial Mortgage Commercial mortgage-backed securities (CMBS) are a type of mortgage-backed security that is secured by mortgages Backed Securities on commercial properties, instead of residential real estate. (CMBS) High Yield Corporate High yield corporate bonds are bonds with a credit rating less than BBB- (S&P) or Baa3 (Moody’s), and are debt Bonds (HY) securities issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. Investment Grade Investment grade corporate bonds are bonds with a credit rating equal to or above BBB- (S&P) or Baa3 (Moody’s), and Corporate Bonds (IG) are debt securities issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.

Global Strategy: Quadrant  February 1, 2019 39

Disclosures

In any instance where distribution of this communication (“Communication”) is subject to the rules of the US Commodity Futures Trading Commission (“CFTC”), this communication constitutes an invitation to consider entering into a derivatives transaction under US CFTC Regulations §§ 1.71 and 23.605, where applicable, but is not a binding offer to buy/sell any financial instrument. This Communication is prepared by Citi Private Bank (“CPB”), a business of Citigroup, Inc. (“Citigroup”), which provides its clients access to a broad array of products and services available through Citigroup, its bank and non-bank affiliates worldwide (collectively, “Citi”). Not all products and services are provided by all affiliates, or are available at all locations. CPB personnel are not research analysts, and the information in this Communication is not intended to constitute “research”, as that term is defined by applicable regulations. Unless otherwise indicated, any reference to a research report or research recommendation is not intended to represent the whole report and is not in itself considered a recommendation or research report. This Communication is provided for information and discussion purposes only, at the recipient’s request. The recipient should notify CPB immediately should it at any time wish to cease being provided with such information. Unless otherwise indicated, (i) it does not constitute an offer or recommendation to purchase or sell any security, financial instrument or other product or service, or to attract any funding or deposits, and (ii) it does not constitute a solicitation if it is not subject to the rules of the CFTC (but see discussion above regarding communication subject to CFTC rules) and (iii) it is not intended as an official confirmation of any transaction. Unless otherwise expressly indicated, this Communication does not take into account the investment objectives, risk profile or financial situation of any particular person and as such, investments mentioned in this document may not be suitable for all investors. Citi is not acting as an investment or other advisor, fiduciary or agent. The information contained herein is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Recipients of this Communication should obtain advice based on their own individual circumstances from their own tax, financial, legal and other advisors about the risks and merits of any transaction before making an investment decision, and only make such decisions on the basis of their own objectives, experience, risk profile and resources. The information contained in this Communication is based on generally available information and, although obtained from sources believed by Citi to be reliable, its accuracy and completeness cannot be assured, and such information may be incomplete or condensed. Any assumptions or information contained in this Communication constitute a judgment only as of the date of this document or on any specified dates and is subject to change without notice. Insofar as this Communication may contain historical and forward looking information, past performance is neither a guarantee nor an indication of future results, and future results may not meet expectations due to a variety of economic, market and other factors. Further, any projections of potential risk or return are illustrative and should not be taken as limitations of the maximum possible loss or gain. Any prices, values or estimates provided in this Communication (other than those that are identified as being historical) are indicative only, may change without notice and do not represent firm quotes as to either price or size, nor reflect the value Citi may assign a security in its inventory. Forward looking information does not indicate a level at which Citi is prepared to do a trade and may not account for all relevant assumptions and future conditions. Actual conditions may vary substantially from estimates which could have a negative impact on the value of an instrument. Views, opinions and estimates expressed herein may differ from the opinions expressed by other Citi businesses or affiliates, and are not intended to be a forecast of future events, a guarantee of future results, or investment advice, and are subject to change without notice based on market and other conditions. Citi is under no duty to update this document and accepts no liability for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained in or derived from this Communication. Investments in financial instruments or other products carry significant risk, including the possible loss of the principal amount invested. Financial instruments or other products denominated in a foreign currency are subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. This Communication does not purport to identify all risks or material considerations which may be associated with entering into any transaction. Structured products can be highly illiquid and are not suitable for all investors. Additional information can be found in the disclosure documents of the issuer for each respective structured product described herein. Investing in structured products is intended only for experienced and sophisticated investors who are willing and able to bear the high economic risks of such an investment. Investors should carefully review and consider potential risks before investing. OTC derivative transactions involve risk and are not suitable for all investors. Investment products are not insured, carry no bank or government guarantee and may lose value. Before entering into these transactions, you should: (i) ensure that you have obtained and considered relevant information from independent reliable sources concerning the financial, economic and political conditions of the relevant markets; (ii) determine that you have the necessary knowledge, sophistication and experience in financial, business and investment matters to be able to evaluate the risks involved, and that you are financially able to bear such risks; and (iii) determine, having considered the foregoing points, that capital markets transactions are suitable and appropriate for your financial, tax, business and investment objectives. This material may mention options regulated by the US Securities and Exchange Commission. Before buying or selling options you should obtain and review the current version of the Options Clearing Corporation booklet, Characteristics and Risks of Standardized Options. A copy of the booklet can be obtained upon request from Citigroup Global Markets Inc., 390 Greenwich Street, 3rd Floor, New York, NY 10013 or by clicking the following links, http://www.theocc.com/components/docs/riskstoc.pdf or http://www.theocc.com/components/docs/about/publications/november_2012_supplement.pdf If you buy options, the maximum loss is the premium. If you sell put options, the risk is the entire notional below the strike. If you sell call options, the risk is unlimited. The actual profit or loss from any trade will depend on the price at which the trades are executed. The prices used herein are historical and may not be available when you order is entered. Commissions and other transaction costs are not considered in these examples. Option trades in general and these trades in particular may not be appropriate for every investor. Unless noted otherwise, the source of all graphs and tables in this report is Citi. Because of the importance of tax considerations to all option transactions, the investor considering options should consult with his/her tax advisor as to how their tax situation is affected by the outcome of contemplated options transactions. None of the financial instruments or other products mentioned in this Communication (unless expressly stated otherwise) is (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citi or any other insured depository institution. Citi often acts as an issuer of financial instruments and other products, acts as a market maker and trades as principal in many different financial instruments and other products, and can be expected to perform or seek to perform investment banking and other services for the issuer of such financial instruments or other products. The author of this Communication may have discussed the information contained therein with others within or outside Citi, and the author and/or such other Citi personnel may have already acted on the basis of this information (including by trading for Citi's proprietary accounts or communicating the information contained herein to other customers of Citi). Citi, Citi's personnel (including those with whom the author may have consulted in the preparation

Global Strategy: Quadrant  February 1, 2019 40 of this communication), and other customers of Citi may be long or short the financial instruments or other products referred to in this Communication, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different from or adverse to your interests. IRS Circular 230 Disclosure: Citi and its employees are not in the business of providing, and do not provide, tax or legal advice to any taxpayer outside Citi. Any statement in this Communication regarding tax matters is not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Neither Citi nor any of its affiliates can accept responsibility for the tax treatment of any investment product, whether or not the investment is purchased by a trust or company administered by an affiliate of Citi. Citi assumes that, before making any commitment to invest, the investor and (where applicable, its beneficial owners) have taken whatever tax, legal or other advice the investor/beneficial owners consider necessary and have arranged to account for any tax lawfully due on the income or gains arising from any investment product provided by Citi. This Communication is for the sole and exclusive use of the intended recipients, and may contain information proprietary to Citi which may not be reproduced or circulated in whole or in part without Citi’s prior consent. The manner of circulation and distribution may be restricted by law or regulation in certain countries. Persons who come into possession of this document are required to inform themselves of, and to observe such restrictions. Citi accepts no liability whatsoever for the actions of third parties in this respect. Any unauthorized use, duplication, or disclosure of this document is prohibited by law and may result in prosecution. Other businesses within Citigroup Inc. and affiliates of Citigroup Inc. may give advice, make recommendations, and take action in the interest of their clients, or for their own accounts, that may differ from the views expressed in this document. All expressions of opinion are current as of the date of this document and are subject to change without notice. Citigroup Inc. is not obligated to provide updates or changes to the information contained in this document. The expressions of opinion are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future results. Real results may vary. Although information in this document has been obtained from sources believed to be reliable, Citigroup Inc. and its affiliates do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use. Throughout this publication where charts indicate that a third party (parties) is the source, please note that the attributed may refer to the raw data received from such parties. No part of this document may be copied, photocopied or duplicated in any form or by any means, or distributed to any person that is not an employee, officer, director, or authorized agent of the recipient without Citigroup Inc.’s prior written consent. Citigroup Inc. may act as principal for its own account or as agent for another person in connection with transactions placed by Citigroup Inc. for its clients involving securities that are the subject of this document or future editions of the Quadrant. Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer’s credit rating, or creditworthiness, causes a bond’s price to decline. High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made.

(MLP’s) - Energy Related MLPs May Exhibit High Volatility. While not historically very volatile, in certain market environments Energy Related MLPS may exhibit high volatility. Changes in Regulatory or Tax Treatment of Energy Related MLPs. If the IRS changes the current tax treatment of the master limited partnerships included in the Basket of Energy Related MLPs thereby subjecting them to higher rates of taxation, or if other regulatory authorities enact regulations which negatively affect the ability of the master limited partnerships to generate income or distribute dividends to holders of common units, the return on the Notes, if any, could be dramatically reduced. Investment in a basket of Energy Related MLPs may expose the investor to concentration risk due to industry, geographical, political, and regulatory concentration. Mortgage-backed securities ("MBS"), which include collateralized mortgage obligations ("CMOs"), also referred to as real estate mortgage investment conduits ("REMICs"), may not be suitable for all investors. There is the possibility of early return of principal due to mortgage prepayments, which can reduce expected yield and result in reinvestment risk. Conversely, return of principal may be slower than initial prepayment speed assumptions, extending the average life of the security up to its listed maturity date (also referred to as extension risk). Additionally, the underlying collateral supporting non-Agency MBS may default on principal and interest payments. In certain cases, this could cause the income stream of the security to decline and result in loss of principal. Further, an insufficient level of credit support may result in a downgrade of a mortgage bond's credit rating and lead to a higher probability of principal loss and increased price volatility. Investments in subordinated MBS involve greater credit risk

Global Strategy: Quadrant  February 1, 2019 41 of default than the senior classes of the same issue. Default risk may be pronounced in cases where the MBS security is secured by, or evidencing an interest in, a relatively small or less diverse pool of underlying mortgage loans. MBS are also sensitive to interest rate changes which can negatively impact the market value of the security. During times of heightened volatility, MBS can experience greater levels of illiquidity and larger price movements. Price volatility may also occur from other factors including, but not limited to, prepayments, future prepayment expectations, credit concerns, underlying collateral performance and technical changes in the market. Alternative investments referenced in this report are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in the fund, potential lack of diversification, absence of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and advisor risk. Asset allocation does not assure a profit or protect against a loss in declining financial markets. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. International investing entails greater risk, as well as greater potential rewards compared to US investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economics. Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity. Factors affecting commodities generally, index components composed of futures contracts on nickel or copper, which are industrial metals, may be subject to a number of additional factors specific to industrial metals that might cause price volatility. These include changes in the level of industrial activity using industrial metals (including the availability of substitutes such as manmade or synthetic substitutes); disruptions in the supply chain, from mining to storage to smelting or refining; adjustments to inventory; variations in production costs, including storage, labor and energy costs; costs associated with regulatory compliance, including environmental regulations; and changes in industrial, government and consumer demand, both in individual consuming nations and internationally. Index components concentrated in futures contracts on agricultural products, including grains, may be subject to a number of additional factors specific to agricultural products that might cause price volatility. These include weather conditions, including floods, drought and freezing conditions; changes in government policies; planting decisions; and changes in demand for agricultural products, both with end users and as inputs into various industries. The information contained herein is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Readers interested in the strategies or concepts should consult their tax, legal, or other advisors, as appropriate. Diversification does not guarantee a profit or protect against loss. Different asset classes present different risks. Citi Private Bank is a business of Citigroup Inc. (“Citigroup”), which provides its clients access to a broad array of products and services available through bank and non-bank affiliates of Citigroup. Not all products and services are provided by all affiliates or are available at all locations. In the U.S., investment products and services are provided by Citigroup Global Markets Inc. (“CGMI”), member FINRA and SIPC, and Citi Private Advisory, LLC (“Citi Advisory”), member FINRA and SIPC. CGMI accounts are carried by Pershing LLC, member FINRA, NYSE, SIPC. Citi Advisory acts as distributor of certain alternative investment products to clients of Citi Private Bank. CGMI, Citi Advisory and Citibank, N.A. are affiliated companies under the common control of Citigroup. Outside the U.S., investment products and services are provided by other Citigroup affiliates. Investment Management services (including portfolio management) are available through CGMI, Citi Advisory, Citibank, N.A. and other affiliated advisory businesses. These Citigroup affiliates, including Citi Advisory, will be compensated for the respective investment management, advisory, administrative, distribution and placement services they may provide. In Hong Kong, this document is issued by CPB operating through Citibank, N.A., Hong Kong branch, which is regulated by the Hong Kong Monetary Authority. Any questions in connection with the contents in this document should be directed to registered or licensed representatives of the aforementioned entity. In Singapore, this document is issued by CPB operating through Citibank, N.A., Singapore branch, which is regulated by the Monetary Authority of Singapore. Any questions in connection with the contents in this document should be directed to registered or licensed representatives of the aforementioned entity. To the extent this document is provided to clients who are booked and/or managed in Hong Kong: No other statement(s) in this document shall operate to remove, exclude or restrict any of your rights or obligations of Citibank under applicable laws and regulations. Citibank, N.A., Hong Kong Branch does not intend to rely on any provisions herein which are inconsistent with its obligations under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, or which mis-describes the actual services to be provided to you. In the United Kingdom, Citibank N.A., London Branch (registered branch number BR001018), Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB, is authorised and regulated by the Office of the Comptroller of the Currency (USA) and authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The contact number for Citibank N.A., London Branch is +44 (0)20 7508 8000. Citibank Europe plc is regulated by the Central Bank of Ireland. It is authorized by the Central Bank of Ireland and by the Prudential Regulation Authority. It is subject to supervision by the Central Bank of Ireland, and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority. Details about the extent of our authorization and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request. Citibank Europe plc, UK Branch is registered as a branch in the register of companies for England and Wales with registered branch number BR017844. Its registered address is Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB. VAT No.: GB 429 6256 29. Citibank Europe plc is registered in Ireland with number 132781, with its registered office at 1 North Wall Quay, Dublin 1. Citibank Europe plc is regulated by the Central Bank of Ireland. Ultimately owned by Citigroup Inc., New York, USA. In Jersey, this document is communicated by Citibank N.A., Jersey Branch which has its registered address at PO Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citibank N.A. Jersey Branch is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the States of Jersey website www.gov.je/dcs, or on request. In Canada, Citi Private Bank is a division of Citibank Canada, a Schedule II Canadian chartered bank. Certain investment products are made available through Citibank Canada Investment Funds Limited (“CCIFL”), a wholly owned subsidiary of Citibank Canada. Investment Products are subject to investment risk, including possible loss of principal amount invested. Investment Products are not insured by the CDIC, FDIC or depository insurance regime of any jurisdiction and are not guaranteed by Citigroup or any affiliate thereof.

Global Strategy: Quadrant  February 1, 2019 42

CCIFL is not currently a member, and does not intend to become a member of the Mutual Fund Dealers Association of Canada (“MFDA”); consequently, clients of CCIFL will not have available to them investor protection benefits that would otherwise derive from membership of CCIFL in the MFDA, including coverage under any investor protection plan for clients of members of the MFDA. This document is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities to any person in any jurisdiction. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially. Citigroup, its affiliates and any of the officers, directors, employees, representatives or agents shall not be held liable for any direct, indirect, incidental, special, or consequential damages, including loss of profits, arising out of the use of information contained herein, including through errors whether caused by negligence or otherwise. © Copyright 2019, Citigroup Inc. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world.

Global Strategy: Quadrant  February 1, 2019 43

Asia Pacific Europe & Middle East Latin America North America HONG KONG CHANNEL ISLANDS BRAZIL UNITED STATES Orange County, CA Hong Kong St. Helier, Jersey Rio de Janeiro Beverly Hills, CA 650–329–7060 852–2868–8688 44–1534–608–010 55–21–4009–8905 213–239–1927 Palm Beach, FL Sao Paulo Boca Raton, FL 800–494–1499 INDIA ISRAEL 55–11–4009–5848 561–368–6945 Palo Alto, CA Bangalore Tel Aviv Boston, MA 415–627–6330 91–80–4144–6389 972–3–684–2522 LATAM OFFICES IN US 617–330–8944 Philadelphia, PA Mumbai Houston, TX Chicago, IL 267–597–3000 312–384–1450 91–22–4001–5282 MONACO 713–966–5102 Phoenix, AZ Dallas, TX 602–667–8920 New Delhi Monte Carlo Miami, FL 214–880–7200 91–124–418–6695 377–9797–5010 305–347–1800 San Francisco, CA Denver, CO 415–627–6330 New York, NY 212–559–9155 303–296–5800 Seattle, WA SINGAPORE SPAIN Greenville, DE 888–409–6232 Singapore Madrid 302–298–3720 Short Hills, NJ 65–6227–9188 34–91–538–4400 MEXICO Greenwich, CT 973–921–2400 Mexico City 800–279–7158 52–55–22–26–8310 Washington, DC SWITZERLAND Houston, TX High Net Worth Monterrey Geneva 832–667–0500 202–776–1500 52–81–1226–9401 41–58–750–5000 Los Angeles, CA Law Firm Zurich 213–239–1927 202-220-3636 41–58–750–5000 Miami, FL Westport, CT 866–869–8464 203–293–1922 UNITED ARAB New York, NY CANADA EMIRATES 212–559–9470 Montreal Abu Dhabi Asia 514–393–7526 971–2–494–3200 212–559–9155 Toronto Dubai Latin America 416–947–5300 971–4–604–4644 212–559–9155 Vancouver 604-739-6222 UNITED KINGDOM London 44–207–508–8000

Global Strategy: Quadrant  February 1, 2019 44