Baseball and Investing: Dynamic Systems and Decision Making

Q1 2021 Commentary, Review, & Outlook

Investment Management

Robert G. Hagstrom, CFA Chief Investment Officer Senior Portfolio Manager Investment Commentary

Robert G. Hagstrom, CFA Chief Investment Officer Senior Portfolio Manager April 5, 2021

Baseball and Investing: Dynamic Systems and Decision Making 2021 1st Quarter Commentary, Review, and Outlook

“Baseball is 90% mental and the other half is physical.” —Yogi Berra, American baseball player, manager, coach

Commentary also awarded the Nobel Prize in Economic The Major League Baseball season begins anew. Sciences, the laureate Daniel Kahneman.1 Fingers crossed, the worst of the pandemic is Thinking Fast and Slow was published in 2011 behind us and all 30 teams will play a full 162- and quickly became a New York Times bestseller. game schedule this year. It is our hope the return The book catalogues the research Kahneman to normalcy begins with the umpire yelling, “Play conducted over his nearly six decades of Ball!” research, much of it in collaboration with long- Opening day is always a special occasion. After time friend Amos Tversky. The book is dedicated spending a cold, dark winter hunkered down to Tversky who died before being awarded the inside, everyone is eager to get outdoors and Noble prize he surely would have received along once again feel the warm sunshine on their face. with Kahneman. There is no better place to welcome back spring The central thesis of Thinking Fast and Slow is a than at a ballpark filled with hometown fans recognition between two modes of thought. dreaming this may be their year at a shot to win “System 1” thinking is fast, instinctive, and the World Series. emotional. “System 2” is a slower mode of One can’t think about baseball without recalling thinking that is more deliberative, logical, and Yogi Berra. Not only was Yogi one of baseball’s time consuming. Although fast, instinctive greatest players—winning ten World Series rings, thinking is necessary, (e.g., there is not much time more than any other baseball player in history, to analyze what to do with a steering wheel when with an additional three more championships as a your car begins to slide), System 1 thinking causes manager—but he was also one of the sport’s most errors in decision making, particularly when greatest characters. For many baseball fans, Yogi individuals are confronted with complex Berra is also best known for his “Yogisms,” problems. simple, one-line paradoxical aphorisms like, What does a psychology book on complex “When you come to a fork in the road, take it,” decision making have to do with baseball? Many and “It’s like déjà vu all over again.” will recall Michael Lewis’ popular book, It has been argued that baseball is a simple Moneyball, which told the story of how Billy sport—you hit the ball, you catch ball, you throw Beane, the general manager of the Oakland the ball. There is not much more to it than that. Athletics, who took issue with scouts using You can almost hear Yogi Berra readying one of outdated, subjective, and flawed statistics to his zingers. But of course, baseball is more draft baseball players. The eventual success of complex than hitting, catching, and throwing a the Oakland Athletics was the story of how Beane baseball, particularly for managers and front re-wrote the math on optimizing a baseball team. (1) Lemire, Joe. office executives who struggle each year with In contrast, Thinking Fast and Slow is not about “This Book Is Not About lineup strategies and player evaluations. Even so, the math but the psychology of how today’s Baseball. But Baseball Teams Swear By It.” it was surprising to us that the most popular book baseball executives are working to overcome bad The New York Times, circulated by baseball executives this spring decision making in order to help improve their February 24, 2021. season was written by a psychologist who was teams.

2 Baseball and Investing: Dynamic Systems and Decision Making 1Q 2021 Commentary, Update, and Review Investment Commentary

Despite the lack of explicit baseball examples in managers and analysts and are often discussed Kahneman’s book, front office executives at the when making investment decisions. We oversee Oakland Athletics, Philadelphia Phillies, and the portfolios similar to managing a baseball team, Los Angeles Dodgers swear by it. In addition, Sig contemplating how best to optimize and Mejdal, an assistant general manager with the assemble our lineup for the upcoming season. Baltimore Orioles, asks everyone he meets if This requires a System 2 investment decision they’ve read Thinking Fast and Slow. Keith Law, process, the objective of which is to build a World who wrote Inside Game, an examination of bias Series team. and decision making in baseball, said he was Even so, with all that we have learned about inspired to write his book after being pestered by investing at EquityCompass, we never forget the Mejdal to read Kahneman’s book. What unites stock market, like baseball, is a dynamic system Moneyball and Thinking Fast and Slow is an that is constantly changing, learning, and examination of the biases and mental shortcuts— adapting. Certainly, whatever fixed ideas we may termed representative heuristics—individuals have about the stock market, rest assured they make in answering complex problems—answers will need to be updated in the years ahead. For that often prove to be wrong. In a nutshell, this reason, EquityCompass remains a dedicated individuals who make mistakes in decision learning organization, always eager to discover making often default to System 1 thinking while as much as we can about investing. And just as avoiding the more time consuming and laborious soon as we think we have it all figured out, we are System 2 process. reminded of the sage advice of the great Yogi At EquityCompass, we’ve observed investors’ Berra…“The future ain’t what it used to be.” mistakes and concur, errors most often happen Review when a snap System 1 decision is made—a decision, in and of itself, that is often anything but In our 2020 year-end commentary, we suggested simple to discern. For example, if a stock goes up November 9 would be remembered as a pivotal in price, many investors believe it is a good date in both the fight against COVID-19 and also investment and if it is going down in price it as a potential turning point for the stock market. should be avoided—a classic System 1 quick and On that date, Pfizer and BioNTech announced easy decision. their vaccine candidate was 95% effective in There is nothing wrong with pricing, but the protecting individuals against COVID-19. Five mistake investors continually make is thinking weeks later, the U.S. Food and Drug pricing equates valuation. The only way to figure Administration (FDA) approved Moderna’s out what an investment is worth is to dig through coronavirus vaccine. Two days before the end of the business to determine cash flow, return on the year, the United Kingdom approved Oxford- invested capital, and the duration of the AstraZeneca’s new vaccine for distribution. On company’s economics before comparing the the heels of these important announcements, value of a stock to its price. Only then can an Johnson & Johnson also announced it was close investor ascertain if a rising or declining stock to getting approval, which it subsequently price should be acted on or ignored. Of course, received, for a vaccine to help protect individuals this analysis is a bit more laborious than just against COVID-19. watching stock prices. Nonetheless, the thinking Collectively, we believed these vaccine errors many investors make entail not taking the announcements would help convince investors necessary time involved in System 2 thinking in the end of the global pandemic may be close at order to make optimal decisions about stocks and hand. At last, investors had some assurance the portfolio management. global pandemic might be arrested in 2021 to One should not be surprised the EquityCompass help lift the global lockdown of economies library has long housed both Moneyball and around the world and restore economic growth. Thinking Fast and Slow among its investment The stock market typically discounts new books. Both have been read by our portfolio information six months out. As such, conventional

April 2021 3 Investment Commentary

wisdom suggested the summer of 2021 would the first quarter, while the Russell 1000 Growth be the starting period when our personal and Total Return Index limped along up only 0.94%— economic lives might return to some sense of a very large relative outperformance gap normal. between value and growth stocks in just three The performance of growth stocks over value months and the largest in two decades. stocks in 2020 was perfectly sensible. Despite Parsing the internals of the stock market, the best the economic lockdown and recession that performing S&P 500 sectors in the first quarter followed, most growth stocks—technology included Energy +30.38%, Financials +15.80%, stocks included—continued to post strong sales Industrials +11.29%, Materials +8.93%, Real growth, cash earnings, and high returns on Estate +8.83%, and Communication Services invested capital—all the necessary ingredients to +8.00%. The laggards included Consumer help drive stock prices higher. Value stocks, on Discretionary +3.06%, Health Care +3.05%, the other hand, are dependent on a growing and Utilities +2.54%, Information Technology expanding economy for their business models to +1.90%, and Consumer Staples +0.94%. generate attractive economic returns. Since the Basically, the worst performing sectors in 2020 economy was largely hobbled throughout the moved to the front row in the first quarter, while year, not surprisingly, value stocks did not last year’s leaders have been shuffled to the rear. participate in the stock market recovery. Overseas, the MSCI All Country World ex-USA All this has now changed. With the Federal Index posted a +4.04% return in the first quarter Reserve’s new estimates of 5%–6% gross lagging the broader U.S. index, the S&P 500. For domestic product (GDP) growth in 2021 (with the first three months of 2021, the best some private estimates even higher) there is no performing large developed foreign markets longer any question that we are now at the were, in order: the DAX Index (Germany) forefront of a rapidly recovering and growing +9.40%, CAC 40 Index (France) +9.29%, Kospi economy and, for the first time in years, value Index (Korea) +6.54%, Nikkei 225 Index (Japan) stocks are the new leaders in performance. +6.32%, IBEX 35 Index (Spain) +6.27%, Hang In the first quarter of 2021, the Dow Jones Seng Index (Hong Kong) +4.21%, FTSE 100 Index Industrial Average, a more value-oriented index, (United Kingdom) +3.92%, and the Shanghai A led the way gaining 8.29%, including dividends. Share Index (China) down 0.90%. The S&P 500 Total Return Index came in second Despite the headline grabbing story of the value place, posting 6.17% for the quarter. The stock comeback, the biggest news in the first standout performer in 2020 was the NASDAQ quarter, in our opinion, was not what happened Composite Total Return Index, largely comprised in the stock market but what happened in the of growth companies, including technology. bond market. However, this year the NASDAQ Composite In the first quarter of 2021, the Bloomberg found itself in an unusual place, at the back of the Barclays U.S. Aggregate Bond Total Return Index pack finishing the first quarter up 2.95%. (AGG) declined 3.37%. Let me repeat that. The Small and mid cap stocks, also the net total return of the Barclays AGG Index in the first beneficiaries of an expanding economy, three months of this year was down 3.37%. generated very strong performance gains. In the For many investors who have owned high-quality first quarter, the S&P SmallCap 600 Total Return bonds, this may be the first time they have ever Index gained 18.24%, while the S&P MidCap 400 seen a price decline of this magnitude in their Total Return Index posted a 13.47% return—both bond portfolio. Most, we believe, will be stunned substantially outperforming large cap stocks. by the news. To put this in context, the AGG just When we examine the grudge match between experienced its worst quarterly loss since 1981, value and growth stocks more closely, we clearly and its poorest trailing six-month performance see the differences in performance. The Russell since the first half of 1994. 1000 Value Total Return Index was up 11.26% in

4 Baseball and Investing: Dynamic Systems and Decision Making 1Q 2021 Commentary, Update, and Review Investment Commentary

What has caused the decline in bond prices? The What is the trend line, the long-term inflation rate answer has two parts. First, Treasury yields in the United States? According to the Federal increased significantly in the first quarter. The Reserve (Fed), the U.S. trend line inflation rate is second reason had to do with the composition of near 2.00%. If you look back over the last ten the index itself. The Barclays AGG Index began years, the trend line of U.S. inflation, using the 2021 with its lowest yield at 1.12% and its highest Fed’s preferred measure—the Personal duration (6.14 average years) since inception in Consumption Expenditure (PCE)—has indeed 1975. One thing to remember about bond bounced around the 2% number, although, over performance, when yields are low and duration is the last decade the PCE has spent more time high, any modest increase in bond yields can below the 2% level than above it. have a damning impact on bond total return We can contrast the Federal Reserve’s viewpoint performance—and so it was in the first three on inflation with the market’s expectation for months of the year. inflation by monitoring what is called the U.S. Outlook Treasury “breakeven inflation rate.” Currently, the Defeating COVID-19 is now allowing our 5-year Treasury breakeven rate is 2.6%. Put economy to recover. The recent rise in interest differently, the market’s expectation for inflation rates is a typical occurrence early in any economic over the next five years is 2.6%. This is a tad recovery, including this one. Within an economic higher than the Fed’s expected long-term trend recovery it is important to understand reflation is line of inflation at 2%. Although raising eyebrows, a definitive part of economic re-normalization. At this market implied inflation rate is not far out of this moment, the stock and bond markets are bounds from what we might expect when the coming to grips that both interest rates and economy is in a reflationary cycle. inflation are rising—something that has not Jim DeMasi, head of fixed income strategy and happened in a long time. Senior Portfolio Manager at EquityCompass, has Generally speaking, reflation is defined as an noted with this current economic recovery, upswing in the economic cycle where both reflation is not too dissimilar to the reflationary growth and inflation are accelerating following a cycle in 2010–2011 following the 2008–2009 deflationary period. In May 2020, when the Financial Crisis. What is important to note, he pandemic was cresting, the year-over-year explains, is that during the economic recovery change in the Consumer Price Index (CPI) stood following the Financial Crisis, the inflation rate at 0%. Then we tiptoed away from falling into a then rose temporarily to 3.9% year-over-year in deflationary spiral. September 2011 before settling back to 2% in subsequent years—its long-term, historical trend Importantly, reflation, which is considered a form line. of inflation (an increase in the price level), needs to be contrasted with particularly “bad” inflation, Some extrapolate that the rise in inflation and which is inflation that is above the long-term interest rates indicate something more sinister on trend line. What we see now is not bad inflation, the long horizon than just simple reflation, even but a reflation recovery bouncing off the unusual going so far as to suggest the current period of low price level last May, a price level that had normal reflation will morph into the systemic fallen well below the long-term trend line of hyperinflation of the 1970s. Although not a zero inflation. probability, Jim points out the forces that drove secular inflation higher in the 1970s, namely What is trend inflation? Trend inflation is automatic inflation-based wage increases and determined by extracting observed price commodity shocks including an oil embargo that increases over the long term after removing the drove transportation costs substantially higher, cyclical effects from business cycles as well as are absent today. transitory distortions like “pandemics” or “oil shocks”—one-off occurrences that are not a Not only does Jim point out there are no rapid permanent condition. wage increases or oil embargos impacting

April 2021 5 Investment Commentary

transportation costs, he additionally explains willing to let inflation run ahead of trend line there are significant counterweights—secular inflation for a period of time rather than risk falling structural forces in place—that are actively back into a recession by raising interest rates the working to lower inflation, namely demographics moment inflation hits a 2% annual number. (aging populations save more and spend less Although the Federal Reserve holds sway over which reduce demand and limit price increases), short-term interest rates by pegging the Fed globalization (access to global supply chains and Funds Rate near zero, it does not have absolute labor pools puts downward pressure on control over long-term interest rates, which are production costs), technology (technological largely determined by bond investors. With our advances allow goods and services to be economy now in a reflationary recovery, we produced and delivered at lower costs also expect the long end of the Treasury curve, namely pushing down prices), and far different wage 10-, 20-, and 30-year Treasuries, will see yields dynamics (significantly lower wage pressures upward sloping as the economy continues to today versus the high inflation period of the improve. This would be normal and should be 1970s). expected. One should note, the five years before When doing the math, the secular forces of the the onset of the global pandemic, the U.S. 1970s which caused systemic inflation are absent 10-year Treasury note traded at yields between while the new forces of aging demographics, 1.50% and 3.25%, with two of the years (2017 globalization, and technology, along with new and 2018) posting yields between 2.00% and wage dynamics are today collectively putting 3.25%. This being said, no one should be downward pressure on rising inflation. surprised to see the 10-year Treasury Note will This is not to say we won’t get a burst of short- soon be yielding between 2.00% and 3.00% as term inflation that correlates to a reflationary the economy continues to recover. recovery. We will. However, the likelihood of How should investors position their portfolios runaway inflation, in our opinion, remains low. To based on the viewpoint that we are in the midst this we would add the public comments by the of a reflationary recovery with GDP growth Federal Reserve, including Chairman Powell and accelerating and long-term yields rising from Governors Kaplan and Daly, that nothing thus far, here? With GDP growth improving along with a including the $2.25 trillion infrastructure solid rise in corporate profits, we would expect program proposed by the Biden administration, the stock market to continue to perform well has changed their long-term outlook on inflation. despite the yield on the 10-year rising from Furthermore, the Federal Reserve is on record 0.50% to as high as 3.00% over the next year. indicating there will be no interest rate increases One should remember, stocks continued to rise through 2023 and no tapering of the current in price between 2016 and 2020 even when ongoing $120 billion monthly bond purchases in interest rates were 150 basis points higher than the open market until the labor market reaches they are today—growth stocks included. maximum employment and inflation runs Although we expect stocks to continue to moderately above the 2% trend line threshold for perform well in the coming year, we do not share some time. the same optimism for bonds. Even if long-term The Federal Reserve’s greatest fear is not inflation interest rates rise just another 150 basis points but deflation. The Fed has a playbook on how to from here, the impact of rising interest rates on a tackle inflation: raise interest rates and reduce the bond portfolio can be painful, as witnessed in the money supply. However there appears to be no first quarter of 2021. strategy on how to prevent deflation, particularly At EquityCompass, we are on record that bonds, once an economy falls into a vicious circle of ever even at low interest rates, can play an important lower prices. The fact that both Japan and Europe role in an investor’s portfolio. Bonds seek to have continued to struggle, and failed, over how provide portfolio stability and can generate to escape the clutches of deflation is evidence supplemental income. Our point of contention enough. Knowing this, the Federal Reserve is

6 Baseball and Investing: Dynamic Systems and Decision Making 1Q 2021 Commentary, Update, and Review Investment Commentary

about fixed income securities is not about bonds growth stocks (which have underperformed the themselves but their weighting—the allocation to last four months) to buy dividend-paying stocks, bonds within a portfolio. our recommendation would be to lighten the In years past, when yields were 4%, 5%, and 6%, bond portfolio and reinvest the proceeds into it was quite sensible to allocate a significant high quality, dividend-paying stocks yielding portion of an investor’s portfolio to bonds. Not between 4%–5%. In this way, dividend-paying only was the current income attractive, but there stocks become bond surrogates that seek to was little risk to principal as interest rates were provide high current income, growth of income, trending lower, not higher. Today it is different. and underlying capital appreciation, compared With bond yields at 1%, 2%, or perhaps 3%, not to an overweight bond portfolio offering low only is the income paltry, but a bond portfolio income, no growth of income, and the likelihood carries an additional risk of price declines of capital depreciation. alongside a rising interest rate environment. At times like these, we take note of the sage For years, if not decades, older investors— advice, this time not from Yogi Berra but from the retirees included—defaulted to a 50/50, 60/40, highly regarded Austrian philosopher, Ludwig or even a 70/30 allocation of bonds to stocks as Wittgenstein. His field of study included logic, the standard portfolio approach. When interest mathematics, and the philosophy language. rates were higher, no one would quibble with Wittgenstein’s theory of language has helped us these asset allocation recommendations. appreciate that words have meaning—that those However, with current interest rates low, and words we chose form a description, which bond prices at risk in a rising interest rate ultimately provides an explanation. Wittgenstein environment, we strongly urge investors to reminds us how we see the world is shaped by reconsider traditional asset allocation models. how we describe it. But his point was clear, the Our recommendation, is to allocate 75% of the world is compatible with many different portfolio to equities and 25% to fixed income descriptions, and the lessons of investing remind securities. In light of the current economic and us failure to explain is caused by failure to investment landscape, we believe this asset describe. allocation is the most optimal strategy for System 1 thinking provides a quick, simple investors going forward. description. System 2 thinking affords multiple Our equity exposure recommendation has been, descriptions. What is left is to decide on the and continues to be, a barbell approach that likeliest outcome. At EquityCompass we prefer equally balances high-quality, dividend-paying System 2 thinking. stocks alongside attractively-priced, secular Our investment mantra remains the same— growth companies. In that many investors are know what you own and why you own it. If you underweight value, dividend-paying stocks and can answer these questions both logically and overweight growth stocks, we think now is the rationally, we believe the pathway forward for time to rebalance. However, instead of selling investors will make perfect sense.

April 2021 7 About the Author

Robert G. Hagstrom, CFA, is Chief Investment Officer of EquityCompass Investment Management, LLC and Senior Portfolio Manager of the Global Leaders Portfolio. He joined EquityCompass in April 2014 and launched the Global Leaders Portfolio in July 2014. Robert was appointed Chief Investment Officer in March 2019. Robert has more than 30 years of investment experience. Prior to joining EquityCompass, he was Chief Investment Strategist at Legg Mason Investment Counsel, and before that, the Portfolio Manager of the Growth Equity Strategy at Legg Mason Capital Management for 14 years where he managed $7 billion in assets. Robert is the author of ten investment books including The New York Times Best Seller, The Warren Buffett Way, widely considered to be the definitive book on the investment approach and strategies of Warren Buffett. The book has sold over one million copies worldwide and is translated into 17 foreign languages. In addition, Robert wrote, Investing: The Last Liberal Art, a multidiscipline examination of investing and decision making. His latest book, published in 2021, is Warren Buffett: Inside the Ultimate Money Mind. Robert earned his Bachelor’s and Master’s of Arts degrees from Villanova University. He is a Chartered Financial Analyst, a member of the CFA Institute, and the CFA Society of Philadelphia. Robert is also a member of the Global Interdependence Center.

About EquityCompass EquityCompass Investment Management, LLC (“EquityCompass”) is a Baltimore-based SEC registered investment adviser offering a broad range of portfolio strategies and custom plans for individuals, financial intermediaries, and institutional clients in the U.S. and Europe. Formally organized in 2008, EquityCompass provides portfolio strategies with respect to total assets of approximately $4.3 billion as of March 31, 2021.* EquityCompass is a wholly owned subsidiary of Stifel Financial Corp. The EquityCompass team of professionals represents deep industry experience in security analysis, capital markets, and portfolio management. We are committed to a consistent investment process that relies on enduring principles, sound empirical reasoning, and the recognition of a dynamic investment environment with a global reach.

8 Baseball and Investing: Dynamic Systems and Decision Making 1Q 2021 Commentary, Update, and Review Disclosures

Important Disclosures The information contained herein has been prepared from sources believed to be reliable but is not guaranteed and is not a complete summary or statement of all available data nor is it considered an offer to buy or sell any securities referred to herein. Keefe, Bruyette & Woods (KBW) is a Stifel affiliate. Affiliates of EquityCompass may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.

The Dow Jones Industrial Average (DJIA) is an unmanaged, price-weighted index that consists of 30 blue chip U.S. stocks selected for their history of successful growth and interest among investors. The price-weighted arithmetic average is calculated with the divisor adjusted to reflect stock splits and occasional stock switches in the index. The S&P 500 Total Return Index tracks both the capital gains of the stocks in the S&P 500 Index over time, and assumes that any cash distributions, such as dividends, are reinvested back into the index. Looking at an index's total return displays a more accurate representation of the index's performance. By assuming dividends are reinvested, you effectively have accounted for stocks in an index that do not issue dividends and instead, reinvest their earnings within the underlying company. The NASDAQ Composite Index, comprised mostly of technology and growth companies, is a market value-weighted index of all common stocks listed on NASDAQ. The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index covers over 7% of the U.S. equity market, and seeks to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the broader mid-cap universe on an on-going basis. The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable. The Russell 1000 Growth Index measures the performance of those Russell 1000 index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index measures the performance of those Russell 1000 index companies with lower price-to-book ratios and lower forecasted growth values. The MSCI All Country World ex-USA Net Total Return Index is a free-float weighted equity index. The Korean Composite Stock Price Index (KOSPI) is a market capitalization weighted index comprised of 200 of the largest and most liquid issues traded on the Korean Stock Exchange. The IBEX 35 is the official index of the Spanish Continuous Exchange. The index is comprised of the 35 most liquid stocks traded on the Continuous market. It is calculated, supervised and published by the Sociedad de Bolsas. The equities use free float shares in the index calculation. The Nikkei 225 Stock Average is a price-weighted index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange. The Hang Seng Index is a market capitalization-weighted index of the largest companies that trade on the Hong Kong Exchange. The index aims to capture the leadership of the Hong Kong exchange and covers approximately 65% of its total market capitalization. The CAC 40 Index is a market-capitalization weighted index of the 40 largest and most liquid companies traded on the Paris Bourse stock exchange. The FTSE 100 is a market-capitalization weighted index of UK-listed blue chip companies designed to measure the performance of the 100 largest companies traded on the London Stock Exchange that pass screening for size and liquidity. The Shanghai A-Share Stock Price Index is a capitalization-weighted index tracking the daily price performance of all A-shares listed on the Shanghai Stock Exchange that are restricted to local investors and qualified institutional foreign investors. The DAX (Deutscher Aktienindex) Index is a blue chip index in Germany tracking the performance (including dividends) of the 30 most actively traded stocks on the Frankfurt Stock Exchange. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency). Indices are unmanaged, do not include fees and expenses, and it is not possible to invest directly in an index.

Changes in market conditions or a company’s financial condition may impact a company’s ability to continue to pay dividends, and companies may also choose to discontinue dividend payments. Diversification and/or asset allocation does not ensure a profit or protect against loss. Rebalancing may have tax consequences, which should be discussed with your tax advisor.

*Total assets combines both Assets Under Management and Assets Under Advisement as of March 31, 2021. Assets Under Management represents the aggregate fair value of all discretionary and non-discretionary assets, including fee paying and non-fee paying portfolios. Assets Under Advisement represent advisory-only assets where the firm provides a model portfolio and does not have trading authority over the assets.

PAST PERFORMANCE CANNOT AND SHOULD NOT BE VIEWED AS AN INDICATOR OF FUTURE PERFORMANCE.

Additional Information Available Upon Request

April 2021 9 EquityCompassInvestment Investment Managemen Management,t LLC One South Street, 16th Floor Baltimore, Maryland 21202 (443) 224-1231 email: [email protected] www.equitycompass.com