AC T I V E M A N AG E ME N T

Where’s the Value in Value?

MARCH 2016

Based on style indices, has been cold as ice, growth has seen its hottest streak since the 1990s tech bubble and value exposure has recently hurt relative performance for many diversified portfolios. Why has growth been so dominant? Is there any value left in value? We asked the experts. Six CBIS equity sub-advisers offer their perspectives on the value/ growth divide.

One of the most prominent equity market trends of the past few years is the dominance of growth-style returns over those of value. The Russell 1000 Growth Index outgained the Summary Russell 1000 Value Index by more than 900 basis points in 2015. Growth’s outperformance CBIS asked six of our active equity extends, albeit to a lesser degree, over the trailing five-year period. What’s driving the trend? sub-advisers to offer their thoughts on value’s recent weakness and What conclusions should draw from it? growth’s dominance. Their insights include informed perspectives on We asked the experts. Six CBIS equity sub-advisers offer their take on value’s slump and market cycles, relative valuation, what it might mean for markets and portfolios from here. Read on to see why headline style global central banking and implica- tions for portfolio strategy in 2016. indices don’t tell the whole story and why the outlook for value investors is brighter than it might seem. AJO CUIT Value Equity Quant value-specialist AJO shows how sector returns have dominated growth and value Causeway Capital Management index performance; when adjusted for sector influence, value has actually performed well. CUIT International Equity Causeway Capital Management shows that investors are paying a substantial premium for Los Angeles Capital Management defensiveness and characteristics and that value and cyclical are among CUIT Growth Equity the market’s best bargains. The quants at Los Angeles Capital Management make clear there’s Principal Global Investors more to value and growth than headline numbers; value factor construction makes a big CUIT International Equity difference in assessing value’s performance. International sub-adviser Principal Global Inves- Scott Investment Partners tors also ties value’s slump to sector influences and explains why they apply a balanced UCITS Global Equity growth/value discipline within their CBIS growth mandate. Scott Investment Partners shows Wellington Management Company how years of global central bank easy money policies have badly distorted market valuations CUIT Growth Equity and the traditional concepts of growth and value. Growth sub-adviser Wellington Manage- ment Company digs deep into the growth universe and shows how attractively valued growth names have lagged more expensive peers; a shift in this “cycle within a cycle” could become a tailwind for valuation-conscious growth portfolios. Page 1 Value vs. Growth MARCH 2016

AJO 1: R1000 Value vs. R1000 Growth AJO 2: Growth Cycle Duration

0.5 1.0 value outperforms Post tech bubble 0.8 0.3 0.5 The 80's 0.3 0.0 0.0 (0.3) (0.3) Indexed Return (0.5) Post GFC (0.8) growth outperforms Tech bubble (1.0) (0.5) 1 10192837465564738291100 79 82 85 88 91 94 97 00 03 06 09 12 15 Months Source: AJO / Note: Log index of cumulative relative return; Jan 1979 - Feb. 2016 Source: AJO

AJO 3: Price/Earnings — Sector Adjusted Cumulative Return result is a polarized group of stocks and sectors in the Russell 1000 Value Index based on a composite measure of cheapness. 40.0% In fact, the most recent period of value underperformance has 30.0% been driven largely by sector allocation. On an annualized basis, 20.0% the growth index outperformed the value index by 4% — and, interestingly, nearly 75% of this return differential is a result of 10.0% growth sectors outperforming value sectors. For example, 0.0% growth typically dominates when information technology out- 07 08 09 10 11 12 13 14 15 -10.0% performs financials and consumer stocks outperform energy. As such, the financial crisis and oil shocks define this period far Source: AJO more than a breakdown in the fundamentals of value investing. Whew! AJO Let’s just get this out there — we’re value investors. And yes, we Prior to this period, the impact of sector allocation between the realize that growth stocks outperformed value stocks over the style benchmarks went the other way, adding to the returns of last — let’s say — nine years. In fact, as shown in Charts 1 and 2, the value index. Regardless of direction, the influence of sectors we are experiencing the longest had previously only accounted for growth market (when defined by about 10% of the difference in returns “It is clear that style performance has lately the Russell 1000 Growth Index — not the 75% we noted above. been defined by sector performance. And outperforming the Russell 1000 while comparing index returns is still a But how does value perform if we Value Index) since the Russell style valid definition of style, recognizing value neutralize this sector impact? At AJO, indexes were created. The last as a determinant of selection tells a we assess value using a number of growth-dominated market (the different tale.” measures; one of our favorites is price 1990s tech bubble) proved that -AJO relative to forecasted earnings. To value stocks can underperform for evaluate this impact, we use this a time and inflict plenty of measure of value to simulate an equal-weighted portfolio com- pain on value investors. But the current regime is winning on prising long exposure to the least expensive stocks within each endurance alone. Do these index results spell the end of value sector and shorting the most expensive. As shown in Chart III, it investing as we know it? Hardly! turns out we would have performed quite well if we selected It’s probably useful to review how these benchmarks are created. stocks on this measure. In a costless world, the cumulative re- Once a year, Russell evaluates securities across each capitaliza- turn of this strategy is 35% (think of it as ) over the nearly tion universe using three measures: price to book, earnings nine-year period, without taking on any market risk. Not too growth and sales growth. Each security is categorized as 100% shabby. value, 100% growth or some combination of each. The end

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It is clear that style performance has lately been defined by sec- Causeway 1: Value Cycles — Cumulative Return & Drawdowns tor performance. And while comparing index returns is still a valid definition of style, recognizing value as a determinant of 0.0% 1.7 stock selection tells a different tale. The fundamental quest to -2.0% 1.6 find stocks with the most attractive valuations relative to peers -4.0% 1.5 is still our most effective tool. As Mark Twain might say (with -6.0% 1.4 some liberties): “The reports of value’s death have been greatly -8.0% 1.3 exaggerated.” -10.0% 1.2 Drawdown Depth Depth (%) Drawdown

 -12.0% 1.1 Causeway Capital Management Cumulative Return Index Unimpeded, stock markets will eventually correctly price the -14.0% 1.0 91 95 97 01 05 07 11 15 fundamentals of a business; this is the cornerstone of value in------Jan-93 Jan Jan Jan-99 Jan Jan-03 Jan Jan Jan-09 Jan Jan-13 Jan Jan vesting. But there’s no question that sentiment moves Drawdown Cumulative (RHS) in cycles and value investing is deeply out of favor. As shown Source: Causeway Capital Management / Note: Value performance based on proprietary risk model’s value factor return. in Chart 1, value’s recent weakness even rivals what occurred during the late 1990s technology, media and telecommunica- Causeway 2: High Premiums for Momentum and Defensiveness tions bubble. As shown in Chart 2, investors are paying a sub- stantial premium for defensiveness and price momentum; stocks 100% featuring these characteristics are quite expensive versus other 80% segments of the markets (and even within industries), with 60% multiples well above long-term averages. 40% The conundrum facing beleaguered value managers and their 20% clients is that value-oriented and high- cyclical stocks are 0% among the best bargains in global equity markets, especially in -20% emerging markets. And despite what our emotions tell us, buy- -40% Momentum Premium ing well-chosen, out-of-favor stocks generally decreases rather Defensive Premium -60% than elevates the risk of future losses. But what will spur inves- tors in general to again appreciate the value in value? Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

An easing of deflation concerns should encourage investors to Source: Causeway Capital Management / Note: Valuation difference between top and bottom quintiles based on Causeway analytics. return to value investing rather than crowd further into the mo- strengthening currency since 2011. But with the U.S. dollar giv- mentum and growth trade. To be sure, anemic global economic ing up ground this year, depreciating versus the euro and yen, growth in many areas outside the U.S. has partly caused the downward pressure on commodity preference for defensive companies. prices should abate and prospects for But global growth should remain “The conundrum facing beleaguered value related industries should improve. The positive and, following steep de- managers and their clients is that value- Fed’s stated concern about the global clines, the risk/reward balance for oriented and high-beta cyclical stocks are effects of dollar appreciation could be companies tied to the economic and among the best bargains in global equity another factor that stalls or reverses commodity cycle swings in favor of markets.” the strong dollar/weak commodity reward. The early 2016 surge in -Causeway Capital Management price trend. commodities stocks demonstrates how quickly these recoveries can We do not need “reflation” (as some ignite. Furthermore, not all substantial and sustained periods of analysts argue) to catalyze a value rebound. Simple mean rever- equity weakness lead to recessions: in 1988 and in 2002 the U.S. sion bodes well for a recovery in value stocks. Two of many equity market swooned over many months, yet recession did not areas where Causeway sees opportunity are emerging markets in follow. The United States’ steady economic growth and positive general and banks in particular (both in emerging and devel- bond yields have made it a haven for global capital, resulting in a oped markets).

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Emerging Markets tightened. Liquidity at banks has improved significantly. Bank Emerging market (EM) value equities are undervalued relative oversight — with annual stress tests — is highly stringent, and to history and to developed market peers. These countries gen- banks have shed volatile businesses, especially those that con- erally have younger populations with better promise of produc- sume capital. We expect several prominent banks to be able to tivity gains and superior long-term economic growth rates rela- return capital to shareholders and see good opportunity in some tive to Europe, Japan and even the mighty United States. There of the cheapest U.S. money center banks as well as several is no doubt that investors would probably have more confidence European and UK banks. We will gladly accept higher in EM cyclical and financial stocks if they expected stable payouts while awaiting a “re-rating” upward to valuations more (rather than deteriorating) Chinese and U.S. real GDP growth. consistent with now-disciplined capital allocation and improv- But with credit cheap in most regions, and with room for more ing returns on equity. fiscal spending, many developing economies should muddle through and avoid a crisis. It would help if EM governments, especially Beijing, accelerated state-owned enterprise reform to Los Angeles Capital Management re-invigorate investment and spark competition. Governments Global value indices have underperformed their growth coun- should also do more to dismantle barriers to trade and foreign terparts over the last several years and many investors are await- investment. But with adversity often comes the political will for ing a reversion to the mean that produces a strong in value change, and long before we see these improvements equity mar- names. However, the performance of value is highly dependent kets typically rally on the prospect of rising productivity. on an investor’s definition of value. The classic definition is book- to-price, defined as a firm’s book equity divided by its market Banks capitalization. A value strategy focused on book-to-price can Many of the banks that interest us are trading substantially lead to investments in risky, struggling companies; such compa- below tangible book value (book value less goodwill). We have not nies are usually cheap for a reason! However, a value portfolio seen such pessimistic valuations since the 2011-12 euro crisis. that also incorporates measures such as earnings or And some banks are even trading below the lows reached in the can take on a very different profile than one built on a simple 2008-2009 global financial crisis, when investors feared spiraling book-to-price strategy. credit losses, recession and severe dilution of equity capital. We understand the anxiety evident in these valuations but believe The accompanying chart 1 sorts stocks into five portfolios based the market has overreacted. It’s true that the specter of flattening on book-to-price and shows annualized returns from the end of curves portends a likely hit to bank earnings, and loan loss 2009 through February 2016 with monthly rebalancing. Value provisions will likely need to rise given the carnage among oil stocks, defined as those with high book-to-price ratios, under- and commodity borrowers. But bank capital ratios have more performed growth stocks both in the U.S. and globally during than doubled since the 2008-2009 crisis, leverage has declined this period. precipitously, and it is hard to envision what would cause most In addition to weak returns for value and stronger returns for banks to need capital replenishment. Lending standards have growth, firms which are generally viewed as “high-quality” have

LA Capital 1: Book to Price (Dec 2009—Feb 2016) LA Capital 2: Earnings Yield (Dec 2009—Feb 2016)

16.0 16.0 14.0 14.0 12.0 12.0 10.0 10.0 8.0 8.0 6.0 6.0 4.0 4.0 Annualized Return (%) Annualized Return (%) 2.0 2.0 0.0 0.0 Cheap 2 3 4 Expensive Cheap234Expensive

Russell 1000 MSCI ACWI Russell 1000 MSCI ACWI

Source: Los Angeles Capital Management Source: Los Angeles Capital Management

Christian Brothers Investment Services, Inc. [email protected] Page 4 Value vs. Growth MARCH 2016 also performed well. Quality, like value, can take many forms; Using the MSCI World Growth and Value Indices as proxies, examples include low accruals, high and sustainable dividends, style performance was relatively one-sided during the three strong and high profit margins. A value meas- years ending December 2015. Growth handily outpaced value ure that also incorporates a quality component may have gener- with a cumulative total return of 40.2% versus 27.6% for value. ated reasonably strong performance since 2009. For example, However, common measures of growth and value used in isola- defining value as earnings yield places great emphasis on a com- tion can miss bigger picture trends and market conditions over pany’s ability to generate profits from the past three years illustrate this. its equity; this is in stark contrast to “The key point is that an investor’s defini- In fact, much of the performance reliance on book-to-price alone, since tion of value can have meaningful implica- differential can be attributed to that metric ignores earnings entirely. tions for portfolio construction. We con- differences in sector composition Thus, an investment strategy based tinue to prefer definitions of value that have between the two styles. on earnings yield would generate a a quality component, such as earnings The value index has been domi- portfolio with higher exposures to yield. “ nated by two primary groups of quality firms than a strategy that -Los Angeles Capital Management stocks. First are the lower , relies solely on the standard book-to- higher-yielding sectors such as tele- price metric. Given that high-quality firms have performed well communications, utilities and financial services. Some of these in recent years, it is not surprising that the simple earnings yield companies have struggled in an environment of ultralow to factor has also performed well. Chart 2 shows quintile portfolios negative interest rates and the uncertainties surrounding future using earnings yield since 2009. Although the performance has Fed rate policy. The second group is mature, deep cyclical stocks not been monotonic, it is clear that value (“cheap”) has outper- such as those in the beleaguered energy and materials sectors (it formed growth (“expensive”) when value is defined by earnings may be surprising to hear that many commodity linked names yield. were actually classified as growth companies as recently as The key point is that an investor’s definition of value can have 2011). Likewise, the growth index has benefitted from its larger meaningful implications for portfolio construction. We continue allocation to the consumer, healthcare and information technol- to prefer definitions of value that have a quality component, ogy sectors (where many companies are delivering self-financed such as earnings yield. This seems prudent in the current envi- and above-average earnings growth), its lower exposure to ronment, where many of the most beaten-down stocks with high energy and materials, and its lower weights in financials, telcos book values are concentrated within a few sectors that are highly and utilities. In fact, much of growth’s outperformance, particu- sensitive to shifts in the global macro environment. larly in the past year, has simply reflected these compositional differences (as shown in Chart 1).

Principal Global Investors (PGI) PGI 1: Growth/Value Relative Sector Weights The rationales for value and growth investing are each based on sound fundamental principles. Value investors are rewarded by Growth vs. Value 2012 Growth vs. Value 2015 emphasizing stocks selling at discounts to the market and to a 20.0 thoughtful assessment of fair value. Growth investors are 10.0 rewarded by skewing portfolios to companies and industries 0.0 delivering above-average growth in earnings and intrinsic net -10.0 worth. A value orientation is often best rewarded following peri- -20.0 ods of economic difficulty, when movement from “awful” to -30.0 merely “bad” represents an important fundamental change in outlook. Perhaps counter-intuitively, the best environment for growth investing is often when economic growth is tepid and companies that can successfully grow earnings are prized. Source: Principal Global Investors

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Just as many investors began to doubt the basic premise of value PGI 2: Crowded Trades (Sector Weights over Time) investing, the early months of 2016 produced a stark reversal of Technology (Growth) Financials (Value) leadership. Consistent with the theme of less “bad”, we have seen an outsized rally in previously shunned commodity-oriented 40 stocks. And after significant outperformance, investor sentiment

30 favoring high-growth, high-momentum stocks has moderated. Despite what may become a more challenging environment for 20 growth, maintaining a balanced growth/value discipline in PGI’s CBIS portfolio is a more reliable strategy than relying on tilts 10 toward simplistic style metrics. As always, we believe bottom-up, company-by-company analysis of fundamental change, earnings trends and relative valuation is the best way to deliver superior

Source: Principal Global Investors long-term results.

Scott Investment Partners When looking at trailing three-year returns, the sector return The philosophy of Scott Investment Partners (SIP) is that the disparities are stark. Healthcare, technology and consumer return we generate as an owner of a business is a result of the discretionary topped the league tables, advancing 74%, 57% and wealth the business creates. When considering the term 55%, respectively; a significant catalyst for growth’s dominance. “growth” we think of companies that grow the fabric of their The commodity-oriented energy and materials sectors declined business; these are typically companies with strong returns on 17% and 16%, respectively, while the more bond-like utilities equity, strong internal rates of return and strong cash flows. sector gained 23%. For reference, the MSCI World Index gained There is a greater degree of subjectivity when considering the 34% in U.S. dollar terms. term “value”, but traditional measures such as price to earnings, price to book and provide a starting framework. “In fact, much of growth’s outperformance, particularly in the past year, has simply reflected It is widely asserted across the investment industry that growth [sector] compositional differences.“ has outperformed value recently. However, the construction of growth and value indices is crucial to such a conclusion. The -Principal Global Investors way an index selects and weights constituents and the influence A related phenomenon is the propensity for the style indices to of home country, industry and regional performance trends, the become highly concentrated in strong-performing sectors amid time period selected and potential impact of survivorship bias speculative market surges. As indicated in Chart 2, for value it can all have a material impact on results. Given these caveats, was the 40% weight in financials leading up to the 2008/2009 we can nevertheless make several observations about the recent financial crisis. For growth, it was the 35% technology weighting dominance of growth-style returns. in the late 1990s tech bubble (which approached 50% inclusive The core observation is that central bank policy has badly of high-growth telcos and biotech). Gains from such over- distorted the traditional metrics investors have relied upon to crowded trades can quickly evaporate if portfolio positions are analyze both growth and value. Ever since the 2008/2009 finan- not carefully monitored. cial crisis — and arguably since the 1990s with the demise of At PGI, we don’t view value and growth in isolation; the magic is Glass-Stegall, collapse of Long-Term Capital Management and in the mix. Our CBIS portfolio provides the desired growth style tech bubble — financial markets have operated in an environ- exposure but without paying excessive valuation premiums. We ment of increasing moral hazard. The extraordinary measures seek to deliver a consistent profile that avoids high volatility central banks have taken to avoid presumed catastrophe include “glamour” stocks priced for perfection by investors who under- quantitative easing (QE), zero interest rate policy (ZIRP) and estimate the competitive forces facing these companies. In other now negative interest rate policy (NIRP). Yet in artificially words, our approach to growth investing tempers offense with attempting to sustain asset prices, central banking’s most signifi- an appropriate degree of defense. cant achievement, in our view, has been to destroy the market’s asset pricing mechanism.

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It’s briefly amusing to consider a world in which, due to negative Scott Investment Partners is a bottom-up research-based organi- yields, the taxman discourages the taxpayer from paying on zation, so we do not consider the choice between growth and time. However, other consequences of a broken pricing system value as binary. Our ideal investment is a company that demon- are not very funny. The corrupting influence of easy money cen- strates great growth characteristics combined with a tral banking has perverted our that indicates good value. It is quite systems of incentives and further “The core observation is that central bank possible that a good business will be perverted politics. Concerned by policy has badly distorted the traditional un-investable because it is too highly the public’s lack of confidence in metrics investors have relied upon to analyze valued. It is impossible that a bad the Eurozone’s banking system both growth and value.” business will become investible (artfully disguised as concern -Scott Investment Partners because it appears cheap. Buying a about money laundering and company that can’t grow makes no terrorism) the European Central Bank (ECB) is taking the ex- sense for a long-term investor, regardless of valuation. Buying traordinary step of taking the €500 note out of circulation. One growth without regard to price is equally insane. SIP finds no of the world’s three most prominent central banks is genuinely growth story so convincing that it merits a triple-digit P/E! afraid of a world in which people want to hold large amounts of physical cash away from the reach of banks and surveillance of unelected government bodies. Wellington Management Company Growth stocks meaningfully outperformed value stocks in 2015; At the company level, a frustrating outcome of ZIRP has been to the Russell 1000 Growth Index returned 5.67% versus the Rus- discourage many otherwise-competent management teams from sell 1000 Value Index’s -3.83% return. Growth’s dominance last investing in their businesses and instead undermine their bal- year showcases the premium investors have placed on growth ance sheets by borrowing to fund share repurchases. SIP has since the 2008/2009 financial crisis. In fact, as shown in Chart 1, argued with many companies that growth at growth has beaten value in five of the last seven years. Growth‘s the expense of the balance sheet does not create real growth or outperformance is not surprising given generally weak global value. As a side note, it’s worth observing that such behavior has economic growth and aggressive central bank stimulus. What’s been accompanied by an increase in the number of companies more interesting is the trend within the growth universe: lower- that need to use non-GAAP reporting to explain their PE growth stocks have notably underperformed higher-PE “underlying” business. growth stocks in three of the last four years. To better under- Central bank policy has also driven investors’ search for yield, further distorting market prices, lifting most ships on a sea of “While a disciplined approach to valuation has money and leading to broadly high valuations. Given the stretch been a headwind for some growth managers, it in traditional measures of value, it is perhaps not surprising that could turn into a tailwind as the cycle matures.” asset managers have resorted to a frontier mentality regarding -Wellington Management Company growth. It is common to hear technology companies refer to “land grab” opportunities, which often means growth in cus- tomer numbers, in users, in sales or in expectation of future stand this “cycle within the cycle” we can examine the narrow- earnings. The breakdown in the definition of value combined ness of current growth leadership and the potential implication with looseness in what one accepts as growth perhaps explains for growth stocks that have remained attractively valued. We some of growth’s recent outperformance. think there is upside for a growth portfolio with valuation disci- pline as the cycle matures and leadership within growth shifts. The Electric Kool Aid Bernanke Test has distorted the defini- tions of growth and value so much that stock prices seem sub- Growth’s narrow leadership is revealed in part by examining the ject to the whims of Merry Pranksters. A with a drivers of the performance differential between the growth and P/E of 300 which misses an arbitrary earnings target moves very value indices in 2015. The Russell 1000 Growth Index’s over- quickly towards the value end of the spectrum. It’s no wonder weight in the information technology and consumer discretion- that the ECB is concerned about people’s desire for cash! ary sectors captured the strength in internet-related and innova-

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Wellington 1: Growth vs. Value Rolling 12-Month Relative Return Wellington 2: Highest vs. Lowest Growth Quintiles

40.0 40.0 Valuation (USE3L) Q1-Q5 Growth Outperforming 30.0 20.0 Growth (3 to 5 Yr Proj) Q1-Q5 20.0 0.0 10.0 -20.0 0.0 Value Outperforming -10.0 -40.0 -20.0 -60.0 -30.0 -90

t -40.0 Oct-03 Oc Jun-99 Jun-86 Jun-12 Apr-97 Apr-84 Apr-10 Feb-95 Feb-82 Feb-08 Dec-92 Dec-79 Dec-05 Aug-01 Aug-88 Aug-14 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Wellington Management Company Source: Wellington Management Company

projected earnings growth notably outperformed over recent Wellington 3: Growth vs. Value Relative Valuation years and those with the most attractive valuations underper- 5.0 P/B Growth vs. P/B Value +/- 1 Standard Deviation formed. The data reveals a “cycle within the cycle” where attrac- 4.5 +/- 2 Standard Deviations Mean tively valued growth stocks lagged their more expensive peers 4.0 within growth’s overall style dominance. 3.5 While a disciplined approach to valuation has been a headwind 3.0 for some growth managers, it could turn into a tailwind as the 2.5 cycle matures. As shown in Chart 3, before the 2008/2009 finan- 2.0 cial crisis, value stocks were relatively expensive as the growth 1.5 premium narrowed considerably between 2001 and 2007. The 1.0 premium mean reverted in the ensuing years, making value much cheaper and highlighting potential for a cyclical inflection back to value. Source: Wellington Management Company Our approach to investing has as its goal a portfolio with better tive consumer-oriented stocks. Conversely, low interest rates led growth, higher returns on capital and more attractive valuations to a laggard performance from financials, which are dominant than the broad universe of large-cap growth stocks. While our in the Russell 1000 Value Index. But an even greater divide sepa- approach performed well in 2015, narrow growth leadership and rated innovation-driven growth stocks and equally compelling, the market’s evident lack of emphasis on valuation has been a but more attractively valued, growth names. Chart 2 shows the headwind at times over the past several years. But as the broader performance spread in the Russell 1000 Growth Index over the growth/value cycle progresses, we expect leadership will migrate past ten years between the highest and lowest growth quintiles back to attractively valued growth stocks. We believe there are (based on consensus long-term earnings per share growth) and now good opportunities to find high-quality growth companies the most attractive and most expensive valuation quintiles selling at compelling valuations that can produce strong relative (based on the Barra U.S. value factor). Stocks with the highest returns in the years ahead.

Important Information The CUIT Funds are exempt from registration with the Securities and Exchange Commission and therefore are exempt from regulatory requirements applicable to registered mutual funds. All performance (including that of the comparative indices) is reported net of any fees and expenses, but inclusive of dividends and interest. Past performance is not indicative of future performance. The return and principal value of the Fund(s) will fluctuate and, upon redemption, shares in the Fund(s) may be worth less than their original cost. Complete information regarding each of the Funds, including certain restrictions regarding redemptions, is contained in disclosure documents which can be obtained by calling 800-592-8890. Shares in the CUIT Funds are offered exclusively through CBIS Financial Services, Inc., a broker-dealer subsidiary of CBIS. This is for informational purposes only and does not constitute an offer to sell any investment. The Funds are not available for sale in all juris- dictions. Where available for sale, an offer will only be made through the prospectus for the Funds, and the Funds may only be sold in compliance with all applicable country

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