Athena Capital Advisors Market Overview & Outlook · Strategic Asset Allocation analysis, Athena...

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Athena Capital Advisors

Market Overview & Outlook

Third Quarter 2018

Executive Summary

The overwhelming consensus entering the year was that the double-digit returns and low volatility that prevailed in many asset classes in 2017

would not recur in 2018. Through September, the consensus appears well on its way to being right. Asset returns have ranged from strong (e.g.,

WTI Crude up 21%, S&P 500 up 11%) to stagnant (e.g., Real Estate sector up 2%, Hedge Fund of Funds Index up 1%, Barclay’s Aggregate Bond

Index down 2%) to subpar (e.g., MSCI All Country World Index ex US down 3%, MSCI Emerging Market Index down 8%, Gold down 9%). Volatility

has increased along with the dispersion of returns. The late January/early February equity correction generated elevated angst that proved short-

lived but resurfaced in October amid fears of rising interest rates and peaking earnings growth. Simply put, it has been an unsatisfying year-to-date

for most investment portfolios.

Our advice in July’s Executive Summary was to stay diversified and invested, but to exercise additional caution. We emphasized that worldwide

economic growth was showing signs of becoming less synchronous and global trade tensions were rising. A strong US dollar was placing pressure

on several emerging markets and the US yield curve was flattening. Additional potential geopolitical pressure points included Brexit and Italian

populism. The same fears are largely intact three months later. One could argue that trade-related uncertainty has dissipated as the US has

reached tentative agreements with Europe, Canada, Mexico and others—with a seemingly clear intent to isolate China as the key combatant.

Although the Chinese equity markets have continued to weaken, we do not expect China or the US to back down anytime soon. Meanwhile, robust

US growth, strong employment figures, and moderate inflation have emboldened the Federal Reserve to stay on a tightening course well into 2019

or beyond.

With that backdrop, Athena’s views include:

• Remain overweight cash and enhanced cash for dry powder as yields from enhanced cash have become more favorable with a flatter

yield curve.

• Tilt fixed income portfolios toward lower duration. At the other end of the risk spectrum, commensurate with equities, we see idiosyncratic

return opportunities for dedicated emerging market stressed/distressed debt managers.

• Rebalance equity portfolios to strategic weightings, particularly in emerging markets, given increasingly attractive relative valuations.

• Be selective within private equity where some degree of valuation-related froth is evident.

In our opinion, the Fed’s determination to normalize rates supports our overweight in cash and enhanced cash strategies. Long duration assets

have underperformed throughout 2018 while credit-based investments such as those favored by Athena have generally fared better. We are

comfortable with our actively managed and conservative funds, but caution is warranted as credit spreads are at or near all-time tights and the

debt issued by US nonfinancial companies is near its highest levels as a share of GDP since WWII.

2Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.

Please see important disclosures and disclaimers at the end of this presentation.

Executive Summary

We remain neutral in US equities. While the major US equity averages are little changed from three months ago, much has changed beneath

the surface. 2018 has been yet another year of growth stocks dramatically outperforming their value counterparts, leaving the valuation

disparity between the two groups at historically high levels. However, in October some of the strongest leadership groups from 2017 and

most of 2018 have rolled over, including small caps and semiconductors. We are reviewing strategies that veer away from the recent growth

darlings and toward traditional value, equal weight, and quality. As for earnings, the earnings growth outlook has dimmed somewhat due to

concerns of rising input costs, tariff fears, and slowing overseas growth, however valuation levels have become more supportive. At less than

16 times 2019 expected consensus earnings, the closely watched S&P 500 price-earnings ratio is back to its lowest level in two years—a fair

to modestly attractive level versus history. We do note that the US equities trade near historic highs on other measures such as the backward

looking Shiller PE and market cap to GNP (Warren Buffett’s professed favorite measure).

For all the cross-currents in the US, the overarching debate for international equities is well-defined: a near-term economic growth outlook

that is less robust than the US versus the longer term support from more attractive valuations. Investors have clearly embraced the former

over the latter this year as overseas stocks have lagged materially. That is particularly true of emerging markets that surged in 2017, but have

since been pressured by the stronger US dollar and weakening Chinese growth. Given the strong valuation backdrop indicated in our 2018

Strategic Asset Allocation analysis, Athena recommends clients rebalance their international equity portfolios at the end of the year.

Our view on commodities is that a significant acceleration in inflation would be a true game changer for most traditional asset classes and

thus a major risk for markets and client portfolios. While we view a sustained inflation breakout as questionable for secular reasons such as

demographics, an occasional uptick is inevitable and the recent combination of wage inflation and tariff-related uncertainty could begin to

influence the near-term data. We like MLP’s, gold and TIPs as inflation surprise hedges.

Although it still appears premature to call a longer-term peak in fundraising, private equity firms in North America and Europe appear to be on

pace to raise fewer funds and less capital overall than in 2017. That said, in the current GP-friendly fundraising environment, most newly

raised funds are larger than their predecessors. Fund size step-ups have hit the highest level since the Financial Crisis. We continue to

believe it is important to commit to funds year over year for vintage year diversification. However, we are not increasing our recommended

allocations in light of generally rich valuations.

Please contact your Portfolio Manager with any questions or feedback.

-The Athena Investment Team



Table of Contents



Global Macro Update Page 5

Cash & Enhanced Cash Page 12

Fixed Income Page 14

US Equities Page 21

Foreign Equities Page 28

Commodities Page 34

Hedge Funds Page 38

Private Equity & Real Estate Page 42

Appendix Page 51

Macro

Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


5

▪ We believe October’s period of market turbulence was more about a rationalizing of the new

environment of higher interest rates, i.e. a Quantitative Easing to Quantitative Tightening adjustment.

While the volatility may continue, we do not believe it is the denouement for risk assets as the level of

rates does not yet appear restrictive, economic growth particularly in the US remains positive, and

equity valuations are reasonable versus history.

▪ However, the path to an overheating US economy, more Fed rate hikes, and higher long-term interest

rates is growing in potential as evidenced by the US labor market tightness and wage growth.

▪ Additional macro points of note:

– EU Challenges: Brexit, and Italian bond spreads

– US mid-term elections

– China/US Trump/Xi meeting is currently on schedule for the G20 meeting in November

US ECO: Signs of Durable Growth

US economic data continue to show signs of durable growth. In the chart below we show the leading economic index

(LEI) as well as the ISM’s manufacturing and non-manufacturing surveys. The current ISM data points are each near

60; a reading above 50 indicates expansion.



Source: FactSet

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US LEI and ISMs

USA - ISM Manufacturing (LHS)

USA - ISM Non-Manufacturing (LHS)

USA - Leading Index, Change Over 6-Month Span (Ar, Pct., RHS)

Breaking Down the 2Q GDP Report

The headline 2Q18 US GDP number came in at +4.1%, making it the strongest quarter for US growth since 2014.

Dissecting the GDP growth number shows continued tailwinds from fiscal stimulus, in addition to a surge in soybean

exports to China. The latter is viewed as a one-off event which was intended to beat the imposition of the tariffs that

began in early July. Still, at 2.7%, the base economic growth compares favorable to recent history.



Source: BEA.gov, WSJ Daily Shot, BEA, Pantheon

Macroeconomics, CRFB Calculations, Steven Rattner.

US Labor Market Tightness and Signs of Wage Growth

The US unemployment rate fell to 3.7% in September, its lowest level since 1969. As the US labor market has

tightened questions arose around the validity of the Phillips Curve, an economic idea which proposes there is an

inverse relationship between the unemployment rate and rises in wages. Wage growth has been conspicuously absent

since the financial crisis, but we may now be seeing its latent effects. In particular, we are seeing wage growth at the

lower end of the pay spectrum, and as these workers tend to have a higher propensity to consume their wage gains

could be supportive of economic growth.



Source: BCA

Fed Funds Rate Hike Path

Despite the signs of stronger economic growth and incipient wage gains, market expectations are for a terminal Federal

Funds Rate just shy of 3.0% through 2021. The current Federal Funds Rate is 2.25%, implying three more hikes.



Source: BCA

Approaching US Mid-term Elections

According to race ratings conducted by the Cook Political Report, a nonpartisan election handicapper, there are

currently 68 highly competitive House seats in the upcoming November mid-term elections. The political forecaster

Five Thirty Eight currently assigns a 78% probability that Democrats will flip the minimum 23 Republican-held seats

needed to retake a House majority (as of October 12th).


Please see important disclosures and disclaimers at the end of this presentation.Source: NY Times, FiveThirtyEight

Eurozone Structure Challenges: Brexit and Itaddio

The Eurozone continues to struggle with structural issues first uncovered in the 2011 crisis. Since then, Britain has

elected to leave the EU but has had trouble working with the remaining EU members on how to go about doing that.

Currently March 29, 2019 at 11pm UK time is when Britain will leave the EU regardless of whether an exit deal is

reached or not.

Recently Italy has caused a stir with its newly elected government that is more EU-skeptic and is committed to election

promises to spend more on public investments, provide a universal basic income, and reduce the retirement age. The

growing level of debt would be all well and good if there was confidence in the ability of Italy to show robust growth and

if Italy’s debt level wasn’t already 130% of GDP—which is double the EU treaty limit.



Source: BCA

Cash and Enhanced Cash:

Overweight

▪ Athena remains overweight cash and enhanced cash as dry powder for potential future investment

opportunities. Market volatility in early 4Q18 may present opportunities for re-balancing into risk

assets in order for clients to remain at target allocations.

▪ Rising short-term bond yields and a historically flat yield curve also encourage the use of enhanced

cash holdings, which allow clients to earn yield with low interest rate sensitivity. Athena recommends

strategies with investment grade credit quality and duration under 1.5 years.



12

Enhanced Cash Benefits From Rising Rates

In 3Q18, the yield on the 2 Year Treasury rose to 2.8%, which supports more attractive yields in short duration and

enhanced cash strategies. Given a historically flat yield curve, investors are not being compensated for adding duration

risk in most fixed income sectors.


Please see important disclosures and disclaimers at the end of this presentation.Source: Federal Reserve Bank of St. Louis 13

2 Year US Treasury Yield

Fixed Income:

Neutral

▪ Athena maintains a neutral tactical view on fixed income. While market conditions are sanguine, we

are seeking to batten down the hatches in the fixed income portfolio. Athena thinks the Federal

Reserve under Chairman Jerome Powell’s leadership is eager to normalize interest rates and may

surprise on the hawkish side, so we are seeking to increase our underweight to interest rate exposure

versus the benchmark.

▪ Municipal bonds are supported by strong market fundamentals and technicals, but pricing is rich.

▪ Floating rate loan valuations are allowing investors to move up in the capital structure with no yield

concession. We have concerns about weak documentation and higher leverage in the loan market

broadly, but feel comfortable with Shenkman, an active manager with high credit quality and a capital

preservation focus.

▪ Athena has avoided the downturn in EM debt and is recommending the Oaktree Emerging Markets

Opportunities Fund II, an EM distressed debt fund, as a way to access potentially attractive value

opportunities in non-discretionary companies facing macroeconomic headwinds.

▪ For tax-exempt investors, we are cautious on investment grade corporate credit due to the declining

average credit quality and rising interest rate sensitivity of the sector.



14

Federal Reserve Accelerates Rate Hikes in 2018

The Federal Reserve raised interest rates for a third time this year in September and the market anticipates an additional

hike in December, though expectations heading into the year were for three hikes. Strong data and hawkish recent

commentary from FOMC Chairman Jerome Powell sent rates higher in early 4Q18. Looking ahead, Powell seems more

determined than his predecessor to normalize interest rates while also appearing unfazed by Presidential rebukes. Rising

Treasury issuance due to deficit spending is also a concern. Athena recommends increasing its underweight to interest

rate risk, i.e. duration, by tilting from fixed income to enhanced cash.


Please see important disclosures and disclaimers at the end of this presentation.Source: Federal Reserve 15

Federal Reserve Members’ Interest Rate Projections

ECB Unwind is Market Risk

The European Central Bank (ECB) has been a significant buyer of European sovereign and corporate debt, which

has inflated European market valuations and supported demand for relatively high-yielding US assets. US interest

rates and corporate spreads may feel pressure as the ECB seeks to taper its asset purchases. Athena does not

have exposure to foreign developed debt but is cautious of potential spillover to US markets.


Please see important disclosures and disclaimers at the end of this presentation.Source: Wall Street Journal 16

Central Bank Balance Sheet Assets (% GDP)

Municipal Debt Remains Attractive

Strong technicals and fundamentals are tailwinds for municipal debt. Net issuance in 2018 is expected to be negative and

state and local tax revenues saw their 32nd

quarter of growth. Tax reform effects and a relatively steep yield curve also

support munis, though muni to Treasury yield ratios indicate tight valuations.

Athena negotiated with muni manager IR&M to lower account minimums to $1 million and recommends clients consider

switching from Breckinridge to IR&M. An IR&M memo update is available for clients seeking additional information.


Please see important disclosures and disclaimers at the end of this presentation.Source: JP Morgan, PIMCO

17

Constructive on Shenkman Floating Rate Manager

High yield and floating rate loans have outperformed other fixed income sub-sectors YTD as of 3Q18, returning 2.6% and

4.4%, respectively. Athena currently finds loans compelling as the typical yield concession to go higher in the capital

structure from high yield to loans has disappeared. Floating rate loans may also provide higher income than high yield in

the near future based on expected rate hikes. While Athena has a cautious outlook on the overall loan market, we have

conviction in the Shenkman Floating Rate High Income Fund, our preferred manager. Shenkman is an active manager

that performs rigorous credit analysis, holds fewer than 400 securities, and is positioned conservatively in terms of credit

quality versus the benchmark.


Please see important disclosures and disclaimers at the end of this presentation.Source: JP Morgan 18

Potential Opportunity in EM Stress

Dollar-denominated and local currency emerging market (EM) debt returned -3.5% and -8.2%, respectively, YTD as of

3Q18 due to headwinds from a stronger dollar, rising US interest rates, trade tensions, undisciplined borrowing, and

political uncertainty. Athena does not have any direct exposure to EM debt at this time and has performed due diligence

on the Oaktree Emerging Markets Opportunities Fund II, a drawdown structure focused on stressed and distressed EM

corporate debt, to seek to take advantage of value opportunities in countries including Argentina and Turkey. The fund is

currently only approved for tax-exempt investors as Athena investigates the fund’s expected tax profile further.


Please see important disclosures and disclaimers at the end of this presentation.Source: PIMCO 19

IG Corporate No Longer a Clear Safe Haven

Athena’s tax-exempt clients who own investment grade credit are recommended to tilt away from investment grade

corporate debt due to a growing portion of lower credit quality BBB-rated bonds, all-time high leverage, and low yields to

compensate for such risks. We are seeking to rotate into an exposure with lower interest rate risk, active credit

management, and a more diversified IG asset allocation that is leaning away from corporate credit.


Please see important disclosures and disclaimers at the end of this presentation.Source: Wall Street Journal, TCW, Athena Capital Advisors 20

US Equities:

Neutral

▪ Athena upholds our current neutral positioning in US equities. Although we are now in one of the longest bull

markets in history, a wide distribution of market outcomes leaves us inclined to stay invested at these

levels. This view is supported by the continuation of solid economic growth, double-digit forward EPS growth

rates, and a forward price-to-earnings (P/E) multiple that has contracted to what Athena considers as a range

of fair value.

▪ As a new point of caution, Athena notes a rise in earnings-related uncertainty as a contributor to the increased

volatility seen at the beginning of 4Q. While some of the concern reflects the natural cycling through of the tax

cuts into 2019, the combination of higher interest costs, wages and commodities (exacerbated in some

industries by tariffs and trade uncertainty) and slowing overseas growth has led to a slowdown in earnings

growth expectations.



21

S&P 500 Price Level Implies Earnings-driven Upside

Assuming no P/E multiple expansion or compression, the index is showing a +12% cumulative upside if the current 2020

earnings projections are realized. On the converse, if the current 16x forward P/E were to compress below its historical average to

15x in 2018, the index would trade -5% lower.


Please see important disclosures and disclaimers at the end of this presentation.Source: Bloomberg

10/17/2018 2787

2020 2019 2018Tra il ing

12 Mos.

-20%

Dec line

$195 $177 $160 $134 $107

$1,367 $1,238 $1,122 $936 $749 7

$1,562 $1,415 $1,282 $1,069 $856 8

$1,758 $1,592 $1,443 $1,203 $962 9

$1,953 $1,769 $1,603 $1,337 $1,069 10

$2,148 $1,946 $1,763 $1,470 $1,176 11

$2,344 $2,123 $1,924 $1,604 $1,283 12 Median trailing 12m P/E, 1970 - 1989

$2,539 $2,300 $2,084 $1,738 $1,390 13

$2,734 $2,476 $2,244 $1,871 $1,497 14

$2,930 $2,653 $2,404 $2,005 $1,604 15

$3,125 $2,830 $2,565 $2,139 $1,711 16 Cur rent Fo rwa rd P/E , Median CAPE, 1920 - Present

$3,320 $3,007 $2,725 $2,272 $1,818 17 Median trailing 12m P/E, 1955 - Present

$3,516 $3,184 $2,885 $2,406 $1,925 18 Median trailing 12m P/E, 1990 - Present

$3,711 $3,361 $3,046 $2,540 $2,032 19

$3,906 $3,538 $3,206 $2,673 $2,139 20 Cur rent T12M P/E

$4,102 $3,715 $3,366 $2,807 $2,246 21

$4,297 $3,892 $3,527 $2,941 $2,353 22

$4,492 $4,068 $3,687 $3,074 $2,460 23

$4,687 $4,245 $3,847 $3,208 $2,567 24

$4,883 $4,422 $4,007 $3,342 $2,673 25

$5,078 $4,599 $4,168 $3,476 $2,780 26 Median trailing 12m P/E, 1998 - 2001

$5,273 $4,776 $4,328 $3,609 $2,887 27

$5,469 $4,953 $4,488 $3,743 $2,994 28

$5,664 $5,130 $4,649 $3,877 $3,101 29

$5,859 $5,307 $4,809 $4,010 $3,208 30

$6,055 $5,483 $4,969 $4,144 $3,315 31 Cur rent CAPE

Bloomberg Bot tom-Up Earnings Est imates* S&P 500 Index Leve l:

P/E

Mult iples

Historica l Medians/Occurences o f P/E mult iples

Various occurences of single-digit trailing 12m P/E in the 1970s and

1980s

Low trailing 12m P/E during 2008 - 2009 crisis

S&P 500 Profit Margin at All-Time High



With projected S&P 500 3Q18 revenue growth of +7.3% and EPS growth of +19.2%, the index’s profit margin is expected to

remain near a record level of +11.6%. While strong fundamentals continue to support a favorable backdrop for equities on the

micro level, investors have developed increasing concerns over the potential margin pressures associated with higher interest

rates, wage inflation, and global trade anxiety on the macro level.

Source: Bloomberg

Headwinds for the Growth Factor?

2018 follows yet another year of Growth stocks dramatically outperforming their Value counterparts, leaving the valuation disparity

between the two groups at historically high levels. Since September 2008, the Russell 3000 Value Index has underperformed the

Russell 3000 Growth Index by -125% cumulative. In the big picture, it has made sense for investors to pay premium multiples for

Growth stocks in the post Financial Crisis era, an environment defined by lackluster GDP growth and a low cost of borrow.

However, Athena believes the transition to stronger economic growth (at least in the interim) and increasingly higher discount

rates could argue for this premium spread to dissipate.



A Primer on the GICS Reclassification

The end of September brought changes to the S&P and MSCI's commonly used Global Industry Classification (GICS)

framework. As outlined by Parametric, these changes included: (1) the Telecommunication Services sector expanding and being

renamed Communication Services, (2) media companies (e.g. Netflix, Comcast, Disney) moving from Consumer Discretionary

into Communication Services,(3) internet services companies (Facebook, Google, Tencent, etc.) moving from Information

Technology into Communication Services, and (4) e-commerce companies (primarily eBay and Alibaba) moving from Information

Technology to Consumer Discretionary. Ahead of these changes, Athena reached out to index and ETF providers to understand

any portfolio implications. We walked away with a similar takeaway as Parametric, who believes "these GICS sector changes were

long overdue, and they figure to inject greater clarity and accuracy into how companies are grouped".


Please see important disclosures and disclaimers at the end of this presentation.Source: Goldman Sachs

Fidelity Launches Zero Fee Products

In August, Fidelity announced it was reducing fees on 21 mutual fund products and launching a pair of zero-fee index

mutual funds, the Total US Market Index and Total International Index. As seen in the chart below, the theme of fund

companies lowering fees is nothing new, but the “zero fee” headline has sparked an industry-wide discussion on the

potential implications for both passive and active managers.


Please see important disclosures and disclaimers at the end of this presentation.Source: Morningstar

The Risk of Embedded Gains in Mutual Funds



Per Morningstar, potential capital gains exposure (PCGE) is an estimate of the percent of a mutual fund’s assets that represent

gains. As a measure of how much the fund’s assets have appreciated, it can thus be an indicator of possible future capital gain

distributions. This is especially relevant for investors considering purchasing a new fund, as they may receive a taxable

distribution even though they didn’t participate in the actual appreciation. After a ten-year bull market, potential cap gains

exposure has grown in many 1940 Act mutual funds, particularly those that are US focused, tax efficient, and have largely seen

only inflows. Below is a table that shows the embedded gains of two of the largest passive mutual funds as well as some of

Athena’s active managers. Because the fund's asset base serves as the denominator in this calculation, a change in assets from

the sale or redemption of share as well as price action of the fund’s holdings can greatly influence a fund's potential capital gain

exposure. Thus, Athena has become increasingly cautious of funds with shareholder bases that tend to overreact to short term

equity market performance (e.g. passive funds) as opposed to those with a longer-term mindset.

Source: Morningstar

Fund TickerPotential Capital

Gains ExposureAUM ($B)

Fidelity Contra Fund FCNTX 65% 134.9$

Vanguard Institutional Index VINIX 50% 235.0$

Akre Focus AKRIX 45% 7.7$

Vanguard 500 Index VFIAX 41% 459.3$

DFA U.S. Small Cap DFSTX 32% 18.2$

T. Rowe Price International Discovery TIDDX 23% 8.1$

WCM Focused International Growth WCMIX 21% 6.3$

Matthews Pacific Tiger MIPTX 19% 8.4$

IVA International IVIQX 11% 3.7$

Baron EM BEXIX 10% 5.3$

Dodge & Cox International DODFX 9% 58.8$

Foreign Equities:

Neutral

▪ Athena maintains a neutral position in Foreign equities and chooses to express this view through high

conviction active managers. On a tactical basis, the tailwinds of a synchronous global growth recovery and a

weaker USD have reversed. Select growth indicators (albeit still robust) have come in lower than their early

2018 highs and the USD has strengthened given the rise in US interest rates.

▪ Athena is cognizant that the risk premium for international equities could widen due to a resurgence of weaker

global growth, a stronger USD, a Chinese hard economic landing, renewed political uncertainty in Europe,

and/or the possibility of monetary policy missteps as the Federal Reserve and European Central Bank wind

down their quantitative easing programs. However, contrasting 2018 price action against our 2018 Strategic

Asset Allocation (SAA) return forecasts, Athena believes international equities may represent a better longer-

term opportunity than domestic US equity markets. In August 2018, Athena recommended rebalancing back

to targets for clients with appropriately long-horizons and a commitment to the asset class



28

US Growth Decouples from the World

Global growth has become less synchronized in 2018 following broad-based strength last year. As seen below, most of the

world’s Purchasing Manager Index (PMI) surveys are lower than they were in January 2018, with the US being one of the few

exceptions to the upside. While the theme of slower global growth remains a prominent headline, it is important to highlight that

all countries (with the sole exception of Russia) remain in expansion territory with PMIs > 50.



Foreign Equity Weakness Brings Neutral Valuations



Foreign equities continue to exhibit weakness on a YTD basis, with the MSCI ACWI-ex US –9.5%, MSCI EAFE –8.3%, MSCI EAFE

Small Cap –9.0%, and the MSCI EM –14.3% through October 17th

. Given this selloff, foreign equities have fallen closer to their

own 10-year averages and the relative spread versus their US counterparts has grown. Given this spread, Athena continues to

uphold our recommendation to rebalance on weakness.

Source: Eaton Vance

EM Selloff in Perspective

Given the weakness seen across emerging markets since their January highs, Athena continues to recommend rebalancing for

clients with appropriately long-horizons and a commitment to the asset class. While geopolitical, trade, and monetary headwinds

lessen the probability of a straight line recovery, our current EM manager lineup continues to offer exposure to compelling long-

term growth opportunities tied to EM consumer themes, which is exhibited by mid-teens ROE and forward earnings growth rates.



Source: Pension Partners, FactSet

Name TickerTotal Return

(2018)

Total Return

(Since Jan 26)ROE

2019 EPS

Growth

2020 EPS

Growth

Russia ERUS 4.4 -6.9 14.1 1.1 4.9

Mexico EWW 2.2 -6.9 11.1 15.0 13.6

Thailand THD -0.3 -8.2 13.5 3.1 6.8

Brazil EWZ -1.2 -15.5 11.2 19.0 8.4

Malaysia EWM -3.0 -11.3 10.4 7.2 7.5

Taiwan EWT -5.4 -12.5 13.6 2.8 8.8

China FXI -11.5 -24.4 12.9 12.5 11.2

India INDA -12.9 -17.4 13.8 20.4 17.5

Chile ECH -14.4 -20.5 10.3 15.9 8.2

South Korea EWY -16.4 -20.7 10.9 7.4 6.6

Indonesia EIDO -20.7 -26.2 15.0 12.7 12.0

South Africa EZA -24.4 -30.4 13.1 17.1 13.0

Argentina ARGT -27.7 -33.5 7.5 33.2 29.8

Turkey TUR -40.0 -44.1 17.3 19.3 19.1

MSCI EM EEM -12.7 -21.0 12.7 11.4 10.8

Baron EM BEXIX -15.9 -21.9 13.2 15.2 13.5

Matthews Pacific MIPTX -12.5 -18.0 14.4 12.5 13.7

The Chinese A-Share Opportunity

Athena believes the China A-Share market, (defined as stocks that trade on either the Shanghai or Shenzhen Stock exchanges),

merits increased consideration in client portfolios based on its sheer size and potential for further index inclusion. While China’s

twenty-year contribution to global GDP growth and total PPP-based GDP has surpassed the U.S., its weight in global indices is still

a mere fraction of the US weight. Following MSCI’s 5% inclusion factor of China A-shares in August 2018, the A-share market now

represents just 0.7% of the MSCI Emerging Market (EM) Index and just 0.1% of the MSCI All Country World Index (ACWI). With

this inclusion occurring seamlessly, MSCI just recently announced that they were launching a new round of consultation to

potentially increase the inclusion of China A securities in 2019. With over $12 Trillion in assets benchmarked to MSCI indices as

of November 2017, we believe further inclusion should provide a strong tailwind for inflows.



Source: MSCI

Improved ROE for Japanese Equities

Although Athena believes Japanese equity valuation levels do not represent a resoundingly obvious “buy opportunity”, continued

observations of Abenomics successes (specifically the Third Arrow) could result in strong equity market performance given

further fundamental support and/or additional multiple expansion. The ROE for the Nikkei 225 has risen materially since

Abenomics was announced as the current rate of 11.1% is almost double the average of 6.7% since 2000. Deconstructing ROE

number via a DuPont analysis shows higher profit margins as the primary driver of this increase. After meeting with multiple

dedicated Japanese managers in 3Q18, Athena plans to further explore the Japan equity opportunity over the coming quarters.



Source: Bloomberg

Commodities:

Neutral

▪ Athena continues to recommend an allocation to TIPS and gold as our preferred manner of hedging a portfolio

against unexpected increases in inflation. While Athena’s base case scenario predicts a continuation of a

benign inflationary environment, we are aware that an acceleration in inflation remains one of the biggest risks

for markets and client portfolios. Should a period of rising inflation materialize, Athena would consider

increasing clients’ underlying exposure to direct commodities, as they tend to outperform during higher

inflationary environments.

▪ On a tactical basis, Athena continues to believe Master Limited Partnerships (MLPs) provide an attractive

capital appreciation opportunity in a low return world. As stated in previous correspondence, we believe

contrasting improved fundamentals against current price levels presents a favorable skew to the upside, which

is enhanced by a margin of safety via an attractive yield (~8%). Two major risks to this view include: (1)

another energy downturn which would most likely be driven by overproduction since energy prices have

recovered, and/or (2) the duration sensitivity of MLP equities in a world of higher interest rates



34

Inflation Update

The September Core CPI YoY came in at 2.3%, and the Core PCE is expected to come in at 2.0% later this month. According to

BCA Research, fiscal stimulus, faster credit growth, higher asset prices, and a rising labor share of total income have probably

pushed up the Federal Reserve’s neutral rate quite a bit over the past few years. In our opinion, this lifts the odds that the Fed

will find itself behind the curve, causing inflation to rise more than the market is anticipating, thus benefiting assets that have

traditionally done well in periods of unexpected inflation (e.g. commodities, hard assets).



Source: Bloomberg,

BCA Research

Gold Selloff on Stronger USD

2018 has been a lackluster year for gold, which is -6% YTD and now trades at $1,230 an ounce, down more than -35% from its

high of $1,900 in 2011. Athena believes the primary catalyst for the selloff is gold’s negative correlation with the USD (historically

-0.85), which has strengthened materially since April on the expectation of tighter monetary policy from the Federal Reserve.



Source: Bloomberg

The Return of $100 Oil?

While nearly 3 years removed since Brent crude traded in the $20s, some oil bull traders are predicting the return of $100/oil for

the first time since the commodity’s precipitous decline in 2014. This bullish sentiment is driven by: (1) OPEC grappling with US

sanctions on Iran, (2) Venezuela's ongoing economic crisis, (3) continued pipeline bottlenecks hampering the growth of US Shale,

(4) uncertainty on the response functions of the US and Saudi Arabia around the death of journalist Jamal Khashoggi.



Source: Bloomberg, PineBridge

Hedge Funds:

Neutral

▪ Year to date, hedge funds, as measured by the HFRI Fund of Funds Composite Index, have returned +1% with

performance led by the distressed strategy (HFRI ED: Distressed Restructuring +4%). Macro is the lone detractor

for the year at -1.8%. This underperformance is attributed to the systematic/quant strategies; the HFRI Macro

Systematic Diversified Index is -4% for the year.

▪ With bonds down -2% for the year, as measured by the Bloomberg Barclays Aggregate Bond Index, Hedge funds’

positive year to date performance has proved a benefit to diversified portfolios. In this environment of rising rates

and elevated equity levels, Athena continues to emphasize absolute return hedge fund strategies with minimal

correlation and sensitivity to the traditional asset classes.

▪ Equity Long/Short funds came under pressure in the early weeks of October. Goldman Sachs estimates that equity

long/short funds were -5% month to date through October 10th

. The FANG stocks (Facebook, Amazon, Netflix,

Google), which are popular hedge fund holdings, were a major cause of the underperformance.


Please see important disclosures and disclaimers at the end of this presentation.38

Hedge Fund Performance



Year to date, hedge funds, as measured by the HFRI Fund of Funds Composite Index, have returned +1% with

performance led by the distressed strategy (HFRI ED: Distressed Restructuring +4%). Macro is the lone

detractor for the year at -1.8%. This underperformance is attributed to the systematic/quant strategies; the

HFRI Macro Systematic Diversified Index is -4% for the year.

Source: HFRI39

-4%

-2%

0%

2%

4%

6%

8%

2018 YTD 36 Months (Annualized) 60 Months (Annualized)

Hedge Fund Returns through Sept 2018

HFRI Fund of Funds Composite Index HFRI ED- Distressed-Restructuring Index

HFRI Equity Hedge (Total) Index HFRI Event-Driven (Total) Index

HFRI Macro (Total) Index

Hedge Funds Benefit Diversified Portfolios

With bonds down -1.6% for the year through 3Q18, as measured by the Bloomberg Barclays Aggregate Bond

Index, Hedge funds’ positive year to date performance has proved a benefit to diversified portfolios. In the

current environment of rising rates and elevated equity levels, Athena continues to emphasize absolute return

hedge fund strategies with minimal correlation and sensitivity to the traditional asset classes.


Please see important disclosures and disclaimers at the end of this presentation.40Source: FactSet, Athena Capital

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18

Cumulative Returns 2018

thru Sept. 2018

HFRI Fund of Funds Composite Bloomberg Barclays US Aggregate

Bloomberg Barclays US Treasury - Bills Athena Alpha Investors, LP (gross)

FANG Bites Equity Long/Short Funds in October

Equity Long/Short funds came under pressure in the early weeks of October. Goldman Sachs estimates that

equity long/short funds were -4.6% month to date through October 10th. The FANG stocks (Facebook, Amazon,

Netflix, Google), which are popular hedge fund holdings, were a major cause of the underperformance with

Facebook -7%, Google -10%, Amazon -14%, and Netflix -16%.


Please see important disclosures and disclaimers at the end of this presentation.41

Source: Goldman Sachs

▪ Private equity fundraising may have hit an inflection point as the number of funds and amount of capital has

slowed, though funds are closing more quickly than ever before, and fund size is on the rise.

▪ On the exit side, the market has witnessed a recent uptick in IPOs, particularly by unprofitable companies,

despite the longer-term trend of the declining number of public companies.

▪ We continue to seek to take advantage of various market trends including the rise of the Chinese consumer,

continued growth and consolidation within healthcare, and explosion within the so-called deep tech industry.

▪ Within real estate, late cycle fundamentals have made for a challenging investment environment, but we are

confident in our current value-added and opportunistic managers and continue to monitor the space for

interesting, niche opportunities.



Private Equity and Real Estate:

Neutral

Fundraising May Have Hit An Inflection Point

43

Through the first eight months of 2018, private equity firms in North America and Europe have been raising fewer funds and less

capital overall, with 207 funds raising $192.7 billion. The softer fundraising trend began in 2017, which represented a post-

recession high, even though many data points show today’s fundraising environment is quite GP friendly. With that being said,

fundraising data tends to be lumpy, so while the four-quarter rolling average smooths out those one-off quarters, making the trend

easier to spot (as displayed below), it may be too early to call a longer-term peak in fundraising.

Source: Pitchbook, as of August 31, 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


Fund Size Step-Up Hits Highest Level Since Financial Crisis

44

Despite the recent drop in fundraising, funds are closing more quickly than ever before, and fund size is on the rise. During

the current GP-friendly fundraising environment, most newly raised funds are larger than their predecessors. As of August

2018, 69.2% of funds were larger than their predecessor funds in 2018, a drop from the 2017 high of 75.9%, but still the

second highest figure on record.

Given that average and median fund sizes are at all-time highs, these numbers become more significant. For example, if

Blackstone’s new flagship fund hits its $20 billion target, it would represent a 6% increase over its $18.9 billion 2016 vintage

flagship fund. Additionally, Carlyle’s step-up of 42% exactly matches the median step-up size of 1.42x across PE fundraising,

which represents a post-recession high.

Source: Pitchbook, as of August 31, 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


Add-Ons Now Account For More Than Half Of All Buyouts

45Source: Pitchbook, as of June 30, 2018

Add-ons continue to trend higher and now represent more than 50% of all buyouts. Add-ons can provide opportunities for PE

firms to acquire companies at lower multiples, which can allow the sponsor to “blend down” the aggregate acquisition multiple,

enhancing the potential to benefit from multiple expansion when the combined platform is sold or taken public. Add-ons also

provide managers the ability to be creative operationally and create unique business combinations.

From a performance standpoint, portfolio companies with add-ons are typically held longer than those without, providing more

time for the GP to increase the total investment multiple; however, add-on funds also historically outperform on an IRR basis.

36.3% of add-on funds beat the top-quartile hurdle rate, while just 10.0% of funds fell into the bottom-quartile, indicating that

funds that employ the buy-and-build strategy have shown the ability to generate superior returns.



Long-Term Drop in IPOs; Short-Term Uptick in Underperformers

46

Source: WSJ, Jay Ritter, Dealogic; The Carlyle Group, Mauboussin, Michael J., Dan Callahan, CFA, and Darius Majd. The Incredible Shrinking Universe of Stocks: The

Causes and Consequences of Fewer US Equities. Report. Global Financial Strategies, Credit Suisse. March 22, 2017; PitchBook 2016 Annual U.S. PE Breakdown

Despite the longer-term trend of a drop in IPOs, the market has witnessed a recent uptick, particularly by unprofitable companies.

Through the first three quarters of 2018, 80% of US-listed IPO’s involve companies that lost money in the 12 months leading up

to their debut. Furthermore, these company’s stock prices have risen 36% on average from their IPO price through the last week

of September. For more comparative purposes, IPO stocks with earnings have produced a 32% return and the S&P 500 is up

9% over the same period.

Helping explain investor appetite is that the number of public companies has been in historic decline. Over the past 20 years, the

number of public companies in the US has declined by half. In the late 1990s, roughly 500 IPOs occurred each year, on average.

Over the past five years, the average has been 130, a decline of nearly 75%. The 27% annualized growth in global private equity

assets under management over the past 20 years has allowed more companies to avail themselves of private capital. However,

the actual percentage of unprofitable tech issuers is a bit lower in 2018 than in 2000, with the difference largely made up by a

surge in biotech listings. Additionally, the average VC-backed company is much older at IPO in 2018 than it was in 2000,

suggesting more maturity and a greater likelihood of working its way out of troubles.



% of US-listed IPOs That Lost Money in the

12 Months Leading Up To Their Offering

Marketplace Trend: The Rise of the Chinese Consumer

47Source: China Ministry of CommerceAthena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


Athena continues to believe there is a compelling investment opportunity in China. The highest growth sectors within China’s

still developing economy are the consumer-oriented sectors, aligning with the changing lifestyle and growing needs of its massive

middle class demographic, and the country’s rapid urbanization.

During 2017, while China’s GDP registered 6.9%, the service sector expanded by 8.2% year-over-year, and on the expenditure side,

consumption accounted for 58.8% of GDP, with retail sales rising 10.2%. Within retail sales, online sales increased 32.0% year

over year, pushing ecommerce retail sales past $1 trillion for the first time which is more than double that in the US, the next largest

ecommerce market. Furthermore, online retail sales in China reached over $701 billion during the 1H18, up by 29.3% year-on-

year.

0%

10%

20%

30%

40%

50%

60%

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

2014 2015 2016 2017

Online Retail Sales Growth in China

Sales in Trillion of Yuan Year-over-Year % Growth

Marketplace Trend: Robust Healthcare M&A Activity

48Source: Dealogic, AVCJ, Bain CapitalAthena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


The healthcare industry continues to transform post the great financial crisis, which, among others things, highlighted

unsustainable spending growth. Regulatory reform, specifically with the ACA, provided a new framework for nearly all sector

participants and various trends have emerged across every sector of the industry including investments in IT

infrastructure/innovation and data availability, the rise of consumerism, and a payment model transformation towards value-based

care. Consequently, the industry has witnessed a large influx of capital and an increase in company formation, resulting in

accelerated M&A activity, particularly up market.

Corporate M&A jumped across healthcare sectors in 2017, particularly in terms of the number of deals, and reached a total value

of $332 billion, approaching the record levels seen in 2014 and 2015. Even with valuations at or near all-time highs, it is

expected that companies continue to rely on M&A as a key catalyst of growth going forward.

Marketplace Trend: Deep Tech Dominating the Startup World

49Source: Global Startup Ecosystem Report 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


Global venture capital investments in startups hit a decade high in 2017, with over $140 billion invested. Total value creation of

the global startup economy from 2015 to 2017 reached $2.3 trillion, a 25.6% increase from the 2014 to 2016 period. These

numbers have been driven by the rise of Deep Tech - companies founded on a scientific discovery or meaningful engineering

innovation, e.g. artificial intelligence, machine leaning, robotics, and distributed ledgers.

Underneath this continued growth, fundamental shifts are occurring. The types of companies that fueled the first and second

generation of global startup ecosystems, e.g. social media apps, digital media, and other pure internet companies, are declining.

Meanwhile, the subsectors that saw the most growth in early stage funding deals over the last five years include advanced

manufacturing and robotics (189.4%), agriculture tech and new food (171%), blockchain (162%), and artificial intelligence, big

data and analytics (77.5%).

In the chart below, there is a similar story in the performance of tech companies that went public from 2015-2017. New era

subsectors have outperformed more mature sub-sectors, as measured by revenue growth following their IPO.

Private Real Estate: Slowing Growth, Focus on Income

50Source: J.P. Morgan Commercial Real Estate Update, September 2018Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission.


Real estate fundamentals of rental rate growth and occupancy gains remain positive overall but have slowed over recent years

as occupancy reaches stabilized levels. Still, real estate valuations continue to climb and are well above the previous cycle’s

peak. But as shown in the bottom chart, income growth is now the primary driver of returns as appreciation has plateaued.

Pushing further income growth in properties will be key to mitigating the impact of rising interest rates.

Appendix:

Supporting Data

51

Asset Returns Table Lite



Data Source: Bloomberg

Equity and bond indices are total returns; commodities and currencies are price return. All time periods >1 year are annualized

^Hedge Fund Indexes Source: HFRI Index (reported monthly). For intra-month periods, best fit HFRX Indexes are used as an

estimate (reported daily with 2-day lag).

*Case/Shiller returns through 07/31/2018 due to data lag.

**US Trade-Weighted Dollar returns as of 10/12/2018.

US Equities10/18/18

MTD

10/18/18

YTD3Q18 1-YR 3-YR 5-YR International Equities

10/18/18

MTD

10/18/18

YTD3Q18 1-YR 3-YR 5-YR

S&P 500 TR -4.9% 5.1% 7.7% 10.2% 13.1% 11.9% MSCI AC World TR (USD) -5.6% -1.6% 4.4% 2.2% 9.4% 7.2%

Nasdaq TR -7.0% 9.3% 7.4% 14.2% 16.7% 15.3% MSCI AC World ex US TR (USD) -6.3% -8.9% 0.8% -6.2% 5.5% 2.5%

Russell 3000 TR -5.3% 4.7% 7.1% 9.5% 12.8% 11.4% MSCI EAFE TR (USD) -6.1% -7.0% 1.4% -4.4% 5.1% 3.0%

Russell 3000 Growth TR -6.8% 9.0% 8.9% 14.7% 15.5% 13.8% MSCI Europe TR (USD) -6.6% -8.5% 0.8% -7.0% 3.6% 2.1%

Russell 3000 Value TR -3.8% 0.2% 5.4% 4.2% 10.0% 8.9% MSCI Japan TR (USD) -4.9% -3.2% 3.8% 2.0% 8.0% 5.8%

Russell 2000 TR -8.0% 2.6% 3.6% 5.0% 11.8% 8.4% MSCI AC Asia Ex Japan TR (USD) -9.3% -14.9% -1.5% -11.8% 6.7% 3.9%

Russell Microcap TR -7.6% 3.2% 0.8% 4.3% 11.2% 8.0% MSCI Emerging Markets TR (USD) -7.3% -14.2% -1.0% -11.5% 6.8% 1.3%

DJ Dividend Select TR -2.7% 1.3% 3.1% 6.1% 12.3% 11.1% MSCI Frontier Markets TR (USD) -3.8% -15.9% -1.9% -12.3% 3.5% 1.7%

S&P 500 Equity Sectors10/18/18

MTD

10/18/18

YTD3Q18 1-YR 3-YR 5-YR Real Assets & Currencies

10/18/18

MTD

10/18/18


Consumer Staples Sector -0.8% -4.1% 5.7% 1.3% 5.5% 8.1% Bloomberg Commodity TR 0.8% -1.3% -2.0% 2.3% -0.6% -7.3%

Healthcare Sector -2.9% 13.3% 14.5% 12.8% 11.8% 13.8% Bloomberg Agriculture TR 5.6% -5.9% -5.4% -7.2% -6.2% -9.3%

Consumer Discretionary Sector -8.7% 10.1% 8.2% 19.5% 12.9% 13.4% WTI Crude Oil -6.3% 13.6% -1.2% 31.9% 13.3% -7.4%

Utilities Sector 2.0% 4.8% 2.4% 2.6% 10.1% 10.9% Gold 2.8% -5.9% -4.8% -4.3% 1.4% -1.4%

Technology Sector -7.0% 12.2% 8.8% 18.1% 22.1% 19.8% Copper -2.1% -16.8% -5.4% -13.6% 4.5% -3.6%

Industrial Sector -6.3% -1.7% 10.0% 2.9% 12.9% 10.7% US Trade-Weighted Dollar** 0.5% 6.2% 1.3% 5.7% 2.2% 4.8%

Materials Sector -7.7% -10.2% 0.4% -6.0% 8.8% 6.3% Japanese Yen (% chg vs. USD) 1.3% 0.5% -2.6% 0.7% 2.1% -2.7%

Energy Sector -4.7% 2.4% 0.6% 9.5% 4.6% -0.5% Euro (% chg vs. USD) -1.3% -4.6% -0.7% -2.8% 0.3% -3.5%

Financials Sector -3.6% -3.6% 4.4% 2.9% 13.8% 11.4% Chinese Yuan (% chg vs. USD) -1.0% -6.1% -3.6% -4.8% -2.9% -2.5%

Real Estate Sector -3.4% -1.8% 0.9% -0.4% 3.8% 5.8% Alerian MLP TR -1.4% 4.4% 6.6% 6.9% -0.4% -3.2%

Communications Sector -6.5% 21.3% 12.7% 36.5% 19.1% 13.9% FTSE EPRA/NAREIT Global TR -3.9% -4.6% -0.8% -2.8% 4.3% 4.5%

Bonds10/18/18

MTD

10/18/18

YTD3Q18 1-YR 3-YR 5-YR Hedge Fund Indices^ Sep-18

10/18/18


Barclays Aggregate Bond TR -0.7% -2.3% 0.0% -2.0% 0.9% 1.9% Hedge Fund of Funds -0.2% 1.0% 0.3% 0.6% 2.7% 2.6%

3 Month LIBOR TR 0.1% 2.0% 0.7% 2.3% 1.5% 1.1% Equity Hedge -0.5% 1.7% 0.5% 1.8% 5.7% 4.2%

Barclays US T-Bills TR 0.1% 1.4% 0.5% 1.6% 0.9% 0.5% Event-Driven 0.4% 2.8% 0.8% 1.9% 5.5% 3.6%

Barclays TIPS TR -1.1% -1.9% -0.8% -0.7% 1.4% 1.1% Event Driven: Distressed/Restructuring 1.1% 4.3% 1.4% 5.5% 7.0% 3.4%

Barclays Muni Bond TR -0.7% -1.1% -0.2% -1.0% 1.9% 3.4% Global Macro -0.3% -1.8% 0.0% -4.1% -0.4% 0.6%

Barclays 1-10 Muni Blend TR -0.3% -0.3% -0.1% -0.8% 1.2% 2.1% Fixed Income Convertible Arbitrage 0.0% 1.5% 0.7% 1.7% 4.8% 3.8%

Barclays US Treasury TR -0.5% -2.1% -0.6% -2.1% 0.0% 1.2%

Barclays 1-3 US Treasury TR 0.0% 0.3% 0.2% 0.1% 0.3% 0.6%

Barclays 7-10 US Treasury TR -0.7% -3.4% -0.8% -3.6% -0.5% 1.6%

Barclays 25+ US Treasury TR -2.7% -8.6% -3.1% -6.4% -0.3% 4.0% 50% B. Agg / 50% 1-10Yr Muni (FI Taxable) -0.5% -1.3% 0.0% -1.4% 1.1% 2.0%

Barclays MBS TR -0.7% -1.8% -0.1% -1.6% 0.6% 1.8% 60% ACWI / 40% FI Blend (GBB) -3.6% -1.5% 2.6% 0.8% 6.1% 5.1%

Barclays GNMA TR -0.8% -1.7% -0.1% -1.6% 0.5% 1.6% 60% Russell 3000 / 40% FI Blend (DBB) -3.4% 2.3% 4.3% 5.1% 8.1% 7.6%

Barclays High Yield TR -0.9% 1.6% 2.4% 1.7% 7.0% 5.0% 60% ACWI / 40% B. Agg (GBB TE) -3.6% -1.9% 2.6% 0.6% 6.0% 5.1%

JPM EM USD Bond TR -1.3% -4.7% 1.9% -4.6% 4.1% 3.8% 60% Russell 3000 / 40% B. Agg (DBB TE) -3.5% 1.9% 4.3% 4.9% 8.0% 7.6%

3-YR 5-YRBlended Benchmarks10/18/18

MTD

10/18/18

YTD3Q18 1-YR

Asset Returns Table



Data Source: Bloomberg

Equity and bond indices are total returns; commodities and currencies are price return. All time periods >1 year are annualized

^Hedge Fund Indexes Source: HFRI Index (reported monthly). For intra-month periods, best fit HFRX Indexes are used as an

estimate (reported daily with 2-day lag).

*Case/Shiller returns through 07/31/2018 due to data lag.

**US Trade-Weighted Dollar returns as of 10/12/2018.

US Equities10/18/18

MTD

10/18/18

YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR International Equities

10/18/18

MTD

10/18/18

YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR

S&P 500 TR -4.9% 5.1% 7.7% 3.4% -0.8% 6.6% 21.8% 10.2% 13.1% 11.9% MSCI AC World TR (USD) -5.6% -1.6% 4.4% 0.7% -0.8% 5.9% 24.7% 2.2% 9.4% 7.2%

S&P 500 Growth TR -6.1% 10.1% 9.3% 5.2% 1.9% 6.8% 27.4% 15.0% 15.1% 14.2% MSCI AC World ex US TR (USD) -6.3% -8.9% 0.8% -2.4% -1.1% 5.1% 27.8% -6.2% 5.5% 2.5%

S&P 500 Value TR -3.5% -0.1% 5.9% 1.4% -3.6% 6.3% 15.4% 5.1% 10.6% 9.2% MSCI EAFE TR (USD) -6.1% -7.0% 1.4% -1.0% -1.4% 4.3% 25.7% -4.4% 5.1% 3.0%

S&P 400 Mid-Cap TR -6.6% 0.3% 3.9% 4.3% -0.8% 6.2% 16.2% 5.1% 11.3% 9.5% MSCI EAFE Small Cap TR (USD) -6.5% -8.2% -0.8% -1.4% 0.4% 6.1% 33.5% -3.7% 8.5% 6.2%

Nasdaq TR -7.0% 9.3% 7.4% 6.6% 2.6% 6.6% 29.7% 14.2% 16.7% 15.3% MSCI Europe TR (USD) -6.6% -8.5% 0.8% -1.2% -1.7% 2.6% 26.3% -7.0% 3.6% 2.1%

Nasdaq 100 TR -6.7% 12.2% 8.6% 7.3% 3.2% 7.3% 33.0% 17.6% 18.4% 17.6% MSCI Japan TR (USD) -4.9% -3.2% 3.8% -3.0% 1.1% 8.6% 24.5% 2.0% 8.0% 5.8%

Russell 3000 TR -5.3% 4.7% 7.1% 3.9% -0.6% 6.3% 21.1% 9.5% 12.8% 11.4% MSCI Emerging Markets TR (USD) -7.3% -14.2% -1.0% -7.9% 1.4% 7.6% 37.8% -11.5% 6.8% 1.3%

Russell 3000 Growth TR -6.8% 9.0% 8.9% 5.9% 1.5% 7.6% 29.6% 14.7% 15.5% 13.8% MSCI India TR (USD) -6.2% -15.2% -2.4% -0.7% -6.8% 11.8% 38.9% -9.9% 3.4% 6.2%

Russell 3000 Value TR -3.8% 0.2% 5.4% 1.7% -2.8% 5.1% 13.2% 4.2% 10.0% 8.9% MSCI Russia TR (USD) -4.2% 5.2% 6.6% -5.8% 9.4% 4.5% 6.1% 8.3% 14.4% -1.5%

Russell 1000 TR -5.1% 4.8% 7.4% 3.6% -0.7% 6.6% 21.7% 9.9% 12.9% 11.6% MSCI China TR (USD) -11.0% -19.1% -7.4% -3.5% 1.7% 7.7% 54.4% -17.3% 5.8% 4.9%

Russell 2000 TR -8.0% 2.6% 3.6% 7.8% -0.1% 3.3% 14.6% 5.0% 11.8% 8.4% MSCI Frontier Markets TR (USD) -3.8% -15.9% -1.9% -15.3% 5.1% 5.6% 31.8% -12.3% 3.5% 1.7%

Russell Microcap TR -7.6% 3.2% 0.8% 10.0% 0.8% 1.8% 13.2% 4.3% 11.2% 8.0% MSCI Brazil TR (USD) 13.7% 0.0% 6.2% -26.4% 12.5% -1.9% 24.5% -4.6% 22.7% -1.4%

DJ Dividend Select TR -2.7% 1.3% 3.1% 3.7% -2.5% 6.2% 15.4% 6.1% 12.3% 11.1% 50% B. Agg / 50% 1-10Yr Muni (FI Taxable) -0.5% -1.3% 0.0% 0.3% -1.1% 0.1% 3.5% -1.4% 1.1% 2.0%

S&P 500 Equity Sectors10/18/18

MTD

10/18/18

YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR Hedge Fund Indexes^ Sep-18

10/18/18

YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR

Consumer Staples Sector -0.8% -4.1% 5.7% -1.5% -7.1% 6.5% 13.5% 1.3% 5.5% 8.1% Fund Weighted Composite -0.3% 1.4% 0.6% 0.9% 0.0% 2.6% 8.6% 1.1% 4.2% 3.4%

Healthcare Sector -2.9% 13.3% 14.5% 3.1% -1.2% 1.5% 22.1% 12.8% 11.8% 13.8% Equity Hedge -0.5% 1.7% 0.5% 0.9% 0.3% 3.4% 13.3% 1.8% 5.7% 4.2%

Consumer Discretionary Sector -8.7% 10.1% 8.2% 8.2% 3.1% 9.9% 23.0% 19.5% 12.9% 13.4% Equity Market Neutral 0.0% 1.5% 0.7% 0.1% 0.8% 2.0% 4.9% 2.0% 3.2% 3.4%

Utilities Sector 2.0% 4.8% 2.4% 3.7% -3.3% 0.2% 12.1% 2.6% 10.1% 10.9% Event-Driven 0.4% 2.8% 0.8% 1.9% 0.1% 1.9% 7.6% 1.9% 5.5% 3.6%

Technology Sector -7.0% 12.2% 8.8% 7.1% 3.5% 9.0% 38.8% 18.1% 22.1% 19.8% Event Driven: Distressed/Restructuring 1.1% 4.3% 1.4% 2.6% 0.3% 1.6% 6.3% 5.5% 7.0% 3.4%

Industrial Sector -6.3% -1.7% 10.0% -3.2% -1.6% 6.0% 21.0% 2.9% 12.9% 10.7% Global Macro -0.3% -1.8% 0.0% -0.2% -1.6% 2.4% 2.2% -4.1% -0.4% 0.6%

Materials Sector -7.7% -10.2% 0.4% 2.6% -5.5% 6.9% 23.8% -6.0% 8.8% 6.3% Fixed Income Convertible Arbitrage 0.0% 1.5% 0.7% 0.0% 0.8% 1.3% 5.9% 1.7% 4.8% 3.8%

Energy Sector -4.7% 2.4% 0.6% 13.5% -5.9% 6.0% -1.0% 9.5% 4.6% -0.5% Short Selling N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Financials Sector -3.6% -3.6% 4.4% -3.2% -1.0% 8.6% 22.1% 2.9% 13.8% 11.4% Hedge Fund of Funds -0.2% 1.0% 0.3% 0.4% 0.3% 2.1% 7.8% 0.6% 2.7% 2.6%

Real Estate Sector -3.4% -1.8% 0.9% 6.1% -5.0% 3.2% 10.8% -0.4% 3.8% 5.8%

Communications Sector -6.5% 21.3% 12.7% 2.9% 11.7% 13.2% 27.1% 36.5% 19.1% 13.9%

Bonds10/18/18

MTD

10/18/18

YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR Real Assets & Currencies

10/18/18

MTD

10/18/18

YTD3Q18 2Q18 1Q18 4Q17 2017 1-YR 3-YR 5-YR

Barclays Aggregate Bond TR -0.7% -2.3% 0.0% -0.2% -1.5% 0.4% 3.5% -2.0% 0.9% 1.9% Case/Shiller Housing Index* 0.3% 4.6% N/A 2.2% 2.0% 0.6% 6.3% 5.9% 5.5% 5.7%

3 Month LIBOR TR 0.1% 2.0% 0.7% 0.8% 0.4% 0.3% 1.4% 2.3% 1.5% 1.1% Bloomberg Commodity TR 0.8% -1.3% -2.0% 1.2% -1.2% 4.7% 1.7% 2.3% -0.6% -7.3%

Barclays US T-Bills TR 0.1% 1.4% 0.5% 0.5% 0.3% 0.2% 0.8% 1.6% 0.9% 0.5% Bloomberg Agriculture TR 5.6% -5.9% -5.4% -6.7% 0.9% -2.0% -11.0% -7.2% -6.2% -9.3%

Barclays TIPS TR -1.1% -1.9% -0.8% 0.8% -0.8% 1.3% 3.0% -0.7% 1.4% 1.1% Gold 2.8% -5.9% -4.8% -5.4% 1.7% 1.8% 13.1% -4.3% 1.4% -1.4%

Barclays Muni Bond TR -0.7% -1.1% -0.2% 0.9% -1.1% 0.7% 5.4% -1.0% 1.9% 3.4% WTI Crude Oil -6.3% 13.6% -1.2% 15.2% 6.6% 16.9% 12.5% 31.9% 13.3% -7.4%

Barclays BAA Muni TR -0.9% -0.3% 0.2% 1.4% -1.0% 1.4% 8.7% 0.3% 3.5% 5.4% Copper -2.1% -16.8% -5.4% -1.2% -9.0% 11.7% 31.7% -13.6% 4.5% -3.6%

Barclays 1-10 Muni Blend TR -0.3% -0.3% -0.1% 0.8% -0.7% -0.2% 3.5% -0.8% 1.2% 2.1% US Trade-Weighted Dollar** 0.5% 6.2% 1.3% 5.6% -1.3% -0.2% -7.0% 5.7% 2.2% 4.8%

Barclays US Treasury TR -0.5% -2.1% -0.6% 0.1% -1.1% 0.0% 2.3% -2.1% 0.0% 1.2% Chinese Yuan (% chg vs. USD) -1.0% -6.1% -3.6% -5.0% 3.5% 1.9% 6.7% -4.8% -2.9% -2.5%

Barclays 1-3 US Treasury TR 0.0% 0.3% 0.2% 0.2% -0.2% -0.3% 0.4% 0.1% 0.3% 0.6% Japanese Yen (% chg vs. USD) 1.3% 0.5% -2.6% -4.0% 6.0% -0.1% 3.8% 0.7% 2.1% -2.7%

Barclays 7-10 US Treasury TR -0.7% -3.4% -0.8% -0.1% -1.9% -0.3% 2.6% -3.6% -0.5% 1.6% Euro (% chg vs. USD) -1.3% -4.6% -0.7% -5.2% 2.7% 1.6% 14.1% -2.8% 0.3% -3.5%

Barclays 25+ US Treasury TR -2.7% -8.6% -3.1% 0.5% -3.5% 2.7% 9.3% -6.4% -0.3% 4.0% British Pound (% chg vs. USD) -0.1% -3.7% -1.3% -5.8% 3.7% 0.9% 9.5% -1.4% -5.5% -4.2%

Barclays MBS TR -0.7% -1.8% -0.1% 0.2% -1.2% 0.2% 2.5% -1.6% 0.6% 1.8% Swiss Franc (% chg vs. USD) -1.4% -2.1% 0.9% -3.7% 2.2% -0.6% 4.5% -1.4% -1.4% -2.0%

Barclays GNMA TR -0.8% -1.7% -0.1% 0.4% -1.3% 0.0% 1.9% -1.6% 0.5% 1.6% Alerian MLP TR -1.4% 4.4% 6.6% 11.8% -11.1% -0.9% -6.5% 6.9% -0.4% -3.2%

Barclays High Yield TR -0.9% 1.6% 2.4% 1.0% -0.9% 0.5% 7.5% 1.7% 7.0% 5.0% FTSE EPRA/NAREIT Global TR -3.9% -4.6% -0.8% 3.5% -3.3% 3.8% 15.0% -2.8% 4.3% 4.5%

JPM EM USD Bond TR -1.3% -4.7% 1.9% -3.2% -2.1% 0.5% 9.3% -4.6% 4.1% 3.8% 50% Gold / 50% TIPS 0.8% -3.9% -2.8% -2.3% 0.4% 1.5% 8.0% -2.5% 1.4% -0.2%

Disclosures and Disclaimers



Athena Capital Advisors LLC (“Athena”) prepared this document solely for the person to whom it has been given for informational and discussion purposes only. This

document and the information contained herein are strictly confidential and may not be reproduced, distributed or communicated to any third party without the express

written approval of Athena. Athena reserves the right at any time to amend or change the contents of this document without notice. The information and opinions herein

reflect the views and opinions of Athena as of the date hereof and not as of any future date. All forecasts are speculative, subject to change at any time and may not come to

pass due to economic and market conditions.

This document and the information contained shall not constitute an offer, solicitation or recommendation to sell or an offer to purchase any securities, investment products or

investment advisory services. The material contained herein has not been based on a consideration of any individual client circumstances and is not investment advice, or

should it be construed in any way as tax, accounting, legal or regulatory advice. An investment with Athena involves substantial risks and there can be no assurance that the

investment objectives described herein will be achieved.

Athena believes that the research used in this presentation is based on accurate sources (including but not limited to economic and market data from various government and

private sources and reputable external databases), but we have not independently verified those sources, and we therefore do not guarantee their accuracy. The opinions,

projections and estimates contained herein reflect the views of Athena only and should not be construed as absolute statements and are subject to change without notice.

In considering the performance information contained herein, recipients should bear in mind that past and present performance is not necessarily indicative of future results,

nor does it ensure that investors will not incur a loss with respect to their investment. Current performance may be higher or lower than the performance data quoted. Certain

performance numbers in this presentation may be unaudited, preliminary and based on estimates. Final reported and audited performance numbers may vary considerably

from these estimates due to many factors. Estimated gross and net performance numbers could change materially as final performance figures and underlying investment

costs and fees are determined and allocated. Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of terms such

as “may”, “will”, “should”, “seek”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue”, “target” or “believe” (or the negatives thereof) or other variations

thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or actual performance may differ materially from those reflected or

contemplated in such forward-looking statements. As a result, investors should not rely on such forward-looking statements in making their investment decisions. No

representation or warranty is made as to future performance or such forward-looking statements.

Benchmarks are shown for illustrative purposes only and are provided for the purpose of making general market data available as a point of reference only. Such benchmarks

may not be available for direct investment, may be unmanaged, assume reinvestment of income, do not reflect the impact of any trading commissions and costs,

management or performance fees and have limitations when used for comparison or other purposes because they, among other reasons, may have different trading strategy,

volatility, credit, or other material characteristics (such as limitations on the number and types of securities or instruments). No representation is made that any benchmark or

index is an appropriate measure for comparison.

Historical index performance results for all historical benchmark indices do not reflect the deduction of transaction and custodial charges, or the deduction of an investment

manager fee, the incurrence of which would have the effect of decreasing indicated historical performance results. The historical performance results for all indices are

provided exclusively for comparison purposes only, so as to provide general comparative information to assist in determining whether Athena’s performance meets, or

continues to meet, your investment objective(s). Comparative indices may be more or less volatile than Athena portfolios. Athena performance results reflect the reinvestment

of dividends and other account earnings, and are net of applicable account transaction charges. It should not be assumed that Athena account holdings will correspond

directly to any such comparative benchmark index.

Any description of tax consequences set forth herein is not intended as a substitute for careful tax planning. Recipients of this material are advised to consult tax counsel for

advice specifically related to any and all tax consequences of an investment made with or through Athena. The information provided herein is not intended to, nor does it

specifically advise on, tax matters pertaining to federal, state, estate, local, foreign or other tax consequences of an investment. The recipient is solely responsible for all tax

consequences with respect to any investment made with or through Athena.

Massachusetts

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Suite 302

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781.274.9300

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150 East 52nd

Street

Suite 21001

New York, NY 10022

California

One Ferry Building

Suite 255

San Francisco, CA 94111

athenacapital.com

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