North America Investment Strategy · 2018-06-28 · • Real US GDP grew by 2.9% in Q3 2016,...

North America Investment Strategy Charts We Are Watching – December 2016 Understanding the Market Dislocation Post US Elections

Investment Products: Not FDIC Insured ● Not CDIC Insured ● Not Government Insured ● No Bank Guarantee ● May Lose Value

Christopher Dhanraj

Multi-Asset Investment Strategist, North America

[email protected]

+1.212.559.6251

Malcolm Spittler

Investment Analyst

[email protected]

+1.212.559.8651

Table of Contents: Charts We Are Watching – December 2016

Monitoring Post-US Election Dislocations and Flows 3

Still Constructive On Economic Fundamentals and Earnings Trends 12

Key Catalysts Lie Ahead: European Politics and The Fed 19

Asset Allocation and Key Takeaways 25

Monitoring Post-US Election Dislocations and Flows

Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results for investment advice, and are subject to change based on market and other conditions.

4

Fixed Income and Equity Markets Correlation Has Now Plummeted

• Pre-US Elections, the correlation of the S&P 500 to US Fixed Income markets rose to multi-year highs • This had reduced the effectiveness of Equity/Bond portfolios with both asset classes selling off simultaneously • Uncorrelated assets such as Gold continue to offer the potential benefit of portfolio diversification

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges,

which would lower performance. For illustrative purposes only. Past performance is no guarantee of future results. Real Results may Vary.

Source: Haver Analytics and FactSet as of September 29, 2016.

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Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. Past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors.

Extreme Divergence in Stock Vs. Bond Volatility…

• Pre-US Elections, we highlighted the high (80%+) correlation between Equities and Fixed Income • Post-US Elections, this correlation has broken down to -20%, strengthening the impact of diversification, due to a

sharp sell-off in Fixed Income even while Equity markets have rallied steadily

Market Dislocations Seen Across Equity and Fixed Income Markets

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Stock Market Volatility (Left) Bond Market Volatility (Right)

Source: Haver Analytics as of November 22, 2016.

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30-Year Treasury

… Is Driving the Post-Election Performance Dispersion

6

Dislocations Also Seen Within Equity and Bond Markets

• Within Equities, the YTD outperformance between Emerging Market Equities and US Equities has closed • Within Fixed Income, the post-US Election move in corporate bonds is more of a re-pricing than a dislocation

Source: FactSet as of November 21, 2016. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges,

which would lower performance. For illustrative purposes only. Past performance is no guarantee of future results. Real Results may Vary.

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IG Corporates

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Emerging Market Stocks and S&P 500

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Risk-On Equity Sentiment Is At Odds To Year-End Liquidity Seeking

FOR ILLUSTRATIVE PURPOSES ONLY

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any

expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future returns. Real results may vary.

• Large Cap equities at 17.8 P/E trades at a stark valuation discount to Small Caps at 21.1 P/E • At the same time, Large Caps have underperformed small caps by 1,000bps YTD • We see the demand for Size (i.e. greater liquidity) returning as uncertainty persists

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S&P 500 (Large Cap) Relative to S&P 600 (Small Cap)


8

Post-US Election Flows Point to Investor Positioning




Source: Citi Research as of November 21, 2016.

• Over the past year, fixed income funds have seen much more inflows than equity funds • Post Elections and into year-end, investors have reduced risk in their most overweight fixed income assets • This helps to explain, in part, the underperformance of fixed income markets to equities

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Alternatives • Private Equity • Real Estate • Distressed

Yield Back-Up Post-US Elections Creating Attractive Entry Points


Source: Bloomberg, The YieldBook and FactSet as of November 21, 2016. Alternative investments referenced in this presentation are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in the fund, potential lack of diversification, absence of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and advisor risk. The investor must ascertain if they are suitable for each investment strategy based on their unique investment objectives and risk tolerances. Strategies discussed herein may have

eligibility requirements that must be met prior to investing. Each investor should carefully view the risks associated with an investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s objective. Strategies described herein involve risk and may not perform as described.

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.

Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future returns. Real results may vary.

• Rising yields may offer investors an opportunity to add risk opportunistically or to address core underweights • As suitable, we prefer Dividend-Growth stocks, Municipal Bonds, High Yield and Master Limited Partnerships • Illiquid Yield investments i.e. Real Estate, Private Equity & Distressed Investments may offer uncorrelated returns

Public Market Yields Private Markets

10

Source: FactSet as of November 21, 2016.

S&P 500 Sectors Revenue Exposure to Regions

• The US Dollar has rallied +3.3% Year-To-Date, and is now at levels last seen in 2003 • Among sectors, Technology is most dependent on international revenue, which is affected by currency moves • The valuation divergence between Large Cap and Small/Mid Cap stocks is also accelerating

Within Equities, Monitor US Dollar Impact and Valuations

S&P Market Cap Indexes Forward P/E



Source: FactSet as of November 21, 2016.

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Election Day

11


S&P 500 Financials and 10-Year Treasury Yields

• The trend of low rates over the past few decades have been a headwind to financial equity sector performance • As yields rise, Financials should see an earnings boost, though the large caps may see the largest benefit • The promise of decreasing regulation should also be a favorable tailwind for the sector

Rising Rates Are a Tailwind to Financials

Net Interest Margin for Large and Small Banks

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Still Constructive on Economic Fundamentals and Earnings Trends


13

Growth: A Stable Backdrop For the New Administration

• Real US GDP grew by 2.9% in Q3 2016, beating market expectations, and reversing some recent weakness • Looking ahead, Economic forecasts are starting to include rough estimates of the impact to GDP in 2017 and 2018

from tax cuts and spending increases • Citi Research now forecasts 1.8% growth in 2017 and 2.5% in 2018 • This represents a -0.3% hit to growth in 2017 reflecting the stronger dollar and rising yields, but then add 1% to

2018 and 0.5% to 2019 and 2020 vs. Pre-US Election baseline

Source: Haver Analytics and as of November 21, 2016.

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Other Economic Data Points Still Intact

• Looking below the headline reveals that the swing between Q2 and Q3 GDP was primarily due to inventories levels • Initial jobless claims remain near multi-decade lows, signaling no turn in the labor market yet • Continued growth in labor force suggests a continuation of above-trend employment gains • New home sales still below long-run norms with further upside helped by lower rates

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US Employment and Labor Force Still Intact Housing Continues to Stabilize

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% of Consumers Planning to Buy a New Home Within6 Months (Left)New Home Sales Per Household (Right)

US Real Consumption Growth Softer in Q3 than Q2 2016

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Higher inflation expectations contributing to TIPs outperformance

• Headline CPI expected to rebound in coming months following stabilization of oil prices • The Fed’s preferred inflation metric (core Personal Consumption (PCE) inflation) has now risen to 1.7% in September

from 1.4% at the end of 2015, though still remains below the Fed’s 2% target

Source: Haver Analytics as of November 25, 2016. Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. Past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors.

TIPs Pricing In A Return of Headline Inflation Core CPI Still Tame Despite Rise In Headline Inflation

Source: Haver Analytics as of October 25, 2016.

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US Q3 2016 Earnings Is Withstanding Energy Drag

Source: FactSet as of November 21, 2016. Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. Past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors.



• Blended EPS Growth for Q3 2016 is now 3.0% as of November 21st - and +6.0% ex-Energy • Full-Year 2016 US Earnings Growth has dipped to 0.1% from 0.5% one month ago • Energy companies continue to maintain 2017 recovery outlook, helping full year 2017 Earnings Growth Picture

Blended Actual and Consensus Q3 2016 Earnings Growth Estimated 2017 Full Year Earnings Growth

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Canadian Real GDP and CPI Still Weak Though BoC Policy Still Seen As Accommodative

• The Bank of Canada (BoC) Governor Stephen Poloz has noted that it would take three-five years before Canada’s growth has “normalized” post the recent oil shock

• The BoC has downgraded its GDP growth expectations in its latest Monetary Policy report. The Central Bank now expects the economy to grow 1.1% this year and 2% in 2017, down from its July projections of 1.3% and 2.2% respectively. Key headwinds have included a slowdown in Housing which is seen detracting a further 0.3% per year until 2018 as well as a slowdown in exports

• However, the Central Bank remains accommodative, with BoC Governor Poloz noting that a rate cut from the current levels was “actively discussed.” With monetary policy accommodation still likely, we still remain constructive on Canadian equities and bonds

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Source: Haver Analytics as of November 21, 2016. Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. Past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors.

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Canada Growth Recovery Continues, Though Policy Is Supportive

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Prices and Earnings Continue To Diverge In Canada


Canadian Equity Prices Have Rebounded Anticipating Stabilization in Earnings

Sources: Haver Analytics, Citi Research and FactSet as of November 21, 2016. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance.

All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events. Past performance is no guarantee of future events. Real results may vary.

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• YTD through September 2016, the S&P / TSX has rallied 14%, outperforming the US S&P 500 by 750bps • We expect profit taking near-term with Canadian equities trading at a 15% valuation premium to US Equities • This is why we remain neutral on Canadian Equities within the GIC Asset Allocation framework

Key Catalysts Lie Ahead: European Politics and The Fed


20

Key Catalysts To Monitor In the Weeks Ahead

Source: Citi Private Bank, using FactSet and Bloomberg Data as of November 21, 2016. All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.

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GDP

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Business Confidence

Index

Color Key

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Eco Data

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Earnings Season Begins

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(95% Probability of

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GDP

21

Expect Persistent European Political Risks, Particularly in EU

Timeline of Key European Political Risks: 2016-2018

Source: Citi Research and Bloomberg as of November 17, 2016.

22

Source: Bloomberg as of November 22, 2016. Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, Inc., and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. Past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors.

• Markets are now pricing in one 25bp rate hike with 100% certainty at the next December 2016 meeting • Assuming a December hike, expectations are for one more 25 bp hike 2017 • These forward expectations may be too low should inflation and / or growth pick up unexpectedly

Fed Hike Timing Post December Is An Underpriced Risk

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Amidst Uncertainty, Build Cash To Take Advantage Of Dislocations




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USDJPY Currency Pair Breakout Likely On Widening Interest Rate Differential

REITs: A 13% Selloff in Three-Months – And Now Yields 4.4%

• Into year-end, lower liquidity may exacerbate the sell-off seen in certain assets • We prefer using options as suitable to take directional views while at the same time mitigating risk

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Source: Haver Analytics as of November 21, 2016. Source: Haver Analytics as of November 21, 2016.

24

Sector Dispersion Likely Ahead Due to Politics & Fundamentals

• In the two weeks Post-US Elections, dramatic US Sector divergence has been seen: Financials +13.2% on rising rates and possible de-regulation while REITs -3.1 % on higher rates.

• While the new Trump Presidential Administration is likely to drive further moves, we would be cautious on chasing such rallies (i.e. Industrials +14% year-to-date) unless confirmed by economic fundamentals and earnings growth

Fundamental S&P 500 GIC Sector Ranking

Source: FactSet as of November 21, 2016. Concentrated exposure to any one industry, sector, asset class country, issuer or position limits diversification and increases risk. To reduce this risk, portfolio holdings are diversified across multiple industries and companies.

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of

future returns. Real results may vary.

SECTOR EPS

Growth 1

YR Ahead

Revenue

Growth 1

YR Ahead

Price To

Book

Debt to

EBITDA

Dividend

Yield

YTD Total

Return (%)

Energy 206.8 -31.9 1.9 3.4 2.9 16.2

Materials 11.4 -11.3 3.4 2.8 2.1 10.5

Consumer Discretionary 10.2 5.7 4.6 2.8 1.5 3.7

Health Care 9.4 9.2 3.7 2.5 1.6 -3.5

Information Technology 9.3 -2.8 4.3 1.5 1.5 10.4

Financials 8.4 -1.0 1.0 2.5 1.9 14.2

Consumer Staples 7.9 1.2 5.3 2.3 2.6 -0.3

Real Estate 7.7 7.1 3.2 5.9 3.1 -0.9

Industrials 4.9 -4.6 4.2 2.7 2.2 14.0

Utilities 3.1 -6.8 1.9 4.6 3.4 6.3

Telecommunication Services 2.0 11.1 2.9 2.5 4.6 5.9

Asset Allocation and Key Takeaways

26

CPB Global Investment Committee Tactical Allocations

• Risk Level 3: Tactical Allocations as of November 17, 2016

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

Source: Citi Private Bank, as of GIC meeting November 17, 2016. SMID = Size of companies capitalization is classified as small to mid.

Asset Allocation (Level 3)

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Emerging all cap equities

Developed SMID equities

Developed Asia ex. Japan

Japan Large Cap

Europe large cap equities

NAM large cap equities

GIC Level 3 Asset Allocation

Tactical

Strategic

• Reduced global equity position from neutral to -1.0%.

• Added to a tactical cash overweight position now at +1.5%.

• Kept global fixed income at -1.0%, but reduced the duration of US dollar fixed income portfolios to neutral .

• Cut allocation to European equities (ex-UK) to underweight.

• Reduced some Southeast Asian equity weightings.

Changes as of November 2016

27

Key Takeaways

• The Post-US Election Trump market reaction has created near-term market dislocations driven by positioning rather than a change in fundamentals

• The growth and inflation picture still remains benign in the near-term

• Looking ahead, Asset Allocation will be even more critical for portfolios,

especially with the reducd correlation between stocks and bonds

• Monitor upcoming catalysts for data points that may move markets – especially in December 2016 and January 2017 when higher market illiquidity is expected

Strategies and investments mentioned in this document may not be suitable for all investors. Products, strategies and services discussed herein may have eligibility requirements that must be met prior to investing. Each investor should carefully view the risks associated with the investment and make a determination based upon the investor's own particular circumstances, that the investment is consistent with the investor's objective

28

Market Technicals

Source: Citi Private Bank, using Haver Data as of November 21, 2016.

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US Trade Weighted Dollar Index JPY Per US Dollar

Stocks

Bonds

Currencies

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of

future returns. Real results may vary.

29

Contacts

North America EMEA ASIA

Steven Wieting

Global Chief

Investment Strategist

+1.212.559.0499

[email protected]

Christopher Dhanraj

CPB Investment Strategist, NAM

+1.212.559.6251

Kris Xippolitos

Fixed Income Strategist

+1.212.559.1277

[email protected]

Joseph Kaplan

Global Investment Strategy

+1.212.559.3772

[email protected]

Malcolm Spittler

Global Investment Strategy

+1.212.559.8651

[email protected]

Jeffrey Sacks

EMEA Capital Markets Strategist

+44.207.508.7325

[email protected]

Shan Gnanendran

EMEA Investment Analyst

+44.207.508.0458

[email protected]

Ken Peng

Asia Investment Strategist

+852.2868.8904

[email protected]

Shirley Wong

Asia Investment Strategy

+852.2298.6119

[email protected]

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Asset Allocation Definitions Asset classes Benchmarked against

Global equities MSCI All Country World Index, which represents 48 developed and emerging equity markets. Index components are weighted by market capitalization.

Global bonds Barclays Capital Multiverse (Hedged) Index, which contains the government -related portion of the Multiverse Index, and accounts for approximately 14% of the larger

index.

Hedge funds HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe. It comprises all eligible hedge fund

strategies; including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage and relative

value arbitrage. The strategies are asset-weighted based on the distribution of assets in the hedge fund industry.

Commodities Dow Jones-UBS Commodity Index, which is composed of futures contracts on physical commodities traded on US exchanges, with the exception of aluminum, nickel

and zinc, which trade on the London Metal Exchange (LME). The major commodity sectors are represented including energy, petroleum, precious metals, industrial

metals, grains, livestock, softs, agriculture and ex-energy.

The Thomson Reuters / Core Commodity Index is designed to provide timely and accurate representation of a long-only, broadly diversified investment in commodities

through a transparent and disciplined calculation methodology.

Cash Three-month LIBOR, which is the interest rates that banks charge each other in the international inter -bank market for three-month loans (usually denominated in

Eurodollars).

Equities

Developed market large cap MSCI World Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure the equity market performance of the

large cap stocks in 23 developed markets. Large cap is defined as stocks representing roughly 70% of each market’s capitalization.

US Standard & Poor’s 500 Index, which is a capitalization -weighted index that includes a representative sample of 500 leading companies in leading industries of the US

economy. Although the S&P 500 focuses on the large cap segment of the market, with over 80% coverage of US equities, it is also an ideal proxy for the total market.

Europe ex UK MSCI Europe ex UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large cap stock performance

in each of Europe’s developed markets, except for the UK.

UK MSCI UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large cap stock performance in the UK.

Japan MSCI Japan Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large cap stock performance in

Japan.

Asia Pacific

ex Japan

MSCI Asia Pacific ex Japan Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure the performance of

large cap stocks in Australia, Hong Kong, New Zealand and Singapore.

Developed market small and

mid-cap (SMID)

MSCI World Small Cap Index, which is a capitalization-weighted index that measures small cap stock performance in 23 developed equity markets.

Emerging market MSCI Emerging Markets Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure equity market performance of 22

emerging markets.

Bonds

Developed sovereign Citi World Government Bond Index (WGBI), which consists of the major global investment grade government bond markets and is composed of sovereign debt,

denominated in the domestic currency. To join the WGBI, the market must satisfy size, credit and barriers-to-entry requirements. In order to ensure that the WGBI

remains an investment grade benchmark, a minimum credit quality of BBB–/Baa3 by either S&P or Moody's is imposed. The index is rebalanced monthly.

Emerging sovereign Citi Emerging Market Sovereign Bond Index (ESBI), which includes Brady bonds and US dollar -denominated emerging market sovereign debt issued in the global,

Yankee and Eurodollar markets, excluding loans. It is composed of debt in Africa, Asia, Europe and Latin America. We classify an emerging market as a sovereign with

a maximum foreign debt rating of BBB+/Baa1 by S&P or Moody's. Defaulted issues are excluded.

Supra-nationals Citi World Broad Investment Grade Index (WBIG)—Government Related, which is a subsector of the WBIG. The index includes fixed rate investment grade agency,

supranational and regional government debt, denominated in the domestic currency. The index is rebalanced monthly.

Corporate investment grade Citi World Broad Investment Grade Index (WBIG)—Corporate, which is a subsector of the WBIG. The index includes fixed rate global investment grade corporate debt

within the finance, industrial and utility sectors, denominated in the domestic currency. The index is rebalanced monthly.

Corporate

High Yield

Barclays Global High Yield Corporate Index. Provides a broad-based measure of the global high yield fixed income markets. It is also a component of the Multiverse

Index and the Global Aggregate Index.

Securitized Citi World Broad Investment Grade Index (WBIG)—Securitized, which is a subsector of the WBIG. The index includes global investment grade collateralized debt

denominated in the domestic currency, including mortgage -backed securities, covered bonds (Pfandbriefe) and asset -backed securities. The index is rebalanced

monthly.

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Glossary Barclay US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. BofA Merrill Lynch Financial Preferred Securities Index tracks the performance of fixed rate US dollar denominated financial preferred securities issued in the US domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch) and must have an investment grade rated country of risk (based on an average of Moody’s, S&P and Fitch foreign currency long term sovereign debt ratings. BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of fixed rate U.S. dollar denominated preferred securities issued in the U.S domestic market. S&P/TSX Composite is the headline index for the Canadian equity market. It is the broadest in the S&P/TSX family and is the basis for multiple sub-indices including but not limited to equity indices, Income Trust Indices, Capped Indices, GICS Indices and market cap based indices. Cash is measured against the three-month LIBOR, which is the interest rate that banks charge each other in the international inter-bank market for three-month loans (usually denominated in Eurodollars). CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by Standard & Poor’s 500 stock index option prices.

CBOE Crude Oil Volatility Index (OVX) measures the market's expectation of 30-day volatility of crude oil prices by applying the VIX methodology to oil price options spanning a wide range of strike prices. CVIX Currency Volatility Index measures the market’s expectation of 30-day volatility of currency prices across 9 currency pairs applying the VIX methodology. Citigroup GRAMI (Global Risk Aversion Macro Index) measures risk aversion across asset classes. It is an equally weighted index of developed and emerging market sovereign spreads, US credit spreads, TED spread and implied FX, equity and swap volatility. GRAMI is shown as standard deviations from the mean. Citigroup High Yield Index is a US Dollar-denominated index that measures the performance of high yield debt issued by corporations domiciled in the US or Canada. The index consists of a long position in high yield bonds and a duration dollar-matched short position in US Treasury securities. The high yield portion of the index offers exposure to cash-pay bonds, including Rule 144A bonds, issued by corporations. No more than two issues per parent issuer are included and each high yield issuer is limited to 2% of the market value of the high yield position of the index. The short position in US Treasury securities is constructed using three US Treasury securities corresponding to the 2-, 5-, and 10-year US Treasury futures contracts in an attempt to approximate the maturity distribution of the overall index. Citigroup USBIG Corporate, 7–10 year Index consists of publicly issued, non-convertible corporate bonds rated Aa or Aaa that have at least $2.5 million par value outstanding. It is a value-weighted, total return index, that includes approximately 800 issues with maturities of 7–10 years. Commodities are measured against the Dow Jones-UBS Commodity Index, which is composed of futures contracts on physical commodities traded on exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). The major commodity sectors are represented, including energy, petroleum, precious metals, industrial metals, grains, livestock, softs, agriculture and ex. energy. Corporate high yield is measured against the Citigroup US High Yield Market Index, which includes all issues rated between CCC and BB+. The minimum issue size is $50 million. All issues are individually trader priced monthly. Corporate investment grade is measured against the Citi World Broad Investment Grade Index (WBIG) – Corporate, a subsector of the WBIG. This index includes fixed rate global investment grade corporate debt within the finance, industrial and utility sectors, denominated in the domestic currency. The index is rebalanced monthly. Developed market large cap equities are measured against the MSCI World Large Cap Index. This is a free-float adjusted, market-capitalization weighted index designed to measure the equity market performance of the large cap stocks in 23 developed markets. Large cap is defined as stocks representing roughly 70% of each market’s capitalization. Developed market small and mid cap equities are measured against the MSCI World Small Cap Index, a capitalization-weighted index that measures small cap stock performance in 23 developed equity markets.

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Glossary Developed sovereign is measured against the Citi World Government Bond Index (WGBI), which consists of the major global investment grade government bond markets and is composed of sovereign debt, denominated in the domestic currency. To join the WGBI, the market must satisfy size, credit and barriers-to-entry requirements. In order to ensure that the WGBI remains an investment grade benchmark, a minimum credit quality of BBB–/Baa3 by either S&P or Moody's is imposed. The index is rebalanced monthly. Dispersion is a statistical measure showing the variability of returns for and within particular benchmark or market index. Emerging markets equities are measured against the MSCI Emerging Markets Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure equity market performance of 22 emerging markets. Emerging sovereign is measured against the Citi Emerging Market Sovereign Bond Index (ESBI). This index includes Brady bonds and US dollar-denominated emerging market sovereign debt issued in the global, Yankee and Eurodollar markets, excluding loans. It is composed of debt in Africa, Asia, Europe and Latin America. We classify an emerging market as a sovereign with a maximum foreign debt rating of BBB+/Baa1 by S&P or Moody's. Defaulted issues are excluded. Europe ex UK equities are measured against the MSCI Europe ex UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure the performance of large cap stocks in each of Europe’s developed markets, excluding the United Kingdom. Global bonds are measured against the Citigroup Broad Investment Grade Bond. The index is weighted by market capitalization and includes fixed rate Treasury, government sponsored, mortgage, asset backed, and investment grade (BBB–/Baa3) issues with a maturity of one year or longer and a minimum amount outstanding of $1 billion for Treasuries, $5 billion for mortgages, and $200 million for credit, asset-backed and government-sponsored issues. Global equities are measured against the MSCI All Country World Index, which represents 48 developed and emerging equity markets. Index components are weighted by market capitalization. Hedge funds are measured against the HFRI Fund Weighted Composite Index. This is an equally weighted composite index including both domestic and offshore funds, with no fund of funds. The index includes over 2,000 constituent funds. All funds report assets in USD and all funds report net of all fees returns on a monthly basis. Fund must have at least $50 million under management or have been actively trading for at least 12 months. HFRI Event-Driven (Total) Index: event driven is also known as ‘corporate life cycle’ investing. This involves investing in opportunities created by significant transactional events, such as spin-offs, mergers and acquisitions, bankruptcy reorganizations, recapitalizations and share buybacks. Returns for HFRI indices are to be considered estimated returns for the previous stated quarter as HFRI may revise index data from time to time, as necessary. Generally final index returns are made available by HFRI four months after a particular month end. Japan equities are measured against the MSCI Japan Large Cap Index. A free-float-adjusted market-capitalization-weighted index designed to measure large-cap stock performance in Japan. LDXY Index is a spot index of emerging Asia's most actively traded currency pairs valued against the US dollar. Master Limited Partnership (MLP): A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture. MOVE Volatility Index is a measure of the average yield volatility of 2, 5, 10, and 20 year Treasury bonds. MSCI EM (Emerging Markets) Index is free-float adjusted and weighted by market capitalization. The index is designed to measure equity market performance in the global emerging markets. MSCI North America Index is free-float adjusted and weighted by market capitalization. The index is designed to measure equity market performance in the US and Canada. MSCI National Equity Market Indexes are designed to measure equity market performance in the named country. MSCI World Index (Gross) is free-float adjusted and weighted by market capitalization. The index is designed to measure global developed market equity performance.

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Glossary Price to Earnings Ratio or P/E Ratio is calculated as Market Value Per Share / Earnings per share for a publicly-traded company. One measure used in equity valuation of a company. Securitized: Citi World Broad Investment Grade Index (WBIG) – Securitized is a subsector of the WBIG. This index includes global investment grade collateralized debt denominated in the domestic currency, including mortgage-backed securities, covered bonds (Pfandbriefe) and asset-backed securities. The index is rebalanced monthly. S&P Buy Back Index is designed to measure the performance of the top 100 stocks with the highest buyback ratios in the S&P 500.

S&P 500 is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. Supranationals: Citi World Broad Investment Grade Index (WBIG) – Government Related is a subsector of the WBIG. This index includes fixed rate investment grade agency, supranational and regional government debt, denominated in the domestic currency. The index is rebalanced monthly. UK equities are measured against the MSCI UK Large Cap Index, which is free-float adjusted and weighted by market capitalization. The index is designed to measure large-cap stock performance in the United Kingdom. US Dollar Index (DXY) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and six major world currencies. The ICE US computes this by using the rates supplied by some 500 banks. US equities are measured against the Standard & Poor’s 500 Index, a capitalization-weighted index which includes a representative sample of 500 leading companies in leading industries of the US economy. Although the S&P 500 focuses on the large cap segment of the market, with over 80% coverage of US equities, it is also an ideal proxy for the total market. Wells Fargo Hybrid & Preferred Securities Financial Index: The Wells Fargo Hybrid and Preferred Securities Aggregate Index is a modified market-capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. VIX is the ticker for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX futures curve shows this level of future expected volatility across different maturities

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Important Information In any instance where distribution of this communication (“Communication”) is subject to the rules of the US Commodity Futures Trading Commission (“CFTC”), this communication constitutes an invitation to consider entering into a derivatives transaction under US CFTC Regulations §§ 1.71 and 23.605, where applicable, but is not a binding offer to buy/sell any financial instrument.

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Important Information This material may mention options regulated by the US Securities and Exchange Commission. Before buying or selling options you should obtain and review the current version of the Options Clearing Corporation booklet, Characteristics and Risks of Standardized Options. A copy of the booklet can be obtained upon request from Citigroup Global Markets Inc., 390 Greenwich Street, 3rd Floor, New York, NY 10013 or by clicking the following links, http://www.theocc.com/components/docs/riskstoc.pdf or http://www.theocc.com/components/docs/about/publications/november_2012_supplement.pdf. If you buy options, the maximum loss is the premium. If you sell put options, the risk is the entire notional below the strike. If you sell call options, the risk is unlimited. The actual profit or loss from any trade will depend on the price at which the trades are executed. The prices used herein are historical and may not be available when you order is entered. 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Important Information Although information in this document has been obtained from sources believed to be reliable, Citigroup Inc. and its affiliates do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use. Throughout this publication where charts indicate that a third party (parties) is the source, please note that the attributed may refer to the raw data received from such parties. No part of this document may be copied, photocopied or duplicated in any form or by any means, or distributed to any person that is not an employee, officer, director, or authorized agent of the recipient without Citigroup Inc.’s prior written consent. Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer’s credit rating, or creditworthiness, causes a bond’s price to decline. High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made. Mortgage-backed securities ("MBS"), which include collateralized mortgage obligations ("CMOs"), also referred to as real estate mortgage investment conduits ("REMICs"), may not be suitable for all investors. There is the possibility of early return of principal due to mortgage prepayments, which can reduce expected yield and result in reinvestment risk. Conversely, return of principal may be slower than initial prepayment speed assumptions, extending the average life of the security up to its listed maturity date (also referred to as extension risk). Additionally, the underlying collateral supporting non-Agency MBS may default on principal and interest payments. In certain cases, this could cause the income stream of the security to decline and result in loss of principal. Further, an insufficient level of credit support may result in a downgrade of a mortgage bond's credit rating and lead to a higher probability of principal loss and increased price volatility. Investments in subordinated MBS involve greater credit risk of default than the senior classes of the same issue. Default risk may be pronounced in cases where the MBS security is secured by, or evidencing an interest in, a relatively small or less diverse pool of underlying mortgage loans. MBS are also sensitive to interest rate changes which can negatively impact the market value of the security. During times of heightened volatility, MBS can experience greater levels of illiquidity and larger price movements. Price volatility may also occur from other factors including, but not limited to, prepayments, future prepayment expectations, credit concerns, underlying collateral performance and technical changes in the market. MLPs. MLPs are publicly traded stocks. Investing in stocks, ETFs and ADRs entails the risks of market volatility. The value of all types of bonds, stocks, ETFs and ADRs may increase or decrease over varying time periods. With respect to fixed income securities, please note that in general, as prevailing interest rates rise, fixed income securities prices will fall. High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. To the extent the investments depicted herein represent international securities; you should be aware that there may be additional risks associated with international investing, including foreign economic, political, monetary and/or legal factors, changing currency exchange rates, foreign taxes and differences in financial and accounting standards. International investing may not be for everyone. These risks may be magnified in emerging markets. Small capitalization companies may lack the financial resources, product diversification and competitive strengths of larger companies. The securities of small capitalization companies may not trade as readily as, and be subject to higher volatility than, those of larger, more established companies. Funds that invest a large percentage of assets in only one industry sector (or in only a few sectors) are more vulnerable to price fluctuation than funds that diversify among a broad range of sectors. With respect to real estate investments, property values can fall due to environmental, economic or other reasons, and changes in interest rates can negatively impact the performance of real estate companies. Real Estate Investment Trusts (REITs) are subject to special risk considerations similar to those associated with the direct ownership of real estate. Real estate valuations may be subject to factors such as changing general and local economic, financial, competitive, and environmental conditions. REITs may not be suitable for every investor. Dividend income from REITs will generally not be treated as qualified dividend income and therefore will not be eligible for reduced rates of taxation. Alternative investments referenced in this report are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in the fund, potential lack of diversification, absence of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and advisor risk. Asset allocation does not assure a profit or protect against a loss in declining financial markets. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. International investing entails greater risk, as well as greater potential rewards compared to US investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economics.

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Important Information Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity. Factors affecting commodities generally, index components composed of futures contracts on nickel or copper, which are industrial metals, may be subject to a number of additional factors specific to industrial metals that might cause price volatility. These include changes in the level of industrial activity using industrial metals (including the availability of substitutes such as man-made or synthetic substitutes); disruptions in the supply chain, from mining to storage to smelting or refining; adjustments to inventory; variations in production costs, including storage, labor and energy costs; costs associated with regulatory compliance, including environmental regulations; and changes in industrial, government and consumer demand, both in individual consuming nations and internationally. Index components concentrated in futures contracts on agricultural products, including grains, may be subject to a number of additional factors specific to agricultural products that might cause price volatility. These include weather conditions, including floods, drought and freezing conditions; changes in government policies; planting decisions; and changes in demand for agricultural products, both with end users and as inputs into various industries. The information contained herein is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Readers interested in the strategies or concepts should consult their tax, legal, or other advisors, as appropriate. Citi Private Bank is a business of Citigroup Inc. (“Citigroup”), which provides its clients access to a broad array of products and services available through bank and non-bank affiliates of Citigroup. Not all products and services are provided by all affiliates or are available at all locations. In the US, brokerage products and services are provided by Citigroup Global Markets Inc. (“CGMI”), member SIPC. Accounts carried by Pershing LLC, member FINRA, NYSE, SIPC. CGMI and Citibank, N.A are affiliated companies under the common control of Citigroup. Outside the US, brokerage products and services are provided by other Citigroup affiliates. Investment Management services (including portfolio management) are available through CGMI, Citibank, N.A. and other affiliated advisory businesses. In Hong Kong, this document is issued by CPB operating through Citibank, N.A., Hong Kong branch, which is regulated by the Hong Kong Monetary Authority. Any questions in connection with the contents in this document should be directed to registered or licensed representatives of the aforementioned entity. In Singapore, this document is issued by CPB operating through Citibank, N.A., Singapore branch, which is regulated by the Monetary Authority of Singapore. Any questions in connection with the contents in this document should be directed to registered or licensed representatives of the aforementioned entity. In the United Kingdom, Citibank N.A., London Branch (registered branch number BR001018), Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB, is authorised and regulated by the Office of the Comptroller of the Currency (USA) and authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The contact number for Citibank N.A., London Branch is +44 (0)20 7508 8000. Citibank Europe plc is regulated by the Central Bank of Ireland. It is authorised by the Central Bank of Ireland and by the Prudential Regulation Authority. It is subject to supervision by the Central Bank of Ireland, and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request. Citibank Europe plc, UK Branch is registered as a branch in the register of companies for England and Wales with registered branch number BR017844. Its registered address is Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB. VAT No.: GB 429 6256 29. Citibank Europe plc is registered in Ireland with number 132781, with its registered office at 1 North Wall Quay, Dublin 1. Citibank Europe plc is regulated by the Central Bank of Ireland. Ultimately owned by Citigroup Inc., New York, USA. In Jersey, this document is communicated by Citibank N.A., Jersey Branch which has its registered address at PO Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citibank N.A. Jersey Branch is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for eligible deposits of up to £50,000. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the States of Jersey website www.gov.je/dcs, or on request. In Canada, Citi Private Bank is a division of Citibank Canada, a Schedule II Canadian chartered bank. Certain investment products are made available through Citibank Canada Investment Funds Limited (“CCIFL”), a wholly owned subsidiary of Citibank Canada. Investment Products are subject to investment risk, including possible loss of principal amount invested. Investment Products are not insured by the CDIC, FDIC or depository insurance regime of any jurisdiction and are not guaranteed by Citigroup or any affiliate thereof. CCIFL is not currently a member, and does not intend to become a member of the Mutual Fund Dealers Association of Canada (“MFDA”); consequently, clients of CCIFL will not have available to them investor protection benefits that would otherwise derive from membership of CCIFL in the MFDA, including coverage under any investor protection plan for clients of members of the MFDA.

http://www.gov.je/dcs

38

Important Information This document is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities to any person in any jurisdiction. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially. Citigroup, its affiliates and any of the officers, directors, employees, representatives or agents shall not be held liable for any direct, indirect, incidental, special, or consequential damages, including loss of profits, arising out of the use of information contained herein, including through errors whether caused by negligence or otherwise. © Copyright 2016, Citigroup Inc. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world.

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