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Global House View & Investment PerspectivesSeptember/October 2016

Our investment process iconsCombining strategic thinking with active investing.

Global Strategic Asset Allocation

Global Security Selection

Regional Asset Allocation

Regional Portfolio Construction

02

Welcome to the September/October edition of Inview: Global House View. In this publication we consider significant developments in the world’s markets, and discuss our key convictions and themes for the coming months.

Brexit has been dominating headlines for the past few months, and indeed stock markets worldwide experienced high volatility immediately following the UK’s vote to leave the European Union. However, markets recovered quickly and sentiment has since improved. The full effect remains to be seen and the new Prime Minister Theresa May has decided to wait until 2017 to trigger Article 50, which will formally begin proceedings to leave the EU. Overall, emerging markets have outperformed developed markets since the beginning of the third quarter and have remained robust across the board. We continue to favour equities and retain our overweight position in the US as interest rate expectations remain benign and evidence points to stable growth in the domestic economy (see page 6, Asset Allocation).

In our Investment Themes section we discuss a long-term trend set to continue for many years, that of global security. We are all daily consumers of safety solutions, be it for our phones, airport security or our house alarms, and world demand for security is set to outstrip global growth by a wide margin (see page 19, Investment Themes).

We hope you enjoy this issue, and if you would like to know more about any of the topics discussed herein please contact your local representative.

Contents

03 Global Asset Allocation Summary

04 Global Asset Allocation Matrix 06 Equity 08 Fixed Income 10 Alternatives 12 Currency

14 Macro View 14 United States 15 Eurozone 16 Japan and China 17 United Kingdom 18 Monthly Market Watch

19 Investment Themes 19 Global Security 20 Robotics & Automation 21 Focus on US Equities 22 Emergings Markets23 Glossary

28 Important Information: Disclaimer

Welcome

Editorial

Moz AfzalChief Invesment Officer

Latest publications

2016 Investment Strategy Spotlight

Disciplined by nature. Flexible by design.The icons below represent our investment process. Through a disciplined provision of investment policy and security selection at the global level, regional portfolio management teams have the flexibility to construct portfolios to meet the specific requirements of our clients.

Investment Process

Combining strategic thinking with active investing





Private Capital Explained

InvisionWeekly market note, discussing the main events of the week, including weekly macro highlights.

IntimeDaily market note, summarising the most important market moving events from the past 24 hours.

InfocusInvestment Strategy Spotlight. An analysis of prevailing market conditions and suitable investment solutions.

1 / 3 All sources: EFG Research or Bloomberg unless otherwise stated.

18 August 2015 Daily Market Notes Change as at 10:29 GMT

▲ ▼ ▼ ▼ ▼ ▼ 0.39% -0.42% -0.83% -1.06% -0.05% -1.00%

Dow Jones Euro Stoxx 50 MSCI AsPac Ex-Jap MSCI Emerging EUR-USD Rate Crude Oil WTI

Last Price

1 Day Change YTD

Change

MSCI World 192.86 0.18% ▲ 2.28% ▲

US: S&P 500 2102.44 0.52% ▲ 2.11% ▲

US: Dow Jones 17545.18 0.39% ▲ -1.56% ▼

US: NASDAQ 5091.70 0.86% ▲ 7.51% ▲

US: Russell 2000 1225.09 1.02% ▲ 1.69% ▲

Canada: S&P/TSX 14251.53 -0.18% ▼ -2.60% ▼

Euro Stoxx 50 3481.3 -0.42% ▼ 10.64% ▲

UK: FTSE 100 6520.40 -0.46% ▼ -0.70% ▼

France: CAC 40 4957.87 -0.54% ▼ 16.03% ▲

Germany: DAX 10890.96 -0.45% ▼ 11.07% ▲

Switzerland: SMI 9368.84 -0.23% ▼ 4.29% ▲

Spain: IBEX 35 10856.50 -0.40% ▼ 5.61% ▲

Italy: FTSE MIB 23288.49 -0.51% ▼ 22.49% ▲

Greece: ASE 683.03 0.31% ▲ -17.33% ▼

Sweden: OMXS 30 1580.96 -0.74% ▼ 7.95% ▲

MSCI Asia Pac ex Japan 427.93 -0.83% ▼ -8.41% ▼

Japan: Nikkei 20554.47 -0.32% ▼ 17.79% ▲

China: Hang Seng 23474.97 -1.43% ▼ -0.55% ▼

China: HS Enterprises 10770.05 -1.75% ▼ -10.13% ▼

China: Shanghai Comp 3748.16 -6.15% ▼ 15.87% ▲

Australia: S&P/ASX 200 5303.15 -1.20% ▼ -1.99% ▼

Korea: KOSPI 1956.26 -0.62% ▼ 2.12% ▲

Taiwan: TWSE/TSEC 8177.22 -0.44% ▼ -12.14% ▼

Singapore: Straits Times 339.41 -0.17% ▼ -10.85% ▼

Thailand: Bangkok SET 1368.97 -2.82% ▼ -8.59% ▼

India: S&P BSE Sensex 27789.48 -0.32% ▼ 1.05% ▲

MSCI Emerging Markets 854.71 -1.06% ▼ -10.62% ▼

Russia: Moscow MICEX 1698.29 -0.57% ▼ 21.60% ▲

Brazil: Bovespa 47217.43 -0.61% ▼ -5.58% ▼

Mexico: Bolsa 43953.48 0.47% ▲ 1.87% ▲

South Africa: FTSE/JSE 50463.95 -0.57% ▼ 1.39% ▲

Charts to watch

UK inflation The US Consumer Price Index recorded a 0.1% YoY rise for July, above both the estimated 0.0% and prior 0.0%. On a MoM basis, consumer prices fell by 0.2%, less than the expected 0.3% fall, but a decline relative to the previous 0.0% change.

UK manufactured output PPI The UK Producer Price Index suffered a YoY decline of 1.6% for July, marginally below the forecast -1.5% and June’s -1.5%. On a MoM basis, producer prices lost 0.1%, consistent with consensus estimates and below June’s 0.0% change.

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UK macroeconomic data show surprising results US equities move upwards: On Monday, US stocks enjoyed an overall gain primarily on the back of encouraging housing data, and a rise in basic materials, consumer services and healthcare sectors.

Google delays Ara test: Through a series of tweets, the team at Google responsible for the development of the Ara phone project (known as Project Ara) announced that the phone’s trial test – due to take place in Puerto Rico this year – would be postponed to at least 2016. Many have expressed their disappointment at the delay. Project Ara aims to successfully manufacture a ‘modular’ smartphone which consists of easily removable components to smooth restoration, upgrade and other processes.

Bangkok bomb injures Asian equities: Shares in Thai stock markets fell to a 15-month low, following what Thai Prime Minister Prayuth Chan-ocha described as the ‘worst ever attack’ on Thailand.

European stocks mixed: Major indices opened down this morning following volatile trading overnight from China and mixed manufacturing data from the US released on Monday.

UK inflation up, sterling soars: UK inflation rose unexpectedly to 0.1%; sterling leapt almost half a cent against the dollar in response. Core CPI, which excludes food, alcohol, tobacco and energy, registered a five-month high, rising at a seasonally adjusted rate to 1.2%, up from 0.8% in June. The retail price index was up 1.0% in line with expectations.

Shell obtains permit: Royal Dutch Shell received the last oil permit it required to drill beneath the Arctic’s ocean floor.

Commodities prices fall: Last week, the Reuters/Jefferies Commodities index sank deeper than it had during the last financial crisis. Research shows attention will be focused on China’s treatment of the yuan to retain competitiveness.

EUR

OPE

A

SIA

PA

CIF

IC

N.A

MER

ICA

O

THER

Equities

% Y

oY

% Y

oY

In this issue:

OverviewBrexit shock reverberates around the globe

EuropeTwo uncomfortable facts

UKAssessing the Brexit effect

Special FocusFreeing-up world trade

Q3 2016 Quarterly Market Review

Brexit and beyond

Insight: QuarterlyQuarterly market review, giving a high level overview of asset market performance and key regions, as well as a ‘special focus’.

Inview September/October 2016

03

Fixed income • We like investment grade corporate bonds and remain overweight emerging market debt, as US interest rates are unlikely to rise significantly in the short-term.

• As high yield has performed strongly this year we believe it is wise to re-balance and take some profit, however we remain strategically overweight.

• We moved tactically back into convertibles as a catch-up play given underperformance this year.

Alternative investments • We are long-term positive on Forex, Global Macro and Commodity Trading Advisors.

• We are negative on Structured Credit but more positive on Fixed Income Arbitrage, Volatility Arbitrage and Convertibles.

• We are overweight infrastructure as we believe infrastructure and non-correlated yield is attractive.

Currencies • The US dollar has re-enforced its safe-haven status following the Brexit referendum result and relative growth keeps us optimistic. However, as interest rate expectations have softened we are strategically neutral.

• Following the referendum, we significantly downgraded our outlook for the pound sterling – although the quick political resolution provided some support, the fundamentals remain challenged.

Equity • Overall, we continue to favour equities over bonds. • We remain overweight US equities as there are signs of continued stable economic growth, led by housing, employment and potentially a turn in capital expenditure (which to date has been weak). In addition, interest rates are likely to remain low in the near-term.

• We continue to prefer growth stocks, given the potential for a catch-up, and remain overweight small caps.

• Despite relatively attractive valuations, in our US sector allocations we have downgraded telecoms to neutral as the positive trend has reversed.

• We remain underweight European equities, despite decent growth prospects for the region, because of a stronger euro and its impact on earnings, uncertainty around financials and the Italian referendum.

• The future of UK equities will most likely remain uncertain as the political situation evolves and this keeps us underweight. Our focus remains on large-caps and export oriented dividend payers, where we think valuations remain attractive for long-term investors.

• We remain overweight Switzerland, which has remained defensive in recent volatile periods.

• We remain positive on Japan on the basis of continued monetary and fiscal stimulus.

• We are neutral Asia-Pacific ex-Japan while we remain overweight in Latin America, following positive political change in Brazil and Argentina and reasonably attractive valuations.

For a more detailed overview, please see the Asset Allocation section, pages 6-13

*EFGAM Global Asset Allocation Committee. Source: EFG Calculations, 25 August 2016.

Sector July 16 GAAC Change August 16 GAAC

Financials Neutral Neutral

Materials Neutral Neutral

Information Technology Overweight Overweight

Industrials Overweight Overweight

Energy Underweight Underweight

Consumer Discretionary Neutral Neutral

Consumer Staples Neutral Neutral

Utilities Neutral Neutral

Telecoms Overweight

Neutral

Healthcare Underweight Underweight

1. GAAC* sector recommendations

Global Asset Allocation: Summary

04

Global Asset Allocation: Strategic

Asset Allocation

•• -

Asia Pacific ex-Japan •

+

Latin America +

E.Europe, ME & Africa •

Japan +

Switzerland +

United Kingdom -

Europe ex-UK ex-Switzerland -

Europe -

North America +

Mon

ey M

arke

t •

Cash

-

USD

•EU

R •G

BP -AU

D •

Asia •

Other •

Sovereign -

Investment Grade Corporate +

Convertible +

High Yield +

Preferred & Hybrid +

EM Local Currency +

Other •

EQUITIES

CASH

CURREN

CIES

FIXED INCOME

ALTS-

Infrastructure +O

ther •

Insurance-linked Securities •

Property / REITS •

Comm

odities / Mining Equity •

Hedge: U

ncorrelated +

Hedge: D

irectional/Equity-linked •

Hedge: Carry/Credit -

Based on a balanced mandate, the matrix below provides our long-term (strategic) house view on investment strategy.

Key

+ Overweight

• Neutral

- Underweight

12-month strategic outlook


05

Asset AllocationGlobal Asset Allocation: Tactical

E.Europe, ME & Africa +

+

EQUITIES

North America +

Latin America •

Asia Pacific ex-Japan +

Japan +

Switzerland •

United Kingdom •

Europe ex-UK ex-Switzerland •

Europe •

•CASH

Mon

ey M

arke

t •

Cash

+

•CURREN

CIES

USD

+EU

R •G

BP -AU

D •

Asia -

Other +


FIXED INCOME

-

Sovereign -

Investment Grade Corporate •

Convertible +

High Yield •

EM Local Currency +

Other -

Property / REITS +

Comm


ALTS-

Infrastructure •O

ther +

Insurance-linked Securities -H

edge: Uncorrelated -

Hedge: D

irectional/Equity-linked +


Based on a balanced mandate, the matrix below provides our near-term (tactical) house view on investment strategy.

Key

+ Overweight

• Neutral

- Underweight

3-month tactical views

The highlighted bars indicate a difference from our 12-month strategic outlook.

06

For our long-term strategic outlook, please refer to the matrix on page 4

Asset AllocationEquity Allocation Matrix


+

EQUITIES

North America +

Latin America •


Japan +

Switzerland •

United Kingdom •


Europe •

•CASH

Mon

ey M

arke

t •

Cash

+

•CURREN

CIES

USD

+EU

R •G

BP -AU

D •

Asia -

Other +


FIXED INCOME

-

Sovereign -


Convertible +

High Yield •

EM Local Currency +

Other -

Property / REITS +

Comm


ALTS-

Infrastructure •O

ther +



Hedge: D





Key

+ Overweight

• Neutral

- Underweight



07

Asset AllocationEquity Allocation Grid

Sub-asset classStrategic Tactical

Sub-asset class additional guidance12-month View|Change

3-month View|Change

North America

We remain overweight US equities. Interest rate expectations are still benign, and there is continued evidence of momentum building in the US economy, led by housing, employment and potentially a turn in capital expenditure (which to date has been weak). The earnings recession that has been prevalent over the last 5-6 quarters most likely ended last quarter. In addition, smaller companies are now outperforming as the rally in US equities broadens. Risks remain of a Fed that is overly hawkish and the potential distraction from a US election. However, for the next 3-6 months we see these as distractions in a market where many investors are underweight, in cash or are outright short. We advocate a small bias towards a growth style, given the potential for a catch-up. We are also overweight small cap stocks.

Europe

Despite Brexit concerns, economic growth prospects for the European region have improved and the ECB has continued to be accommodative in its action. Brexit contagion remains contained for now and there is a sense of stability unlike what we saw in 2011. We remain underweight in Europe though, due to the stronger EUR and its impact on earnings, uncertainty around financials and political uncertainty ahead of the Italian referendum. Valuations are getting more attractive but not outright cheap enough to raise our allocation.

Europe ex-UK ex-Switzerland

Despite Brexit concerns, economic growth prospects for the European region have improved and the ECB has continued to be accommodative in its action. Brexit contagion remains contained for now and there is a sense of stability unlike what we saw in 2011. We remain underweight in Europe though, due to the stronger EUR and its impact on earnings, uncertainty around financials and political uncertainty ahead of the Italian referendum. Valuations are getting more attractive but not outright cheap enough to raise our allocation.

United Kingdom

Following the Brexit referendum shock, the UK market has settled down remarkably well, driven by a quick resolution in the leadership of the UK Government and the recognition that Article 50 may not be invoked for some time. In addition, the action taken by the MPC has averted a deeper crisis. FTSE-100 stocks have benefited from the weak GBP and will continue to do so. It is likely that uncertainty will remain a feature of UK equities for some time as the political situation evolves and this keeps us underweight. Our focus remains on large-caps and export oriented dividend payers, where valuations remain attractive for long-term investors.

SwitzerlandThe Swiss equities market has remained quite defensive relative to the rest of Europe subject to having avoided the Banks and the luxury sector. Valuations are improving and we remain focussed on the small and mid-cap sector.

Japan

We remain bullish on Japan on the basis of a broadening out of monetary stimulus and now fiscal stimulus. With global growth conditions improving and the prospect of potential currency interventions, we maintain a marginal overweight. It has been painful to have been overweight, especially on a fully-hedged basis, but valuations are attractive from a historical viewpoint and we continue to find lots of opportunities at the company level. The balance between "exporters" versus "domestics" should now be more even. Likewise currency positioning should also be balanced.

Asia Pacific ex-Japan

Our confidence in Asian equities continues to improve, although we are not quite ready yet to go to a full strategic overweight. We note that in conjunction with our overweight in emerging markets, Asian equity weightings by default will be higher. China continues to stabilise, led by the financials and both Korea and Taiwan are performing well. We are less overweight in ASEAN markets as valuations are getting extended and we have switched our focus into the much cheaper North Asian markets. Flows into the region have started to improve which is a positive sign.

Eastern Europe, Middle East & Africa

The Eastern Europe, Middle East and Africa (EMEA) region is attractive from a long-term perspective. Our tactical overweight was driven by the weaker USD, which has helped improve liquidity conditions in the region. We would avoid Turkey for now, given the political instability.

Latin America

Economic conditions still remain challenging in the Latin American region although stabilisation in commodity prices and the weaker USD have helped. Political change in Brazil and Argentina have also been a positive. Valuations from a historical perspective are reasonable and we have recently seen earnings trends improving. The combination of these factors continue to give us confidence in our overweight call. We would view any dips in the market as an opportunity to increase positions. Within our overweight emerging markets call, we favour Latin America and Asia.

Sector Allocations

There remains a lot of volatility within sectors as the market remains quite rotational. This month we have downgraded Telecoms to neutral given the reversion of trends, despite valuations remaining relatively attractive. We also note that cyclical sectors such as Technology and Industrials which we upgraded earlier in the year continue to perform. Consumer Staples remain neutral despite strong trend and momentum characteristics. Overweight: Information Technology, Industrials. Neutral: Consumer Discretionary, Consumer Staples, Materials, Utilities, Financials and Telecoms. Underweight: Energy and Healthcare.

+ +

Overweight Underweight Upgrade No change DowngradeNeutral+

+

+

-

-

-

-

++

+

+

08


Asset AllocationFixed Income Matrix


+

EQUITIES

North America +

Latin America •


Japan +

Switzerland •

United Kingdom •


Europe •

•CASH

Mon

ey M

arke

t •

Cash

+

•CURREN

CIES

USD

+EU

R •G

BP -AU

D •

Asia -

Other +


FIXED INCOME

-

Sovereign -


Convertible +

High Yield •

EM Local Currency +

Other -

Property / REITS +

Comm


ALTS-

Infrastructure •O

ther +



Hedge: D





Key

+ Overweight

• Neutral

- Underweight



09

Asset AllocationFixed Income Allocation Grid



3-month View|Change

Sovereign

We are strategically underweight government debt. We believe that overall duration should be underweight. We continue to expect only one rate hike in the US this year which is now near current consensus. Bouts of risk aversion are still noticeable and so some allocation to high quality long duration debt is warranted from a risk management perspective, which could be inflation-linked. Inflation models in the US and Europe are forecasted to pick up although more modestly following the Brexit referendum result . We are more cautious on UK gilts where we should start to see the curve steepening as a result of a higher risk premium and rising inflation driven by the "twin deficits".

Investment Grade Corporate

Corporate bonds in investment grade are attractive on a relative basis, however due to the strong rally in the past few months and potentially rising inflationary expectations in the second half of the year or early 2017. We are taking some profit from earlier in the year and brought our tactical view to neutral. Our focus remains on high quality, long-dated bonds in the US and emerging markets.

ConvertibleWe move tactically back into convertibles more as a catch-up play given underperformance this year. Some of the profit in corporate bonds or high yield could be allocated back into convertibles. However, we are mindful that we are overweight risk in high yield, corporate bonds and emerging market fixed income, so risk management should determine the overall split.

High YieldWe prefer mid-duration, with a buy and hold view. High yield has performed strongly this year, with a return of 14% year-to-date, and although there is some yield spread available it is wise to re-balance to take some profit and look to re-weight into other parts of the fixed income market. However, we remain strategically overweight.

Preferred & Hybrid

Preferred and Hybrid debt is closely correlated with equity markets. Given that to date both convertible and P&H have underperformed relative to high yield, on balance we have increased positions to the higher risk elements of fixed income at the expense of the high performing areas. A dip, in say a weak September would be preferable.

EM Local Currency

With US interest rate increases unlikely to rise significantly in the short term and a US dollar that is flattish to marginally weaker improves the liquidity profile of emerging markets. We would prefer hard currency emerging markets bonds, or blended funds and are warmer on local currency risk as well.

+ -Overweight Underweight Upgrade No change DowngradeNeutral

- -

+

++

+

++

+ +

10


Alternatives Allocation Matrix


+

EQUITIES

North America +

Latin America •


Japan +

Switzerland •

United Kingdom •


Europe •

•CASH

Mon

ey M

arke

t •

Cash

+

•CURREN

CIES

USD

+EU

R •G

BP -AU

D •

Asia -

Other +


FIXED INCOME

-

Sovereign -


Convertible +

High Yield •

EM Local Currency +

Other -

Property / REITS +

Comm


ALTS-

Infrastructure •O

ther +



Hedge: D



Asset Allocation



Key

+ Overweight

• Neutral

- Underweight



11

Alternatives Allocation Grid



3-month View|Change

Hedge: Directional / Equity-linked

We prefer managers with strong stock selection skills who benefit from less intra-market correlation. On a risk-adjusted basis we favour Market Neutral strategies or managers with low net exposure. Within Special Situations we prefer hard to soft catalyst strategies.

Hedge: Carry / Credit

We are negative on Structured Credit but more positive on Fixed Income Arbitrage, Volatility Arbitrage and Convertibles. We are neutral on Long/Short Credit and Distressed. Liquidity concerns remain and so we would avoid funds that are too large.

Hedge: Uncorrelated

We are long-term positive on Forex, Global Macro and Commodity Trading Advisors (CTA). We are more positive on systematic macro over discretionary macro.

Commodities / Mining Equity

We are neutral on commodities. With cyclical inflationary pressures building and demand for precious metals increasing it makes sense to reflect strategically a more constructive stance. Oil is looking a little stretched, although demand and supply is more balanced so, in our view, we are unlikely to see the big drops from earlier this year.

Property / REITS

Within REITS (Real Estate Investment Trusts) we are neutral, but we are structurally positive on US homebuilders given trough valuation and continued affordability. Asian real estate has rallied strongly following our upgrade a few months ago and although not as attractive, momentum is still positive. We have avoided UK real estate, as prices have not fallen enough to reflect uncertainty. The illiquidity in the UK real estate funds is not over, and is reminiscent of the first wave of illiquidity that came during the Bear Stearns funds crisis earlier on in the last financial crisis. Clearly not to the same extent but often these instances rhyme.

Insurance-linked Securities

We are neutral on insurance-linked securities. Catastrophe bonds are looking fully valued.

OtherLong volatility structured products have been considered to hedge short-term spikes in volatility. The recent lull in volatility has created such an opportunity. Like wise short-volatility products have been effectively used earlier this year and last year.

InfrastructureWe are overweight infrastructure as we believe infrastructure and non-correlated yield is attractive, however, it is important to 'liquidity adjust' (to adjust for and manage liquidity appropriately). Also important is selectivity and avoiding funds with excessive premiums.

+ -Overweight Underweight Upgrade No change DowngradeNeutral

+

+

-

+

--

+ -

+

Asset Allocation

12

Currency Allocation Matrix


Asset Allocation


+

EQUITIES

North America +

Latin America •


Japan +

Switzerland •

United Kingdom •


Europe •

•CASH

Mon

ey M

arke

t •

Cash

+

•CURREN

CIES

USD

+EU

R •G

BP -AU

D •

Asia -

Other +


FIXED INCOME

-

Sovereign -


Convertible +

High Yield •

EM Local Currency +

Other -

Property / REITS +

Comm


ALTS-

Infrastructure •O

ther +



Hedge: D






Key

+ Overweight

• Neutral

- Underweight


13

Currency Allocation Grid



3-month View|Change

USDThe USD has re-enforced its safe-haven status following the Brexit referendum result. Strategically, relative growth keeps us more optimistic, however with US interest rate expectations softer the USD is more in a neutral range. The USD may well be softer against some of the Asia and emerging market crosses.

EURThe recent performance of the EUR during the Brexit saga has been quite encouraging and not reflecting the fears of referendum contagion to other parts of Europe. Despite the relative calm, as Brexit negotiations start, there maybe more volatility particularly if it is perceived that the EU is giving in to the UK. In the meantime, falling US interest rate expectations have lent support to the EUR.

GBP Following the Brexit referendum result, we downgraded significantly the outlook for the GBP. Although the quick political resolution provided some support, the fundamentals remain challenged.

AUDWe moved to a tactically neutral and strategically position for commodity based currencies, a few months ago. We remain neutral on AUD, although note that NZD continues to look strong and momentum is building.

AsiaWe expect the Japanese yen (JPY) to reverse course back to the levels seen previously, although this may not happen unless the MoF and BoJ attack the currency specifically. Markets are now more comfortable with the JPY at these levels. CFTC data is still showing very large net long positions. We remain neutral on the Chinese renminbi (CNH / CNY). We like IDR as a structural bullish story on Indonesia.

Other The CHF against both the EUR and USD has been in a small range. It is unlikely the fundamentals on both sides will see much change in this dynamic for the time being.

+ -

+

Asset Allocation

Overweight Underweight Upgrade No change DowngradeNeutral

- -

-

+

14

Macro View

Bloomberg, Markit, US Bureau of Labour Statistics, Federal Reserve, Chicago Federal Reserve, The Conference Board, US Bureau of Economic Analysis, August 2016.

United States

Speculation over rate hikes The Federal Open Market Committee (FOMC) has held interest rates at 0.25-0.5% since December 2015. However, expectations have been building over the past few weeks for a rate hike before year end following hawkish comments by Chair Janet Yellen and other Fed officials. Minutes from the latest FOMC meeting in July noted that near-term risks to the economic outlook have diminished and household spending is “growing strongly”. At the time of writing futures markets have assigned a 26% probability to the Fed hiking in September and a 54% chance of an increase at the December meeting. These probabilities are below recent peaks but meaningfully above the July lows.

Labour market robustNon-farm payrolls rose by 151k in August, a relatively modest figure after increasing by 292k and 275k in June and July respectively. Over the past three months job gains have averaged 232k per month, driven by professional and business services, health care, leisure and hospitality and financial activities. The unemployment rate held steady at 4.9% in August, the participation rate was unchanged at 62.8% and average hourly earnings rose by 2.4% year-on-year, down from 2.7% in July. Initial jobless claims have now spent 78-consecutive weeks below 300k.

Q2 growth well below expectations, benign inflationUS GDP growth slowed unexpectedly in the second quarter to 1.2% year-on-year according to the advance estimate (revised down to 1.1% in the second release), versus a forecast 2.6% gain

and last quarter’s downwardly revised figure of 0.8%. This was primarily due to a sharp fall in inventories whereas consumer spending remained robust, pointing to underlying strength. Markets are currently anticipating a rebound in growth in Q3 and this would be consistent with ongoing improvement in the labour market. The Consumer Price Index was flat from June to July, while year-on-year it rose by 0.8%. Excluding the more volatile food and energy components the CPI was up by 2.2% year-on-year, slightly below the 2.3% reported for the previous month.

Slower expansion in manufacturingThe ISM Manufacturing PMI fell unexpectedly to 49.4 in August, down from 52.6 in July and significantly below expectations of 52.0. It is the first time the index has fallen below 50 – indicating a contraction in manufacturing activity – since February of this year. Markit produces a rival US Manufacturing PMI that signalled continued expansion at 52.0, little changed from last month’s 52.1 The ISM non-manufacturing PMI also fell by an unexpectedly large amount in August, to 51.4 from July’s 55.5. The Chicago Fed National Activity Index edged higher in July to 0.27 from a downwardly revised 0.05 the previous month, led by improvements in production-related indicators. The index’s three-month moving average has improved over the last two months but remains in negative territory (-0.10). The Conference Board’s leading economic index increased 0.4% in July, suggesting that moderate economic growth should continue through the end of 2016.

For upcoming data and events, please see the Monthly Market Watch on page 18

4. ISM Manufacturing PMI 5. US GDP

Source: Bloomberg, 25 August 2016.

2014 2015 201646

48

50

52

54

56

58

60

Inde

x

ISM Manufacturing PMI

2010 2011 2012 2013 2014 2015 2016-4

-3

-2

-1

0

1

2

3

4

5

6

% c

hang

e, q

uart

er-o

n-qu

arte

r

GDP US, chained 2009 dollars, seasonally-adjusted annual rate (SAAR)



15

Macro ViewEurozone

Mitigated growth in Q2 2016Growth in the eurozone halved in Q2, with GDP for the region expanding by 0.3% quarter-on-quarter, down from 0.6% in the first three months of the year. Growth for the region was held back by the lack of expansion in both Italy and France (0.0% growth in Q2 in both countries), as exports struggled and domestic demand cooled. A concern for Europe is the upcoming political agenda with a constitutional referendum in Italy at the end of year and French presidential elections in H1 2017. Germany’s GDP growth slowed to 0.4% in Q2 from 0.7% in Q1 due to weaker than expected trade data. It is important to note that the data was from the period prior to the Brexit vote, the impact of which is uncertain.

Limited Brexit impact for nowThe eurozone has so far experienced few repercussions following the UK’s vote to leave the European Union. Markit’s flash Eurozone Composite PMI fell marginally to 52.9 in August, down from a preliminary reading and a final in July of 53.3, but remained firmly in expansion territory. While this signals a broadly steady pace of expansion, national data suggests the growth was uneven across the region. August saw employment rise again although the rate of increase slowed to a three-month low. The Eurozone Manufacturing PMI came in at 51.7 in August, marginally lower than the initial estimate of 51.8 and the previous month’s 52.0. As for the non-manufacturing sector, the Services PMI told a similar story, registering 52.8, down from a three-month high of 53.1 in July, indicating that the region remains on a relatively steady growth path in Q3.

Sources: Bloomberg, Markit, Eurostat, European Central Bank, August 2016.

Inflation and the European Central Bank (ECB)The ECB voted to hold interest rates in September, its second meeting since the UK voted to leave the EU. It held its deposit and interest rates at -0.4% and 0.0% respectively and reaffirmed its plans to continue its asset buying program of €80bn a month to March 2017 or beyond if necessary. At the press conference following the meeting, President Mario Draghi stated that current policy measures were already proving effective and there was no need for extra stimulus at the moment. He also said there was economic resilience in the eurozone despite subdued foreign demand since the UK’s EU referendum result. While inflation remains low at an annual rate of 0.2%, the ECB is forecasting a rise to 1.2% in 2017 and 1.6% in 2018. It lowered its economic forecasts slightly and now expects GDP growth of 1.7% in 2016 and 1.6% growth for both 2017 and 2018.

Inflation in the region edged back into positive territory during the month of July (+0.2% year-on-year). Core inflation, which excludes energy, food, alcohol and tobacco products, rose an unchanged 0.9% year-on-year. Smaller economies in the east continued to lead the pack of countries experiencing deflation. Notably Bulgaria and Croatia experienced price declines of 1.1% on the year in July, and Slovakia saw prices fall 0.9%. Belgium, with inflation of 2.0%, and Sweden, with 1.1%, led those economies where prices rose. On a monthly basis, eurozone prices fell 0.6% from June to July and the annual rate remains well short of the ECB’s target of just below 2%. This will fuel concerns that persistently low headline inflation will feed through into lower expectations and make it even more difficult for the ECB to reach its target.


6. Eurozone Composite PMI


2014 2015 201650

51

52

53

54

55

Inde

x

Eurozone Composite PMI

16

Macro View

Japan: Flat economic growth and inflationThe Bank of Japan (BoJ) has pumped vast amounts of money into its struggling economy in recent years to try to spur growth and combat falling prices. But the efforts are failing to produce the desired results. Indeed, Japanese GDP growth missed expectations of a 0.7% increase in Q2, with preliminary data coming in at an annualised 0.2%. This disappointing growth resulted from declining exports, subdued corporate investment and weak consumer spending, following a revised 2.0% rise in Q1. Japanese businesses are suffering from the country’s strengthening currency, which has surged more than 18% against the dollar this year, hurting exporters. As a result, Japanese Premier Shinzo Abe pledged earlier this month to implement a stimulus package with a headline figure of ¥28.1tn, including ¥7.5tn in combined spending by national and local governments to help buoy economic growth.

Japanese PMI data has struggled to get above the 50.0 threshold separating contraction from expansion, with the Nikkei Manufacturing PMI coming in at 49.5 in August, up from 49.3 in July, driven by an increase in output for the first time in six months. The Services PMI rose to 50.4 in July, up from 49.4 in June, signalling a marginal expansion.

As for the BoJ, it held its policy rate at -0.1% and kept its asset purchase program steady at ¥80tn a year at its latest meeting in August. It also announced additional monetary stimulus, aiming to purchase ¥6tn worth of ETFs annually, up from ¥3.3tn previously. The announcement disappointed investors who

Japan and China

expected more aggressive action to counter faltering inflation and a stronger currency. Indeed, the Japanese CPI fell for the fifth straight month in August, slipping 0.4% year-on-year, upping the pressure on the BoJ to consider a possible a policy revamp at its next meeting on 20th – 21st September. Consumer prices excluding fresh food and energy, the BoJ’s core gauge, rose 0.5% in July from a year earlier, down from a 0.7% increase the previous month.

China’s challenges Officially, Chinese GDP rose 6.7% in Q2 year-on-year, slightly better than expected and in line with the government’s 6.5-7% target. Exports have weakened recently, falling 4.4% in July in US$ terms – a marginally smaller drop than in June (4.8%). Exports to the EU, US and Japan shrank 3.2%, 2.0% and 5.2% respectively. In the second half of 2016, sluggish growth in Japan and Europe is expected to weigh on China’s exports along with the UK’s exit from the EU, which may further weaken demand. On the domestic side, retail sales, which are becoming more important as China transitions towards a consumption-based economy, slowed in July to expand by 10.2% year-on-year, down from June’s 10.6% and missing expectations of a 10.5% increase.

China’s CPI rose 1.8% in July year-on-year, its weakest reading since January and down from June’s 1.9%. This slowing consumer price inflation has raised hopes the government may deploy more stimulus in the second half of the year to prop up the sluggish economy.

The Caixin manufacturing PMI fell to 50.0 in August from 50.6 in July. The official manufacturing PMI unexpectedly rose in August to 50.4, up from 49.9 in July and the strongest reading since October 2014.

Sources: Bloomberg, Bank of Japan, Markit, Ministry of Economy Trade and Industry, National Bureau of Statistics of China, August 2016.


7. Japan CPI

2011 2012 2013 2014 2015 2016-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

%, y

ear-o

n-ye

ar

Japan CPI, total Japan CPI, ex fresh food and energy



17

Macro View

Brexit dominates newsThe 23 June Brexit referendum resulted in an overall vote to leave the European Union, by 51.9% versus 48.1% to remain. The constituent parts of the UK were split, with a majority in England and Wales voting to leave and a majority in Scotland and Northern Ireland voting to remain. Immediately following the result, Prime Minister David Cameron announced he would resign and was succeeded by Theresa May on 13 July. The process to leave the EU is expected to take several years during which there will be heightened uncertainty over the UK’s relationship with the EU, potentially leading to less foreign investment and delayed domestic capital expenditure plans.

Bank of England cuts the rate In response to the Brexit vote, the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted to cut interest rates to 0.25% from 0.50% at their August meeting, the first cut in seven years. In addition, the MPC increased the government bond purchase programme by £60bn to £435bn and a new corporate bond purchase facility of £10bn was announced, as well as a new scheme to ease the funding costs of banks, potentially worth up to £100bn. The BoE left its growth forecast for this year steady at 2.0% but slashed it for 2017 to 0.8% from 2.3%. Inflation forecasts have also been upwardly revised to 2.4% for both 2018 and 2019.

Price pressures a challenge for the BoERecent inflation measures highlighted the challenges the BoE will face in coming months as it tries to stimulate growth at a

United Kingdom

Sources: Bloomberg, Bank of England, Markit, The Conference Board, Confederation of British Industry, August 2016.

time when price pressures are rising. While the Consumer Price Index (CPI) rose a modest 0.6% in July, the Retail Price Index (RPI) rose to 1.9%, from 1.6% last month, and the Producer Price Index (PPI) (output version) increased on a year-on-year basis for the first time since June 2014. The sharp decline in sterling post-Brexit will push up import prices and feed through into the inflation data in the months ahead.

Weak public financesThe UK public sector net borrowing came in at a surplus of £1.5bn in July down from an upwardly revised deficit of £7.5bn in June. This was below expectations of a £2.2bn surplus due in part to the timing of revenues from corporation tax. Nonetheless, for the financial year to date, public borrowing was 11.3% lower than a year earlier. Looking ahead, public finances may take a hit from weakened economic activity following the Brexit referendum, taking a toll on tax receipts in particular, whilst the new Chancellor has indicated he is likely to use the Autumn Budget as an opportunity to add fiscal stimulus.

Unemployment steadyThe UK’s unemployment rate registered 4.9% in the three months to end June, unchanged from May and an 11-year low. In addition, average weekly earnings excluding bonuses rose 2.3% in June, up from 2.2% in May. The data suggests that the labour market remained firm into the June referendum, although there was no significant evidence of upward pressure on earnings growth. The July claimant count, the most recent reading of the labour market, was also positive as the number of people unemployed fell by 8.6k during the month.

Rebound in activityThe UK’s Manufacturing PMI rebounded sharply in August, coming in at 53.3 compared to July’s 41-month low of 48.3. Manufacturing output and incoming new orders both rose while employment increased for the first time this year. The measure recorded 52.2 in June, indicating that the dip in activity was short-term. The services PMI followed the same pattern, registering 52.9 in August, significantly above expectations of 50.0 and July’s reading of 47.4. In June, the measure signalled expansion at 52.3. The decline in services in July is notable as the services sector accounts for the lion’s share of the UK economy. However, it is reassuring that both manufacturing and services rebounded strongly in August.


8. UK CPI

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

%, y

ear-o

n-ye

ar

UK CPI EU harmonised, non seasonally-adjustedUK CPI ex energy, food, alcohol & tobacco


2014 2015 2016

18

Macro View

SEPTEMBER 2016

Tuesday 13-September • UK Consumer price index (Aug)

Tuesday 13-September • China China retail sales (Aug)

Wednesday 14-September • Eurozone Industrial production (July)

Wednesday 14-September • UK Claimant count change (Aug), unemployment rate (July)

Thursday 15-September• US• Eurozone• UK

NY Empire State Manufacturing Index, Retail Sales (Aug)Consumer Price Index (Aug)MPC meeting minutes

Friday 16-September • US Consumer Price Index (Aug)

Tuesday 20-September• Eurozone• Eurozone• Eurozone

Markit Manufacturing PMI (Sept)Markit Services PMI (Sept)Markit Composite PMI (Sept)

Wednesday 21-September• US• Eurozone• Japan

Fed interest rate decisionECB non-monetary policy meetingBoJ interest rate decision

Thursday 29-September• US• UK

GDP (Q2 final) GfK Consumer confidence (Sept)

Friday 30-September• UK• China

GDP (Q2 final) China Manufacturing PMI (Sept)

OCTOBER 2016

Monday 03-October• US• Japan

ISM Manufacturing PMI (Sept)Japan Manufacturing PMI Final (Sept)

Wednesday 05-October• Eurozone• UK

ECB non-monetary policy meeting Markit UK Services PMI

Thursday 13-October • Eurozone EU Extraordinary Economic Summit

Wednesday 19-October • China GDP (Q3)

Thursday 20-October • Eurozone ECB monetary policy meeting

Thursday 27-October • UK GDP prelim (Q3)

Friday 28-October• US• Japan

GDP prelim (Q3)Japan inflation and unemployment rate (Sept)

Monday 31-October • Eurozone GDP first estimate (Q3)

Monthly Market Watch

For a full description of the abbreviations used here, please see the Glossary on page 23.


19

Global Security

As the world population grows and the complexities of our daily interactions continue to evolve, the evolution of risks and threats to our way of life also continue to grow. We are all daily consumers of safety solutions whether it may be Airport & Transport security, active safety solutions within our devices, shopping safely online or house alarm systems.

By 2050, 66% of the world’s population is projected to be urban, megacities will require massive investments to secure infrastructure (mass transit, airports, power plants…)

World demand for security equipment is forecast to increase 6.8% annually to $126 billion in 2018,1 combined with IT Security spending that is set to reach ~$75 billion in 2016.2

Investment Themes

9. Urban/rural population forecast 10. Security market growth forecast

For more information, please see EFG’s “Investment Themes & Spotlights: Regional Guide” or ask your CRO / Investment Counsellor.

Source: United Nations, Department of Economic and Social Affairs, Population Division: World Urbanization Prospects.1Forecast by Freedonia Group – March 2015. 2IDC – December 2014.

1950 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 500

1000

2000

3000

4000

5000

6000

7000

Popu

latio

n (m

illio

ns)

Source: United Nations, Department of Economic and Social Affairs, Population Division: World UrbanizationProspects. Data as at 1 April 2016.

RuralUrban

9.8

9.8

8.3

8.3

5.7

0 2 4 6 8 10 12%

Asia Pacific

Eastern Europe

Africa/Middle East

Latin America

North America

Western Europe

Security market annual compound annual growth rate (CAGR), 2016 - 2021, by region

Source: Forecast by Freedonia Group, March 2015.

3.4

The main reasons for this are: the rapid pace of technological innovation, the increasing free movement of goods, capital and people, and more stringent regulation.

We see security sales continuing growing, much faster than global growth and as such we believe it to be a trend set to continue for many years as the security dilemma around the world continues to grow.

20

Investment Themes


Robotics & Automation

11. Worldwide industrial robot installations

Recent advances, everything from driverless cars to computers that can read human facial expressions, have pushed companies to continue investing and to look at the changes automation will bring to the labour force as robots move their way into higher reaches of the workplace.

From 2016 to 2018, the global industrial and factory automation equipment and services market is slated to grow by 15% year-on-year. The market is estimated to reach $283.2 billion by 2018, 19% of which is occupied by the USA.

Automation demand in Asia: China and other emerging Asian economies are still far behind developed ones in automation-equipment usage. The size of the Asian manufacturing sector, growing local demand combined with an aging population makes Asia the most interesting region for automation equipment in the longer run.

Warehouse automation: E-commerce is starting to utilise automation as a tool to achieve greater economies of scale. Its growth rates combined with higher automation density make a potent mix of growth for suppliers of automation equipment.

Energy and shale gas: The shale-gas revolution will support process automation vendors as cheap energy revitalises the chemical industry. Oil & gas centered energy-demand growth is a boon for process-automation providers.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

50

100

150

200

250

300

World-wide industrial robot installations

Thou

sand

s

Projections

Source: International Federation of Robotics (Dec 2013), Wall Street Journal (Jan 2015).

Sources: EFGAM, Bloomberg, International Federation of Robotics (2013), Wall Street Journal


21

Investment Themes

Focus on US Equities

12. US wage growth


The US economy grew at an annualised rate of 1.1% in the second quarter of 2016.

US consumer confidence is steady: the US Conference Board’s consumer confidence index remained steady at 97.3 in July, coming in significantly above the consensus of 95.7.

Household consumption, which accounts for about 70 percent of the economy, grew at a 4.2 percent annualised rate, the biggest jump since the end of 2014, underpinning signs that a stronger labour market is leading to improved wages.

New home sales in the US rose to the highest level since February 2008.

Taking into account strong recent US employment data, there is a small chance of a Fed Funds rate hike this year, as the Fed awaits further confirmation that the labour market is sustainably back on track and as Fed officials scan for signs of “Brexit” aftershocks on the US economy.

The USD has re-enforced its safe-haven status following the Brexit referendum results. Strategically, relative growth keeps us more optimistic, however with US interest rate expectations softer the USD is more in a neutral range.

The S&P 500 index recently struck a record high as growing optimism over the US economy eclipsed Brexit concerns.

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 160.0

1.0

2.0

3.0

4.0

5.0

6.0

% c

hang

e on

yea

r

Average hourly earnings growth, % change on year Recessions

Atlanta Fed wage growth trackerSource: Thomson Reuters Datastream. Data as at 1 July 2016.

22

Investment Themes

For more information, please see EFG’s “Investment Themes & Spotlights: Regional Guide” or ask your CRO / Investment Counsellor.Source: EFGAM, Bloomberg, Dept Of Labor, UMichigan, Haver Analytics

Emerging Markets

Considerations for long-term investors in Emerging Markets (EM)

• (1) Valuation: Investment outflows from EM have been indiscriminate. There are thus strong local businesses in EM which are now trading at valuation multiples that represent compelling value to long term investors (see Figure 14).

• (2) USD may well be softer against some of Asian and EM crosses.

Within our overweight EM, we favour Asia (see Figure 15) and Latin America.

AsiaWe prefer North Asian markets (Korea, Taiwan) to ASEAN (Association of Southeast Asian Nations) due to ASEAN valuation getting stretched. China continues to stabilise led by financials. India, with the loss of Rajan and possibly early signs that the Modi government is stalling on reforms make us cautious.

Eastern Europe, Middle East and Africa (EMEA)Attractive from a long-term perspective. However, political instability as well as recent terrorist attacks in Turkey lead us to be cautious.

Latin AmericaThe stabilisation in commodity prices and the weaker USD have helped. Any dip should be seen as an opportunity to increase positions.

UK0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

NorthAmerica

Europeex UK

Asiaex Japan

Japan EMEurope

Latam World

P/E 10-year maximum P/E 10-year minimum Average P/E current

Source: EFGAM. Data as at 29 July 2016.

Mul

tiple

(x)

Source: EFGAM. Data as at 29 July 2016.

China

India

Indonesia

Malaysia

South Korea

Philippines

Singapore

Taiwan

Thailand

Jul-15

18.3

20.8

18.1

16.6

12.6

19.4

13.4

13.2

18.5

Jul-16

14.3

20.9

21.8

17.5

10.5

23.0

12.3

14.0

17.9

Jul-15

2.2

2.7

2.9

1.8

1.0

2.3

1.3

1.8

2.1

Jul-16

1.8

2.8

3.4

1.7

1.0

2.7

1.2

1.8

2.1

Price/Earnings Price/Book

13. Valuations: EM vs. World 14. Valuations: Asia


23

ABS Asset-Backed Securities

Basis points One hundredth of one percentage point (bps)

Beige Book A report published by the United States Federal Reserve Board in advance of meetings of the Federal Open Market Committee.

Beta A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

BoE Bank of England

BoJ Bank of Japan

CAGR Compound annual growth rate

CBOE Chicago Board Options Index

China H Shares Chinese companies listed on the Hong Kong stock exchange or other foreign exchanges.

CMBS Commercial Mortgage-Backed Securities

CoCos Contingent Convertibles

CPI Consumer Price Index

Delta 1 A derivative with a linear, symmetric payoff profile. The price for these products closely track their underlying assets.

EBITDA Earnings before interest, taxes, depreciation, and amortization

E. Europe Eastern Europe

ECB European Central Bank

ETFs Exchange traded funds (ETFs) are index-tracking funds that can be traded on exchanges – just like a stock.

Fed US Federal Reserve

FOMC Federal Open Market Committee

GDP Gross Domestic Product

Glossary

Cont.

24

IFO IFO Institute for Economic Research

JOLTS Job Opening Labour Turnover Survey

LTRO Long-term Refinancing Operation

MBS Mortgage-Backed Securities

ME Middle East

MoM Month-on-month

MPC Monetary Policy Committee

OECD Organisation for Economic Co-operation and Development

OPEC Organization of the Petroleum Exporting Countries

PMI Purchasing Managers' Index

QoQ Quarter-on-quarter

REITS Real estate investment trust

RICS Royal Institute of Chartered Surveyors

RMBS Residential Mortgage-Backed Securities

Shiller PE A cyclically adjusted price/earnings ratio that measures the price of a company's stock relative to average earnings over the past ten years.

SME Small Medium Enterprises

SNB Swiss National Bank

Volatility A statistical measure of the dispersion of returns for a given security or market index.

YoY Year-on-year

Glossary (cont.)


25

In8 Publications

Eight client-approved publications outlining our global views, market insights and investment perspectives.

InvisionWeekly Macro Note, outlining the past week’s main macroeconomic events.

Frequency: Every Monday. Online only.

In this issue:

OverviewBrexit shock reverberates around the globe

EuropeTwo uncomfortable facts

UKAssessing the Brexit effect

Special FocusFreeing-up world trade

Q3 2016 Quarterly Market Review

Brexit and beyond

infact

Balanced GFS Strategy 1 / 4

Balanced GFSStrategy

Q3 2016

Investment ProcessCombining strategic thinking withactive investing

Global StrategicAsset Allocation

Regional AssetAllocation

Global SecuritySelection

Regional PortfolioConstruction

Balanced GFS Strategy Overview

• Global Fund Select (GFS) strategiestarget relative returns and areprimarily composed of a globallydiversified set of mutual funds andexchange-traded funds. These globalportfolios offer different assetallocation strategies for diverse riskreward profiles and are globallydiversified by asset class, region, andindustry.

• The Balanced Strategy targetscapital appreciation and incomegeneration over a longer period oftime. This strategy is designed for theinvestor who is looking for a balancebetween growth and income, whilemanaging a moderate level of risk,

with exposure to a broad mix of fixedincome, equity, and alternativeinvestments.

Key Features

Return ObjectivesCapital appreciation and currentincome

Time HorizonLong Term

Risk FactorMedium

Investment StyleRelative return

Currency AvailabilityUSD, EUR

Minimum InvestmentUSD 1 million

Liquidity80% within 5 days on average(not guaranteed)

Strategy Asset Allocation Range

Equity Range: 25% to 65% Fixed Income Range: 20% to 65%

Cash Range: 0% to 20% Alternatives Range: 0% to 25%

20%

0%

20%

0%

60%

30%

60%

20%

4.056.04

54.69

35.22

Neutral AssetAllocation

% Current AssetAllocation

ASSETALLOCATION

MATRIX

Alternatives include property, infrastructure, commodities and hedge funds.

1 2 3 4 5

Product Risk Rating

Data as at 30 June 2016 unless otherwise stated.

2016 Investment Strategy Spotlight

Disciplined by nature. Flexible by design.The icons below represent our investment process. Through a disciplined provision of investment policy and security selection at the global level, regional portfolio management teams have the flexibility to construct portfolios to meet the specific requirements of our clients.

Investment Process

Combining strategic thinking with active investing





Private Capital Explained

Brexit: The Curse of the ConservativesDaniel Murray Chief Economist

May 2016 Research Note




Regional Portfolio ConstructionInsight

Quarterly Market Review. High level overview of asset market performance, key regions and includes a special focus.

Frequency: QuarterlyAdditional languages: Spanish, Portuguese, French, German.

InvestGlobal Investment Perspectives. A magazine comprising timely articles written by our investment teams.

Frequency: Bi-annual.

IndepthResearch Notes written by EFG’s Chief Economist, Daniel Murray.

Frequency: Ad hoc.

InfactDiscretionary strategy factsheets that provide an overview of key features, asset allocation and manager commentary.

Frequency: Quarterly. Additional languages available on a regional basis.

InfocusInvestment Strategy Spotlight. An analysis of prevailing market conditions and suitable investment solutions.

Frequency: Ad hoc. Varies by region.

1 / 3 All sources: EFG Research or Bloomberg unless otherwise stated.

4 November 2015 Daily Market Note Change as at 10:11 GMT

▲ ▲ ▲ ▲ ▼ ▼ 0.50% 0.74% 1.09% 1.24% -0.38% -0.31%

Dow Jones Euro Stoxx 50 MSCI AsPac Ex-Jap MSCI Emerging EUR-USD Rate Crude Oil WTI

Last Price

1 Day Change YTD

Change

MSCI World 190.48 0.24% ▲ 1.02% ▲

US: S&P 500 2109.79 0.27% ▲ 2.47% ▲

US: Dow Jones 17918.15 0.50% ▲ 0.53% ▲

US: NASDAQ 5145.13 0.35% ▲ 8.64% ▲

US: Russell 2000 1191.58 0.46% ▲ -1.09% ▼

Canada: S&P/TSX 13710.31 0.64% ▲ -6.30% ▼

Euro Stoxx 50 3468.16 0.74% ▲ 10.23% ▲

UK: FTSE 100 6435.83 0.82% ▲ -1.98% ▼

France: CAC 40 4986.24 1.01% ▲ 16.70% ▲

Germany: DAX 10968.77 0.16% ▲ 11.86% ▲

Switzerland: SMI 9028.40 1.04% ▲ 0.50% ▲

Spain: IBEX 35 10580.60 1.10% ▲ 2.93% ▲

Italy: FTSE MIB 22635.72 0.78% ▲ 19.06% ▲

Greece: ASE 707.51 -1.48% ▼ -14.36% ▼

Sweden: OMXS 30 1521.25 0.92% ▲ 3.87% ▲

MSCI Asia Pac ex Japan 425.29 1.09% ▲ -8.98% ▼

Japan: Nikkei 18926.91 1.30% ▲ 8.46% ▲

China: Hang Seng 23053.57 2.15% ▲ -2.34% ▼

China: HS Enterprises 10560.74 2.70% ▲ -11.88% ▼

China: Shanghai Comp 3459.64 4.31% ▲ 6.95% ▲

Australia: S&P/ASX 200 5242.29 0.06% ▲ -3.12% ▼

Korea: KOSPI 2052.77 0.21% ▲ 7.16% ▲

Taiwan: TWSE/TSEC 8857.02 1.65% ▲ -4.84% ▼

Singapore: Straits Times 341.11 1.33% ▲ -10.41% ▼

Thailand: Bangkok SET 1423.45 0.77% ▲ -4.96% ▼

India: S&P BSE Sensex 26645.21 0.21% ▲ -3.11% ▼

MSCI Emerging Markets 860.77 1.24% ▲ -9.99% ▼

Russia: Moscow MICEX 1763.60 1.60% ▲ 26.28% ▲

Brazil: Bovespa 48053.67 4.76% ▲ -3.91% ▼

Mexico: Bolsa 45354.59 1.82% ▲ 5.12% ▲

South Africa: FTSE/JSE 54573.72 0.92% ▲ 9.65% ▲

Charts to watch

S&P 500 Index The S&P 500 continues to rise as it closed yesterday near its all-time high of 2,134.7 points.

New York Manufacturing PMI The New York PMI surged to 65.8 yesterday, well above predictions of 45.7 and last month’s index of 44.5, indicating an expanding market.

1800

1850

1900

1950

2000

2050

2100

2150

Nov

-14

Nov

-14

Dec

-14

Jan-

15

Jan-

15

Feb-

15

Mar

-15

Mar

-15

Apr-1

5

May

-15

Jun-

15

Jun-

15

Jul-1

5

Aug-

15

Aug-

15

Sep-

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Stocks rise as S&P 500 nears record high US stocks rise: US stocks rose to near all-time highs yesterday as energy stocks gained a boost from rising crude prices. The S&P 500 ended the session 0.3% higher, leaving the index 1.2% short of the record high of 2,134.7 points reached in May.

US car sales increase: US auto makers said car sales had the best two-months in 15 years as sales increases were in double figures. Annualised selling rate after seasonal adjustments was 18.2 million in both September and October, the first time consecutive months selling rate exceeded 18.0 million.

Asian shares jump: The Nikkei ended the session overnight 1.4% higher, after initially rising 2.5% following mixed signals that China’s stock market would open further to foreign investor. Chinese shares rallied on the rumour.

European markets gain: European stocks opened higher this morning, tracking their US and Asian counterparts, as comments by Mario Draghi supported sentiment. The ECB President reiterated that the policy markets will review the degree of monetary stimulus they have deployed when they meet in December. Speaking at the ECB Forum in Frankfurt, Draghi said "...Even though domestic demand remains resilient, concerns over growth prospects in emerging markets and other external factors are creating downside risks to the outlook for growth and inflation."

M&S profits fall: Marks and Spencer (M&S) half year profits fell 22% to £216 million, while their underlying profits, which strip out supposed one-off, or exceptional costs, is up 6% to £284 million. Margins rose while volume of sales fell in the key women’s clothing segment, while food sales were up slightly. M&S’s stock price has gained 29% in the last year.

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Notes

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