The Key 2013 — Deutsche Bank Presenation — Larry Adam

Deutsche Asset& Wealth Management

4Q13 Market OutlookOctober 2013

Larry Adam, U.S. Chief Investment StrategistManaging [email protected]

k

4Q13 Economic and Financial Questions and Key Topics for Discussion

The Market Message of 2013, Thus Far1 g ,

Are the Stars Aligning for an Economic Rebound?

Living in a Fair Market Environment2

3

QE Means “Quite Easy” Monetary Policy

Normalization in Yields to Continue

4

5

Credit Fair Valued; Looking for Opportunities

And the Bull Rally Marches On

6

7

Selectivity Important in Fair Valued World

Will the Dollar Be King?

8

9

Commodities to Be Challenged10

Deutsche Asset& Wealth Management 4th Quarter Market Outlook

Larry Adam, U.S. Chief Investm

Market Outlook

016437.10.02.13

ent Strategist1

The Market Message of 2011

35%Year to Date Total

What Have the Markets Told Us?

3Q13 Performance by Asset Class/Sector QTD

15%

25%

Year to Date Total Return (colors vary)

3Q13 Total Return (colors vary)

-5%

5%

S&P 500 sectors:

-35%

-25%

-15%Equities:

All regions except India positive, Europe rebounds

Rotation into select cyclicals; interest rate

sensitive, telecom, lags. Growth outperforms value

35%

Eur

oSto

xx 5

0ra

nce

CAC

40

Han

g S

eng

Bra

zil B

oves

paG

erm

an D

AX

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ikke

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500

FTS

E 1

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Nift

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row

thC

itigr

oup

Valu

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ater

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Indu

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etio

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Sta

ples

Fr B G

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P/C

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&P

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Con

s. C



Footnotes: Sorted by 3Q13 returns. Data as of September 30, 2013Data Source: FactSet, Bloomberg Finance LP.

3, Thus Far

Commodities:

Fixed income: Modest gains, long term

Treasuries fall

Commodities: Broad gains; Agriculture

struggles

FX: Dollar Falls; Euro/GBP rally

Util

ities

Tele

com

U.S

. Hig

h Yi

eld

ket L

ocal

Gov

trg

ing

Mar

ket

Eur

ope

Cre

dit

ope

Sov

erei

gnt G

rade

Cre

dit

Year

Tre

asur

yG

BP

EUR

JPY

CN

YB

RL

Dol

lar I

ndex

Cop

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Gol

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Cor

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016437.10.02.13

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Living in a Fair Market Envir2Equities and Commodities Approaching Fair Value

S&P 500 P/E Fair ValuedS&P 500 P/E Fair Valued

20x

24x

12x

16x

Fair Value

'04 '05 '06 '07 '08 '09 '10 '11 '12 '138x

12x

S&P 500 Trailing P/E (AVG) S&P500 Trailing P/E

Recession Periods - United States

— The trailing P/E of the S&P 500 (15.7x LTM) is trading relatively close to its 10-year average (15.8x LTM).

(AVG) S&P 500 Trailing P/E



Data Source: FactSet.

ronment

Oil in the Fair Value ZoneOil in the Fair Value Zone

$120

$140

$160

$40

$60

$80

$100

Cru

de O

il P

rice

($/b

bl)

Fair Value

$0

$20

65 70 75 80 85 90 95

C

Global Crude Oil Consumption (million barrels per day)

— The price of oil is highly correlated with demand. As demand increases, the price of oil increases.

— With 2014 demand expected to rise above 90 million barrels $per day, the fair value of oil appears to be between $90 and

$100/barrel.

— With oil consumption increasing, demand appears to be more inelastic.

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Footnotes: Time period reflects 1Q91 to 2Q13. Data Source: U.S. Energy Information Agency, FactSet.

Living in a Fair Market EnvironmFixed Income Testing Fair Value

Ten Year Treasury on Normalization ProcessTen Year Treasury on Normalization Process

10%

15%

20%

0%

5%

10%

Fair Value

'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-5%

(% 1YR) Nominal GDP - Uni ted States US Benchmark Bond - 10 Year Yield

Recession Periods - Uni ted States

— Historically, the 10 year Treasury yield closely tracks the year over year change in nominal GDP.

— The rise in yields since May has resulted in a normalization of interest rates to a relatively fair value level in relation to GDPinterest rates to a relatively fair value level in relation to GDP.




ment

High Yield Spreads Below Historical AverageHigh Yield Spreads Below Historical Average

1,500

2,000

2,500

500

1,000

1,500

Fair Value

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130

Barclays Capital U.S. High Yield Spread (to 5 year Treasury Yield) in bps (AVG) Barclays Capi tal U.S. High Yield Spread (to 5 year T reasury Yield) in bps Recession Periods - Uni ted States

— After credit spreads reached record highs in the depths of the “Great Recession,” spreads have normalized and remain below their 15 year average.

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Are the Stars Aligning for an3Economic Recovery Weak in Historical Context

U.S. Economic Recovery Still Weak in Historical ContextU.S. Economic Recovery Still Weak in Historical Context

135

140

145

1501953-1954 1957-19581960-1961 1969-19701973-1975 19801981-1982 1990-19912001 2007-2009

115

120

125

130

135

Current recovery

95

100

105

110

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Q arters Leading Up to and After Recessions

— Even 17 quarters after the end of the “Great Recession,” the U.S.

Quarters Leading Up to and After Recessions

economic recovery has still been the weakest in a historical context of all the recessions since the 1950s.



Footnotes: Time period reflects 1950-2013. Zero marks the end of each recession Data Source: FactSet.

n Economic Rebound?

The Root of Economic DisappointmentThe Root of Economic Disappointment

Weaker New Global Growth

ParadigmFiscal Drag

Disappointing Corporate Spending

Challenged Confidence Spending

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Are the Stars Aligning for an EcThe Formula – From Grinding for Growth to Procuring Economic Pr

Global Growth

Acceleration

Business Spending

ConsuPositiv

Wealth+ +

= +2.5-3U.S. GDP



conomic Rebound?rosperity

umer:ve Net

h Effect

Improving Labor Market+ Ease of

Fiscal Drag+

3.5% P Growth

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Are the Stars Aligning for an EcSigns that Global Economic Rebound is Ahead

U.S. Economic Growth Expected to AccelerateU.S. Economic Growth Expected to Accelerate

2.5%

3.0%

3.5% Estimates

0.5%

1.0%

1.5%

2.0%

0.0%

%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

U.S. GDP Estimate

— Economic growth should accelerate in 2H13 and 2014, based on an increase in business spending, exports and productivity. In addition, the waning impact from the fiscal drag should further complement the resilient consumer demand. p



Footnotes: Estimates as of October 18, 2013. Data Source: DEAWM, Bloomberg Finance LP.

conomic Rebound?

Fiscal Drag on U.S. Growth Expected to Ease in 2014Fiscal Drag on U.S. Growth Expected to Ease in 2014

— In terms of the fiscal drag on growth, DB Global Markets estimates that after peaking this year, the impact on GDP from austerity measures will fall by 1.6% in 2014 (from 2.3% to 0.7%) and decline further in 2015.

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Data Source: Deutsche Bank Global Markets

Are the Stars Aligning for an EcAcceleration in Global Growth Leads to Pickup in Exports

1.0%

1.5%

2.0%

European Growth to Pick up in 2H13 and 2014

estimate

-1.5%

-1.0%

-0.5%

0.0%

0.5%

-2.5%

-2.0%

1.5%

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Euroland GDP (QoQ Ann%)

— Europe has emerged from the longest economic recession on record.

— While growth may modestly slow from 2Q13 in the coming quarters, we expect growth to accelerate in 2014. q , p g

— This should help to boost U.S. economic growth through increased export activity.



Footnotes: Estimates as of September 2013.Data Source: Deutsche Bank Global Markets

conomic Rebound?

Exports Turning Slightly Positive

30%

40%

50%

-20%

-10%

0%

10%

20%

-40%

-30%

Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 Jun-13

U.S. Exports to EM U.S. Exports to EU U.S. Exports to Japan

— In fact, we have started to see signs of a recovery in export activity to some of our largest trading partners within the developed economies and the emerging markets.

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Footnotes: EM sums Brazil, Mexico, China, Russia, India, Korea, Taiwan.Data Source: Bloomberg Finance LP. As of July 2013.

Are the Stars Aligning for an EcAcceleration of Capex Spending

Business Outlook for Capex Improving

20

30

40

20

-10

0

10

20

-30

-20

Aug-00 Oct-02 Dec-04 Feb-07 Apr-09 Jun-11 Aug-13

Capex Spending Outlook Richmond Fed & Philadelphia Fed (Avg)

— Capex spending has been slow to materialize in the economic recovery but is a foundation of our economic outlook.

— There has been signs of optimism as the capex spending outlook in some of the regional surveys is reaching its highest g y g glevel since 2000.



Data Source: Bloomberg Finance LP

conomic Rebound?

S&P 500 Spending on Capital Expenditures

60

70

80

30

40

50

60 +71% +55%

+84%

20

30

Dec-90 Oct-93 Aug-96 Jun-99 Apr-02 Feb-05 Dec-07 Oct-10 Aug-13

S&P 500 Capital Expenditures

— If you use history as a guide, companies in the S&P 500 tend to increase capex spending by 78%, on average, in a business recovery.

— However, companies in the current cycle have only increased , p y ycapex spending by 55%.

— This illustrates how underinvested companies remain after the “Great Recession.”

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Footnotes: Data is an Index and uses the trailing 12 months capex spending. Data Source: Bloomberg Finance LP

Are the Stars Aligning for an EcNear Term Risk More About Confidence Than Structural Decelera

Limited Damage from Federal Government Furloughs

— Despite ~800K government workers furloughed at the start of the shutdown (~25% of federal employees), 350K were reclassified as “essential” employees so that they could return to work and the deal made by Congress is set to pay furloughed workers retroactively.



Data Source: Deutsche Bank Global Markets.

conomic Rebound?ation

Ultimate Impact Dependent Upon Confidence Turnaround

80

85

90

Largest decline in over two years

55

60

65

70

75

50

55

2008 2009 2010 2011 2012 2013U. of Mich. Consumer Sentiment - 3-Month Moving Average

— Consumer confidence was hampered by the government impasse with the three month moving average of consumer sentiment falling at the fastest pace in more than two years in October.

— New deadlines from the deal will be in focus but hopefully confidence will be restored. In the absence of a fiscal policy “shock” we expect the combination of lower gas prices, falling mortgage rates, rising equity prices and the end of the shutdown should bolster sentiment.

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. Data Source: FactSet.

QE Means “Quite Easy” Mon4“Easy” Policy Globally

Global Balance SheetsGlobal Balance Sheets

$3,000

$3,500

$4,000

$4,500

ns

$500

$1,000

$1,500

$2,000

$2,500

in b

illio

n

$0Aug-00 Oct-02 Dec-04 Feb-07 Apr-09 Jun-11 Aug-13

Fed Balance Sheet Bank of Japan Balance Sheet (in USD)

ECB Balance Sheet (in USD)

— Despite the talk of “taper,” the Fed is still expected to increase its balance sheet over the next 6-12 months, just at a slower pace.



Data Source: Bloomberg Finance LP.

netary Policy

Rates to Remain AccommodativeRates to Remain Accommodative

40%

50%

60%Only 50% chance of rate hike by Jan 2015

10%

20%

30%

0%Oct-13 Dec-13 Jan-14 Mar-14 Apr-14 Jun-14 Jul-14 Sep-14 Oct-14 Dec-14 Jan-15

Probability of Rate Hike (as of August 20, 2013)

Probability of Rate Hike (as of Sept 27, 2013)

— Within the U.S., even if the Fed begins the gradual removal of QE, interest rates should remain low until 2015, at the earliest.

— In fact, the probability of a rate hike in January 2015 has fallen from 51% to 46% in a monthfrom 51% to 46% in a month.

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Data Source: Bloomberg Finance LP.

QE Means “Quite Easy” MonetQE Tapering Postponement

“Mixed” Employment PerspectivesMixed Employment Perspectives

175

200

225

250

9.0%

9.5%

10.0% Weak payroll gains remain a concern for the Fed

25

50

75

100

125

150

7.0%

7.5%

8.0%

8.5%

7% remains one threshold we believe needs to be reached before the Fed “tapers” QE

0

25

6.5%Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 Mar-2013 Sep-2013

Unemployment Rate (% LHS)Nonfarm Payroll Change 6-Month Moving Average (thousands, RHS)

p

— Labor market improvements remain in focus for the Fed as they assess future policy. While the unemployment rate fell (to 7.2%) to its lowest level since November 2008 in September, underlying trends continue to reflect a tepid environment.

— In addition to the six-month moving average of payroll gainsIn addition to the six month moving average of payroll gains declining in recent months, uncertainty surrounding the actual impacts from the government shutdown will be closely watched.



Data Source: FactSet

ary Policy

Potential Timing for Tapering

FOMC Taper? Comment

Oct 29-30 Fed not more comfortable now than in Sep

? Possible, but “burden of proof” for data

high e g payrolls above +200k

Potential Timing for Tapering

Dec 17-18 ? high, e.g., payrolls above +200k Chances of real long-term fiscal resolution

by December have risen

Jan 28-29 ? Possible; data will be stronger, political

uncertainty likely reduced Last meeting under Bernanke

Mar 18-19

Market pricing*

Fed publishes new forecasts, Chair holds press conference – making it easy to explain / justify taper

— Janet Yellen will likely take a similar “dovish” stance as Bernanke did with the focus on the labor market as a gauge for future QE. Labor participation remains at the lowest level since 1978 and the total number of people employed is still below pre-crisis levels.

— In terms of taper timing, the odds of a December announcement p g,are falling given the Fed’s data dependent approach. If monthly payroll gains can move back above 200K and a long-term fiscal resolution is achieved by lawmakers, December remains in play.

— With the March meeting including new Fed forecasts and Yellen’sfirst press conference, it could be an opportunity to be more t t i l i i th th d j tifi ti f t i

016437.10.02.13

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transparent in explaining the path and justification of tapering.


QE Means “Quite Easy” MonetaTaking a “Taper” Breather…For Now

Fed Economic Checklist

Checklist Factor Level

x Consumer Confidence

x Small Business Optimism

x Nonfarm Payrolls (6 Mo Moving Average)

Confidence

x Moving Average)

x Unemployment Rate

x Housing Prices (S&P Case Shiller Index)

Employment

P i Equity Prices (S&P 500)

x Inflation (PCE Deflator)

x GDP >2.3% (two/three co

Economy

Prices

Interest Rates (10YR)

Government x Budget and Debt Ceiling Agreeme

Economy



Footnotes: Treasury yields and S&P 500 level for May is as of May 21, 2013. All other data as of OData Source: FactSet.

ary Policy

ImprovementMore Room to Go

to Look for Last Time Level Reached Current Level Level May 2013

(initial "taper" talk)

>90 October 2007 80 74

>100 October 2006 94 94

>210K April 2006 160K 203K

<7.0% November 2008 7.3% 7.6%

>165 December 2008 162 152

1585 1693 1669

2.0% February 2012 1.4% 1.1%

(YoY) (sustain for onsecutive quarters) 2010 1.6% (2Q13) 1.3% (1Q13)

<3.1% July 2011 2.62% 1.93%

nt Between Both Parties December 2012 No Budget/Debt

Ceiling at Risk

016437.10.02.13

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October 2, 2013.

QE Means “Quite Easy” MonetFed Becoming More Hawkish?

Fed Composition 2013Fed Composition 2013

Member Name FOMC Member Role RatingBen S. Bernanke Chairman - Board of Governors 1

Willi C D dl Vi Ch i f FOMC N Y k 1

2013 FOMC Voting Members

William C. Dudley Vice Chair of FOMC - New York 1

Janet Yellen Vice Chair Board of Governors 1

Charles L. Evans* Chicago Fed President 1

Eric S. Rosengren* Boston Fed President 1

Elizabeth A. Duke Board of Governors 2

S h Bl R ki B d f G 2Sarah Bloom Raskin Board of Governors 2

Daniel K. Tarullo Board of Governors 2

Jeremy C. Stein Board of Governors 2

Jerome H. Powell Board of Governors 3

James Bullard* St. Louis Fed President 3

E th L G * K Cit F d P id t 4Esther L. George* Kansas City Fed President 4

1.9Average "Dove-Hawk" Rating (Dove =1, Hawk = 5)

— Janet Yellen remains the favorite to replace Ben Bernanke in 2014. HGovernor Duke having stepped down at the end of August, Fed Govresigning the unfilled spots are likely to cause some uncertainty regresigning, the unfilled spots are likely to cause some uncertainty reg

— In terms of the four regional Fed Presidents, the “dovish” Evans and “hawkish” George. In their place, Kocherlakota (leans “hawk”) will be

— Using the “dove-hawk” scale (1 = dove, 5 = hawk), the average of th“hawkish” tilt (2.6) relative to 2013 (1.9). Obama will need to determi



Footnotes:*Represents a regional Fed President that is a voting member for one year. Ranked basData Source: FRB, Bloomberg Finance LP, Wall Street Journal, DB U.S. Investment Strategy Grou

ary Policy

Fed Composition 2014Fed Composition 2014

Member Name FOMC Member Role RatingJanet Yellen (Favorite) Chairman - Board of Governors 1

William C Dudley Vice Chair of FOMC New York 1

2014 FOMC Voting Members

William C. Dudley Vice Chair of FOMC - New York 1

TBD Vice Chair Board of Governors

TBD* Cleveland Fed PresidentTBD Board of Governors

TBD Board of Governors

D i l K T ll B d f G 2

?

Daniel K. Tarullo Board of Governors 2

Jeremy C. Stein Board of Governors 2

Jerome H. Powell Board of Governors 3

Narayana Kocherlakota* Minneapolis Fed President 3

Richard Fisher* Dallas Fed President 4

Ch l Pl * Phil d l hi F d P id t 5Charles Plosser* Philadelphia Fed President 5

2.6Average "Dove-Hawk" Rating (Dove =1, Hawk = 5)

However, a new Vice Chairman will need to be appointed and with Fed vernor Raskin set to be deputy Treasury secretary and Sandra Pianaltoarding majority views in the year aheadarding majority views in the year ahead. Rosengren will be rotating out along with the more neutral Bullard and

e joined by two of the Fed’s most “hawkish” members (Fisher and Plosser). e known (assuming Yellen is Chairman) members saw a much morene if a more balanced or “hawkish” Fed is appropriate.

016437.10.02.13

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ed on the “Dove-Hawk” scale (Dove = 1, Hawk = 5).p, DB Global Markets

Normalization in Yields to C5Acceleration in Growth Supports High Yields

Economic Outlook Still Points to Higher Yields

12.0%

14.0%

16.0% US Benchmark Bond - 10 Year - Yield

Economic Outlook Still Points to Higher Yields

4.0%

6.0%

8.0%

10.0%

DB Year End 2014 Target ~4.0% 10-Year Treasury Yield

End of

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%(% 1YR) Nominal GDP (YoY %) - United States

0.0%

2.0%

End of 3Q13

— Using the year over year level of nominal GDP, interest rates should continue to mover higher over the next 12 months (~4%).



Footnotes: Time period reflects 30 years through 2Q13. Data Source: FactSet.

ontinue

Interest Rate Break-OutInterest Rate Break Out

4.0%

4.5%

5.0%

5.5%

2.0%

2.5%

3.0%

3.5%

'07 '08 '09 '10 '11 '12 '131.0%

1.5%

US Benchmark Bond - 10 Year - Yield (MOV 50D) US Benchmark Bond - 10 Year - Yield (MOV 200D) US Benchmark Bond - 10 Year - Yield

— While rates have moved modestly lower with the political risks in Washington, long term yields have broken through their long term bull market trend.

016437.10.02.13

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Normalization in Yields to ConSupply/Demand Dynamic Likely To Become More Difficult

Net Issuance Will Remain Healthy

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

3 2%

-2.1%-2.3% -2.3% -2.5%

2 9%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%

-3.8%

-3.2% -2.9% -3.1% -3.2% -3.4% -3.3%

-5.3%

-3.7%

-2.4% -2.5% -2.7% -2.9%-3.2%

-3.5% -3.6% -3.8% -3.8%

-5.5%-5.0%-4.5%-4.0%-3.5%-3.0%

U.S. Budget Deficit Projection - September 2013 (% of GDP)U.S. Budget Deficit Projection - February 2013 (% of GDP)

— Treasuries should continue to face headwinds from supply as the d fi it i t d t t f 2015 d b ddeficit is expected to get worse from 2015 and beyond.

— In addition, ongoing fund outflows and regulations may present risks to bond investors.



Data Source: Congressional Budget Office

tinue

$450

Retail Outflows to Continue?

$200

$250

$300

$350

$400

llion

s

$0

$50

$100

$150

$200

Dec-07 May-09 Oct-10 Mar-12 Aug-13

bil

Dec 07 May 09 Oct 10 Mar 12 Aug 13

12 Month Rolling Flow into Bond Mutual FundsData Source: ICI

Net Unrealized Gains/Losses for Commercial Banks

The 100 bps sell off in interest rates in May-June resulted in a $40 billion reduction in tier-1 capital and cut tier-1

capital by 0.3%.

016437.10.02.13

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Data Source: Treasury Borrowing Advisory Committee, Federal Reserve

Normalization in Yields to ContiDuration Risk Unlikely To Produce Recent Returns

Risk Reward: Don’t Expect Easy Returns Going ForwardRisk Reward: Don t Expect Easy Returns Going Forward

Emerging MarketHigh YieldConvertibles

S&P 5007.0%

8.0%

9.0%

10.0%

etur

n

Treasuries

2 0%

3.0%

4.0%

5.0%

6.0%

7.0%

10 Y

ear A

nnal

ized

Re

Cash

0.0%

1.0%

2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

1

10 Year Standard Deviation

— Treasuries have offered lower returns over the past 10 years compared to other higher yield fixed income investments (e.g. convertibles, emerging market debt and high yield).

— With the rally in credit in recent years selectivity will be importantWith the rally in credit in recent years, selectivity will be important within “carry” investments.



Footnotes: Time period reflects trailing 10 years as of September 30, 2013.Data Source: FactSet

nue

Duration RiskDuration Risk188

997.0

8.0

9.0

10.0

140

160

180

200

71

36 34 2.0

3.0

4.0

5.0

6.0

40

60

80

100

120

0.0

1.0

0

20

High Yield Emerging Market Debt

Invt Grade 5YR Treasury 10YR Treasury

Change in Basis Points to Result in Negative Total Return (1YR Time Frame) (LHS)

— With interest rates expected to rise, investors should focus on investments that offer lower duration and less interest rate sensitivity. For example given the attractive “carry ” the yield on high yield

Duration (RHS)

— For example, given the attractive carry, the yield on high yield debt would need to rise 188 bps in order for an investor to see negative returns.

— In contrast, investors holding 10 year Treasuries would only need to see yields rise 34 bps.

016437.10.02.13

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Footnotes: Data as of October 2, 2013. Data Source: FactSet.

Credit Fair Valued; Looking 6Most Credit Fair Valued

Investment Grade — Fair Valued

700

400

500

600

700Barclays US Agg Invt Grade Credit Spread (OAS)

(AVG) Barclays US Agg Invt Grade Credit Spread (OAS)

(AVG ex 2008-2009) Barclays US Agg Invt Grade Credit Spread (OAS)

100

200

300

400

0

100

Oct-93 Aug-96 Jun-99 Apr-02 Feb-05 Dec-07 Oct-10 Aug-13

— Investment grade spreads look fair valued in relation to history. Even if you strip out the elevated levels seen during the financial crisis, spreads are close to fair value.

— The historical average spread for investment grade debt (20 years) has been 142 bps while the average spread ex 2008-2009 has been 120 bpshas been 120 bps.

— Therefore, spreads at ~140 bps have limited room for narrowing.




for Opportunity

High Yield Spreads Below Average2500

1500

2000

2500Barclays Capital U.S. High Yield Spread (to 5 year Treasury Yield) in bps

(AVG) Barclays Capital U.S. High Yield Spread (to 5 year Treasury Yield) in bps

(AVG ex 2008-2009) Barclays US Agg Invt Grade Credit Spread (OAS)

500

1000

Credit Spread (OAS)

0Oct-93 Aug-96 Jun-99 Apr-02 Feb-05 Dec-07 Oct-10 Aug-13

— In addition, high yield spreads look fair valued in relation to history.

— The historical average spread for high yield debt (20 years) has been 571 bps while the average spread ex 2008-2009 has been 515 bps. Th f d 480 b h li i d f i— Therefore, spreads at ~480 bps have limited room for narrowing.

016437.10.02.13

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Credit Fair Valued; Looking ForConvertibles Can Produce Attractive Returns Despite Rising Rates

Credit Performance in Rising Rate Environment

20%

30%

40%

50%

60%

onve

rtibl

es

R2= 0.73

-30%

-20%

-10%

0%

10%

Bof

A M

erril

l Lyn

ch C

o

-40%

-30%

-40% -20% 0% 20% 40% 60% 80%U.S. Barclays High Yield

— Convertibles have significantly outperformed high yield as equities hlow. We believe convertibles continue to present an attractive opport

— Correlated to Equities: Historically, (10 years) convertibles are highlybias towards equities, convertibles may benefit.

— Drastic Spread Narrowing Likely Over: High yield has benefited fromp g y g ycompression is behind us. Returns going forward are likely to be mo

— Convertibles Outperform in Rising Rate Environment: Historically, duoutperform high yield in a period of rising rates and positive econom



Footnotes: Time period reflects August 1994-August 2013 and exclude outliers above 40% for highData Source: FactSet.

r Opportunity

High Yield versus Convertibles in Rising Rate Environment

20%

30%

40%

50%

60%

onve

rtibl

es

R2= 0.05

-30%

-20%

-10%

0%

10%

BofA

Mer

rill L

ynch

Co

-40%

30%

-40% -30% -20% -10% 0% 10% 20% 30% 40%U.S. Barclays High Yield

have continued to rally and the default environment has remained tunity for several reasons.

y correlated to the S&P 500 (0.90). Therefore, given our constructive

m low spreads but going forward we believe the bulk of the spread p g g pore muted than the robust returns over the past 10 years (9% ann).

ue to the strong correlation to equities, convertibles generally ic growth.

016437.10.02.13

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h yield returns

And the Bull Rally Marches 7The Current “Bull Market” Rally Remains the Most Robust on Reco

Despite uncertainty around the potential path of QE “tapering” and f“bull market” rally that began March 9, 2009 has remained intact. — Relative to other historical “bull market” rallies, the S&P 500 current ra

most robust rally (~+151%) on record.

— At the 4.5 year mark versus other “bull market” rallies that have lasted(15.7x) is above average (13.9x) despite the growth environment (trailaverage “bull market” rally (+3.7%).

— The S&P 500 continued higher in September, one of the most seasonannualized basis. Dating back to the S&P 500 Index inception (1930 wannual return on record.

— Of all years, that would put this years S&P 500 rally in the top quartile also be the strongest annual rally since 1998 (+26.7%).

500

550 200920021987

also be the strongest annual rally since 1998 ( 26.7%).

“Bull Market” Rally Strongest at Current Duration

Maintaining record pace

250

300

350

400

450 198719821974195719491942

Maintaining record pace

100

150

200

250

1 2 3 4 5 6 7 8 9 10Number of Years



Footnotes: Returns are price only. As of October 2, 2013. Data Source: FactSet.

On…rd at Its Current Duration

fiscal policy, U.S. equities have remained resilient and the S&P 500

ally is now 4.5 years in duration and at its current juncture, it is the second

d this long without a 20% correction or greater, the trailing 12-month P/E ling 4-quarter average real GDP: +1.6%) being less robust than the

nally weak months of the year, and is now up ~26% in 2013 on an was the first full year), the S&P 500 is on pace for the 16th strongest

of annual returns when annualizing year-to-date performance. It would

S&P 500 S&P 500 Total Rally Length

S&P 500 Cumulative

S&P 500 Trailing 12

S&P 500 Dividend

U.S. Real GDP Prior 4-

Rallies at Current Duration (4.5 Years)S&P 500 Top Bull Market Rallies

S&P 500 Top “Bull Market” Rallies at Current Duration

Trough Date Peak Date Length (Years)

Cumulative Gain

Trailing 12-Month P/E

Dividend Yield Quarter

Average

Aug-1982 Aug-1987 5.0 156% 15.8 3.35% 3.0%

Mar-2009 Sep-2013 4.5 151% 15.7 2.01% 1.6%

Oct-2002 Oct-2007 5.0 93% 15.8 1.86% 1.9%

Jun-1949 Aug-1956 7.1 84% 9.4 N/A 5.6%

Dec-1987 Jul-1998 10.6 74% 18.6 3.15% 2.9%

Oct-1974 Nov-1980 6.2 63% 7.9 5.27% 7.1%

6.4 104% 13.9 3.13% 3.7%Average of Bull Market Rallies

016437.10.02.13

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Footnotes: Returns are price only. As of October 2, 2013. Data Source: FactSet.

And the Bull Rally Marches OnThe Current “Bull Market” Rally Remains the Most Robust on Reco

Ranking Annual S&P 500 Index Returns – 2013 (Annualized) Top Q

40%

50%

g ( ) p

Bottom Quartile

10%

20%

30%

-20%

-10%

0%

-50%

-40%

-30%

S&P 500 Annual Returns (Price Only)

1931

1937

2008

1974

1930

2002

1941

1973

1940

1932

1957

1966

2001

1929

1946

1962

1977

1969

2000

1981

1953

1990

1934

1939

1960

1994

1948

1970

2011

1947

1978

1984

1987

1956

2005

2007

1992

1993

1968

1959

2004

1965



Footnotes: Returns are price only since the S&P 500 Index inception and data is as of October 2, Data Source: FactSet.

…rd at Its Current Duration

Quartile and Best Since 1998

Top Quartile

2013 = ~26% (annualized, 16th

Best Year)

1965

1949

1971

1952

1979

1988

1942

2010

1964

2012

2006

1944

1986

1982

1972

1951

1983

1963

1976

1943

1999

1967

1996

1950

1961

2009

1938

1980

2013

1991

1985

2003

1955

1998

1989

1936

1945

1997

1975

1995

1958

1935

1954

1933

016437.10.02.13

ent Strategist21

2013.

And the Bull Rally Marches OnBroad Equities Fair Valued

S&P 500 Price to Earnings RatioS&P 500 Price to Earnings Ratio

20x

24x

12x

16x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '138x

S&P 500 Trailing P/E (AVG) S&P 500 Trailing P/E

Recession Periods - United States

— The trailing P/E of the S&P 500 is trading (15.7x) on the 10 year average (15.8x).




…

S&P 500 P/E Pricing in Expected Economic EnvironmentS&P 500 P/E Pricing in Expected Economic Environment

13 4

15.2

16.0 16.2

14

15

16

17Average P/E Given GDP Scenario

13.4

12.3

13.1

11

12

13

14

Ave

rage

P/E

8

9

10

Less than -2%

-2% to 0% 0% to 2% 2% to 4% 4% - 6% 6% or More

Real GDP (YoY)

— In addition, when using history as a guide, the P/E is likely reflecting the outlook for growth (2-4%).

( )

016437.10.02.13

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Footnotes: Time period reflects 1Q48 – 2Q13.Data Source: FactSet

And the Bull Rally Marches OnEarnings Growth Will Need to Support Higher Prices

Earnings Growth Slowing but Expected to AccelerateEarnings Growth Slowing but Expected to Accelerate

10%

12%

14%

wth

(%)

estimates

2%

4%

6%

8%

Year

-ove

r-Ye

ar G

row

0%

2%

2011

/4C

2012

/1C

2012

/2C

2012

/3C

2012

/4C

2013

/1c

2013

/2c

2013

/3c

2013

/4c

2014

/1c

2014

/2c

2014

/3c

2014

/4c

— The earnings environment is expected to improve as economic growth improves.

— While we think some of the estimates may be overly optimistic,

Quarterly Earnings Estimate (YoY %)

we believe earnings growth of 5-7% in 2014 can support higher equity prices.



Data Source: FactSet, FirstCall.

…

Earnings Troughing and ReacceleratingEarnings Troughing and Reaccelerating

40.0%

50.0%

60.0%

%

10.0%

20.0%

30.0%

-10.0%

0.0%

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

— If you look at the past quarters since the end of the “Great Recession,” earnings tend to be lowered going into earnings season and then typically improve throughout earnings season.

4Q12 1Q13 2Q13 3Q13

016437.10.02.13

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Footnotes: Change in earnings estimates from 12 weeks prior to 12 weeks after earnings season. Data Source: FactSet

Selectivity Important in a Fa8Searching for Value Within Sectors

Finding Value at Sector Level30%

5%

10%

15%

20%

25%

30%

-15%

-10%

-5%

0%

5%

ch ls gy es 00 ls ls re es es ry

Relative to 10 year average (P/E, P/BV, P/S, PEG)

Info

Tec

Fina

ncia

l

Ene

rg

Tele

com

. Ser

vice

S&

P 5

0

Indu

stria

l

Mat

eria

l

Hea

lthca

r

Con

s. S

tapl

e

Util

itie

Con

s. D

iscr

etio

nar

— When looking at the sector level, the majority of sectors are either trading at a premium to their 10 year average.

— Info tech, financials and energy are the only sectors trading at a di tdiscount.



Footnotes: Data as of October 2, 2013. Data Source: FactSet

air Valued World

2014 Earnings Achievability

Consensus 2014 Earnings Growth Est.

Our Base Case 2014 Earnings Growth Est.

DifferenceBetween Consensus and Base

Case

Telecom 11% 3% -8%

Financials 8% 6% -2%

Cons. Discret 18% 5% -13%

Materials 18% 5% -13%

Cons. Staples 10% 5% -5%

Industrials 11% 7% -4%

S&P 500 11% 6% -5%

Energy 11% 8% -3%

Info Tech 11% 9% -2%

Lower negative revisions

Healthcare 9% 7% -2%

Utilities 4% 3% -1%

016437.10.02.13

ent Strategist24

Footnotes: Consensus as of September 2013. Data Source: FactSet

Selectivity Important in a Fair VFavor Dividend Paying Investments Despite Rise in Interest Rates

Dividend Growth by Sector (Last 10 Years)

10.0%

15.0%

20.0%

25.0%

8

10

12

14# of Consecutive Years of Dividend Growth (LHS)

10 YR Dividend Growth Rate (Ann) (RHS)

-10.0%

-5.0%

0.0%

5.0%

0

2

4

6

gy ch s es m re ls ls ls ry

Ene

rg

Info

Tec

Con

s. S

tapl

es

Util

itie

Tele

com

Hea

lthca

r

Mat

eria

Indu

stria

Fina

ncia

Con

s. D

iscr

etio

nar

— We continue to favor dividend paying investments despite the modest rise in interest rates.

— Energy and info tech have seen the highest dividend growth over the past 10 years and have seen the highest number of consecutive years with dividend growthconsecutive years with dividend growth.



Footnotes: Annual growth through December 2012.Data Source: FactSet.

Valued World

Interest Rate Sensitive Investments and Higher Yields

230

280

130

180

80Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07

Utilities Telecom REITs S&P 500 MLPs

— Despite the rise in interest rates, dividend paying investments can still perform well. As long as the rise in rates is accompanied by better economic growth some interest rate sensitive investments should perform well. In fact from the 2003 2007 period of rising rates utilities— In fact, from the 2003-2007 period of rising rates, utilities, telecom, REITs and MLPs outperformed the S&P 500.

016437.10.02.13

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Footnotes: Rising rate period from 2003-2007.Data Source: FactSet, Bloomberg Finance LP.

Selectivity Important in a Fair VSearching for Value Within Global Regions

Finding Value at Regional Level

Country by Ranking

Macro Fundamentals Monetary Policy Valuations

Japan 1.00 1.00 -1.00

Europe 0 75 0 75 0 00cono

mie

s

Europe 0.75 0.75 0.00

U.S. 1.00 1.00 0.00

UK 0.75 0.75 0.00

China 1 00 0 25 1 00

Dev

elop

ed E

c

China 1.00 0.25 1.00

Korea 0.25 0.00 1.00

Russia 0.00 0.00 1.00

nom

ies

Taiwan 1.00 0.00 0.00

India 0.25 0.75 1.00

Indonesia 1.00 1.00 -1.00Emer

ging

Eco

n

Brazil 0.25 0.00 -1.00

Mexico 0.00 0.00 -1.00



Footnotes: Valuation model factors attractiveness given levels of change in PMI (Macro Fundameearnings growth and interest rates (Earnings), three month earnings revisions (Earnings RevisionData Source: DEAM U.S. Investment Strategy Group, FactSet, Bloomberg Finance LP.

Valued World

Earnings Earnings Revisions Technicals Final Score

1.00 1.00 1.00 4.00

1 00 -1 00 1 00 2 501.00 1.00 1.00 2.50

1.00 -1.00 0.25 2.25

0.00 -1.00 0.25 0.75

1 00 1 00 1 00 3 251.00 -1.00 1.00 3.25

1.00 -1.00 1.00 2.25

-1.00 1.00 1.00 2.00

2 001.00 -1.00 1.00 2.00

0.00 -1.00 0.75 1.75

1.00 -1.00 0.75 1.75

0.00 -1.00 1.00 -0.75

0.00 -1.00 0.75 -1.25

016437.10.02.13

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entals), change in real interest rates (Monetary policy), P/E discount/premium (Valuations), s), 50 and 200 day moving average (Technicals).

Will the Dollar Be “King”?9A New Cyclical Uptrend for the U.S. Dollar?

Key Factors Impacting the U.S. Dollar OutlookKey Factors Impacting the U.S. Dollar Outlook

Long Dated Cycles + Historically, the U.S. dollar has gone through several multi-year cycles and

it appears the most recent downward cycle (9 years) ended in mid-2011

Decoupling of Monetary

Policy+

The eventual "tapering" of QE by the Fed as the economy improves, as well as further policy easing by the BOJ, ECB and BOE will likely lead to U.S.

dollar strength

BetterBetter Economic

Growth Prospects

+ U.S. economic growth prospects are superior to other major developed economies like Japan and the Eurozone

Capital / Fund Increased capital inflows into the U S serves as a catalyst for the U SCapital / Fund Flows to U.S. + Increased capital inflows into the U.S. serves as a catalyst for the U.S.

dollar strengthening

Geopolitical Risks + Political risks in the Eurozone, Japan and the Middle East would increase

the "safe haven" status of the U.S. dollarRisks

Export Sensitivity — Strength in the U.S. dollar could hamper export activity and as a result, U.S.

economic growth



Data Source: Deutsche Asset & Wealth Management Investment Strategy Group.

Historical U.S. Dollar Cycles

120

130

140

150

Historical U.S. Dollar Cycles

6 years, -18%

6 years, +67%

10 years, -46%

7 years, +43% 9 years,

-40%

70

80

90

100

110

???

60

70

1973 1978 1983 1988 1993 1998 2003 2008 2013Nominal U.S. Trade Weighted Dollar IndexReal U.S. Trade Weighted Dollar Index

— The U S dollar has strengthened YTD and appears to be at anThe U.S. dollar has strengthened YTD and appears to be at an inflection point after trending lower since 2002. We expect an upward cycle to occur as U.S. growth improves and the U.S. deficit is reduced from recent fiscal reform.

— Over the last 40 years the U.S. dollar has seen five major cycles, both downward and upward, averaging 8 years in length. y , p , g g y g

— While a strong dollar may benefit the fiscal health of the economy and support fund flows, we are monitoring it closely as U.S. corporate profits may be negatively impacted. Near-term, dollar gains will likely pose downside risks for commodities and hedging of foreign equity positions should be considered.

016437.10.02.13

ent Strategist27

Footnotes: Data as of August 31, 2013. Data Source: FactSet. As of August 31, 2013.

Will the Dollar Be “King”?U.S. Dollar Trends Derived from Global Monetary Policy

U.S. Dollar Moves Driven by Monetary Policy?

83

84

85

U.S. Dollar Moves Driven by Monetary Policy?

Anticipation leading up to Sep. 13 QE

announcement

Bernanke “dovish” in

NABE Speech

Fed decides not to “taper” at

September meeting

79

80

81

82 Japan’s Abe takes

office

Japan details QE plans, growth reforms

Bernanke outlines QE “tapering” path

Jun. 18

Government shutdown

78Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013

U.S. Trade-Weighted Dollar Index

— Over the last year global monetary policy has become a more— Over the last year, global monetary policy has become a more significant factor in U.S. dollar moves. Outside of Fed policy, we have seen the U.S. dollar rally as a result of Japan’s aggressive QE programs and more recently, the ECB and BOE’s forward guidance on low rates for the foreseeable future.



Footnotes: As of October 2, 2013.Data Source: FactSet.

Global Balance Sheet ExpansionGlobal Balance Sheet Expansion

Source: DB Global Markets.

— The magnitude of the Bank of Japan’s balance sheet expansion— The magnitude of the Bank of Japan s balance sheet expansion relative to the Fed’s will continue to support U.S. dollar strength, specifically against the Yen.

016437.10.02.13

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Will the Dollar Be “King”?Economic Catalysts for U.S. Dollar Strength

Global GDP Estimates – U.S. Relative StrengthGlobal GDP Estimates U.S. Relative Strength

2.0%

2.5%

3.0%

3.5%

-0.5%

0.0%

0.5%

1.0%

1.5%

— Superior growth prospects in the U.S. relative to Japan and the

-1.0%2013 est. 2014 est.

U.S. GDP Japan GDP Eurozone GDP

Eurozone are supportive of U.S. dollar strength.

— We expect the U.S. to grow by 1.8% in 2013 before accelerating to a growth level of 3.0% in 2014.

— The U.S. unemployment rate has trended lower over the last three years while the Eurozone unemployment rate has trendedthree years while the Eurozone unemployment rate has trended higher and is now at a new record high (12.2%).

— In terms of inflation on a year-ago basis, U.S. price levels continue to grow while Japan has seen deflation for the last 12 months.



Data Source: FactSet, DB Global Investment Strategy Group.

Unemployment Rates – U.S. vs. EurozoneUnemployment Rates U.S. vs. Eurozone

10 0%10.5%11.0%11.5%12.0%12.5%

7.0%7.5%8.0%8.5%9.0%9.5%

10.0%

J l 2010 J 2011 J l 2011 J 2012 J l 2012 J 2013 J l 2013

4 0%


Inflation – Japan Deflation Persists

Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013

U.S. Unemployment Rate Eurozone Unemployment Rate

0.0%

1.0%

2.0%

3.0%

4.0%BoJ InflationTarget = 2%

-3.0%

-2.0%

-1.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Japan Consumer Price Index (YoY %)

016437.10.02.13

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Japan Consumer Price Index (YoY %)

29


Will the Dollar Be “King”?Long Term Cyclical Dollar Trends Tend to See Short Term Counter

EURUSD: All Long Trends Have Large Countertrend MovesEURUSD: All Long Trends Have Large Countertrend Moves

— All long term cycles for the U.S. dollar, specifically looking at the EURUSD relationship, have seen several “countertrend” moves p,like we have seen with recent dollar weakness.

— We see recent Euro strength and dollar weakness as temporary. The difference between 2-year sovereign yields in the EU and U.S. have a close correlation to the EURUSD spot rate. We expect a reversal in the recent upward trend as the Fed begins to “taper” QE and the Eurozone recovery proves to be slow.

— The Euro has also benefitted from a surge in demand for European equities that has outpaced flows into U.S. markets in recent months. However, we see the current level of demand as unsustainable.




Moves

EURUSD Tied to EU & U.S. 2Yr Rate DifferentialsEURUSD Tied to EU & U.S. 2Yr Rate Differentials

-10

-5

0

5

1 331.341.351.361.371.38

Euro (lhs)

2y rate diff (bps, rhs)

-35

-30

-25

-20

-15

1 271.281.291.301.311.321.33

Data Source: Deutsche Bank Global Markets.

-401.261.27

Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13

Foreign Buying of Europe Equities Over U.S. OverdoneCh i l ti l ti f E t k

100

200

300

400-40%

-30%

-20%

-10%

Change in relative valuation of Euro stocks vs US (p/e ratios, lhs)Foreign buying of Euro equities minus US equities ($bn,rhs)

500

-400

-300

-200

-100

00%

10%

20%

30%

40%

Euro stocks becoming relatively more expensive

016437.10.02.13

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-50040%00 01 02 03 04 05 06 07 08 09 10 11 12 13

Commodities to be Challeng10Dollar Largest Challenge to Commodities

Key Factors Impacting Commodity IndexKey Factors Impacting Commodity Index

U.S. Dollar — Expectations for a multi-year Dollar appreciation.

Emerging / Emerging market growth slowly recovering but still weak in

Market Economies

/ Emerging market growth slowly recovering but still weak in historical context.

Developed Market

Economies+ Developed market economies momentum gaining traction.

Investment Demand — Retail demand has weakened and institutions are unlikely to

further increase exposure due to disappointing performance

Supply Levels — U.S. crude oil and natural gas oversupply concerns have emerged due to the U S energy "renaissance"pp y due to the U.S. energy renaissance

Real Interest Rates —

The modest "tailwind" from negative real interest rates has dissipated and higher interest rates increase the "cost" of holding

commodities.

Geopolitical Unrest / Geopolitical unrest is subsiding…for now.

Weather / Limited weather disruptions expected in the near term. Looking for insights into winter weather season.



ged

Dollar Challenge to CommoditiesDollar Challenge to Commodities

-0 30

-0.20

-0.10

0.00

-0.70

-0.60

-0.50

-0.40

0.30

-0.80Energy Softs Grains DJ UBS

Commodity Index

Precious Metals

Industrials Metals

20 YR Correlation to U.S. Dollar

— Given the strong negative correlation between commodities and the dollar we believe commodities will be challenged by a rise in the dollar.

— Over the past 20 years, the commodity sectors most negatively p y , y g ycorrelated to the dollar are precious metals and industrial metals.

016437.10.02.13

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Footnotes: Time period reflects September 1993-September 2013. Data Source: FactSet

Commodities to be ChallengedDynamics Driving Energy Prices Changing

O S GOil Less Sensitive to Geopolitical Unrest

$105

$115

$125Arab Spring US/EU Iran Sanctions Libya Supply/Syria

Unrest

$75

$85

$95

$105

$65Sep-2009 Sep-2010 Sep-2011 Sep-2012 Sep-2013

Brent Crude Oil Spot Price ($/bbl) WTI Crude Oil Spot Price ($/bbl)

— Crude oil prices are becoming less sensitive to the disruptions from the Middle East.

— Looking at the recent Libya supply disruptions and Syria unrest, the price of crude oil did not spike as seen during past Middle East conflictsconflicts.




O C SNon OPEC Supply to Expected to Rise

61.0%

61.5%

62.0%

59.0%

59.5%

60.0%

60.5%

58.0%

58.5%

2009 2010 2011 2012 2013 2014

Total Non-OPEC Crude Oil Output as a % of Total Non-OPEC and OPEC Output

— Part of the reason that Middle East tensions are having less of an impact is due to the fact that Non Opec oil supply is rising.

— With big producers such as the U.S. and Mexico, Non Opec oil supply should make up ~62% of total oil supply by 2015.

016437.10.02.13

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Data Source: IEA

Commodities to be Challenged

12%

Gauging Investor Demand – Less Support from Retail and Institutio

DJ-UBS Commodity Index Trailing Returns

8%

10%

12%

2%

4%

6%

0%Sep-03 Dec-04 Mar-06 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13

Dow Jones UBS Commodity Return (10YR Rolling Annualized)

— After correcting in 2013, the 10-year annualized return of the DJ-UBS C dit I d f ll t 0 5%UBS Commodity Index fell to +0.5%.

— Gold is just one example of how investor demand can be “fickle,” specifically in regards to speculative commodities trading. The strong correction in gold reminds us that investments that become inflated due to speculation as opposed to solid fundamentals are sensitive to sharp correctionssensitive to sharp corrections.

— Institutions have increased exposures to commodities over the last decade and at current levels, they have little incentive to add additional exposure given disappointing performance.



Footnotes: Data as of September 27, 2013.Data Source: FactSet.

85

onal Investors?

Speculative Retail Investors Flee the Gold Market

55

65

75

85

-27%

25

35

45

Jun-08 Jul-09 Jul-10 Aug-11 Aug-12 Aug-13

Total Known ETF Holdings of Gold

8% 8%9%

Institutional Commodities Exposure Levels Out in 2012

Footnotes: Data as of September 27, 2013.Data Source: Bloomberg Finance LP.

4% 4%

6% 6%

7%

8% 8%

4%

5%

6%

7%

8%

2%

3% 3%

0%

1%

2%

3%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

016437.10.02.13

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Commodities - Avg. Institutional Allocation

33

Data Source: NACUBO-Commonfund Endowment Studies (2003 to 2012), FactSet.

Economic and Asset Class For

GDP Growth Key Interest Ratesin %World 3.1% 3.7% USA (Fed funds)USA 1.8% 3.0% Euroland (Refi rate)Euroland -0.4% 0.7% UK (Repo rate)

20142013

( p )UK 1.2% 1.8% Japan (Money market rate)Japan 1.7% 1.5%China 7.5% 7.5%

CurrenciesInflation (CPI)in % EUR/USDUSA 1.7% 2.5% USD/JPY

2013 2014

Euroland 1.6% 1.6% EUR/CHFUK 2.4% 2.2% GBP/USDJapan 0.1% 1.5% USD/CNYChina 2.8% 3.1%

Current Account Balance Commoditiesin % of GDP 2013 2014

USA -2.7% -2.6% Oil (WTI) in USDEuroland 2.5% 2.7% Gold in USDUK -2.9% -2.6%Japan 1.0% 1.8%China 2.2% 2.0% Equities

USA (S&P 500)USA (S&P 500)Fiscal Balance Euroland (Euro Stoxx 50)in % of GDP Germany (DAX)USA -4.5% -3.5% UK (FTSE 100)Euroland -2.9% -2.8% Japan (Nikkei)UK -7.0% -6.5% Asia ex Japan (MSCI in USD)Japan -9.5% -8.5% Latin America (MSCI in USD)China -2.0% -1.8%

2013 2014

Sovereign Rates

USA Euroland (German Bund)UKJapan



Data Source: FactSet, Bloomberg Finance LP, Deutsche Bank Global Investment Committee foreca* As of September 25, 2013. **LTM stands for last 12 months.

recasts

Current*

0.25% 0.25% 0.25%0.50% 0.50% 0.25%0.50% 0.50% 0.50%

12-Month Forecast

Year End Forecast

0.10% 0.10% 0.10%

Current*

1.35 1.31 1.2598.69 101.00 114.00

12-Month Forecast

Year End Forecast

1.23 1.25 1.251.61 1.57 1.526.12 6.10 6.00

Current* 12-Month Forecast

Year End Forecast

103 100 1001336 1300 1300

Current*

1693 2.0% 15.7 1715 1810

Dividend Yield P/E (LTM)** 12-Month Forecast

Year End Forecast

1693 2.0% 15.7 1715 18102927 3.6% 13.1 2925 31858666 3.1% 12.4 8750 94106552 3.5% 12.9 6600 7000

14621 1.5% 19.5 14800 16000543 2.4% 12.7 570 6003387 2.6% 14.3 3550 3650

Current*

2.63% 27.5 3.00% 3.70%1.82% 24.7 2.10% 2.30%2.57% 32.2 2.90% 3.00%0.67% 60.9 0.80% 1.25%

Year End ForecastCountry CDS

12-Month Forecast

016437.10.02.13

ent Strategist34

asts as of GIC meeting on September 24, 2013.

Investment Strategy GroupLarry Adam, CFA®, CIMA®Chief Investment Strategist

Megan HornemanInvestment Strategist

JonInve

This document has been prepared for informational purposes only and is not an offer, or solicitation of aproducts and services described herein. Before entering into any transaction, you should take steps to etransaction in light of your own particular financial legal and tax situation investment objectives and leve

Important Information

gTelephone (410) 895-4135Facsimile (410) [email protected]

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TeleFacjona

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Larry Adam, U.S. Chief Investm4th Quarter Market Outlook

offering materials or other documentation relevant to such products or services. Brokerage services areconducts investment banking and securities activities in the United States. Deutsche Bank Securities Inc

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nathan Rosnerestment Strategy Analyst

n offer, to buy or sell any security, or a recommendation to enter into any transaction relating to the ensure that you understand and have made an independent assessment of the appropriateness of the el of risk tolerance and you should consult your legal and tax advisers to determine how these products

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016437.10.02.13

ent Strategist

e offered through Deutsche Bank Securities Inc., a registered broker-dealer and investment adviser, which c. is a member of FINRA, NYSE and SIPC. ©2013 Deutsche Bank AG. All rights reserved. 015718 071513

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