Weekly COVID-19 Market Webinar

May 4, 2020

2

Market Performance

Returns as of 4/30/20.Indices used: Large Cap: S&P 500; Mid Cap: S&P 400; Small Cap: Russell 2000; Developed International: MSCI EAFE (Net); Emerging Markets: MSCI EMF; Taxable Fixed Income: Barclays U.S. Aggregate; High Yield Fixed Income: BofA US HY TR; Treasuries: BofAML 3 Mo U.S. Treasury; Muni: S&P Intermediate High Quality; Hedge: HFRX Equity Hedge Index; Global Real Estate: FTSE EPRA/NAREIT; Commodities: Bloomberg Commodity. TR USD.Sources: Bloomberg L.P. and Morningstar. Past performance is not indicative of future performance.

12.814.2 13.7

6.59.2

1.80.0

3.8

-0.8

4.57.1

-1.5

-9.3

-19.7-21.1

-17.8 -16.6

5.0

0.5

-9.8

-1.3

-9.4

-23.2-24.5

-30

-25

-20

-15

-10

-5

0

5

10

15

20

LargeCap

MidCap

Small Cap

Dev. Emerg. Taxable Treas. HighYield

Munis Hedge* GlobalREITs

Commodities

Perc

ent

April YTD

U.S. Equities InternationalEquities

Fixed Income Diversifiers

3

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

U.S. Cumulative Cases

United States COVID-19 Cases

Data from Covidttracking.com, map from https://coronavirus.jhu.edu/us-map. As of 5/1/20

4

Daily New Cases Fairly Steady, Positivity Rate Declining

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2/15 2/22 2/29 3/7 3/14 3/21 3/28 4/4 4/11 4/18 4/25 5/2

U.S. Daily New Cases

0

500

1000

1500

2000

2500

3000

3/10 3/17 3/24 3/31 4/7 4/14 4/21 4/28

U.S. Daily Deaths

0%

5%

10%

15%

20%

25%

30%

11-Mar 18-Mar 25-Mar 1-Apr 8-Apr 15-Apr 22-Apr 29-Apr

U.S. Test Positivity Rate

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

21-Mar 28-Mar 4-Apr 11-Apr 18-Apr 25-Apr 2-May

U.S. CoV-2 PCR Tests Conducted Each Day

Source: Covidtracking.com. As of 5/1/20

5

Areas to Watch as They Re-open

0

200

400

600

800

1000

1200

1400

1600

1800

4-Mar 11-Mar 18-Mar 25-Mar 1-Apr 8-Apr 15-Apr 22-Apr 29-Apr

Georgia Daily New Cases

0

200

400

600

800

1000

1200

1400

1600

4-Mar 11-Mar 18-Mar 25-Mar 1-Apr 8-Apr 15-Apr 22-Apr 29-Apr

Texas New Daily Cases

Source: Covidtracking.com. As of 5/1/20

6

Symptomatic Therapies and Antivirals

• Remdesivir: The NIAID trial, a large, placebo controlled trial of remdesivir showed a statistically significant effect in the endpoint of “time to recovery.” In particular, remdesivir–treated patients recovered on average at day 11, vs day 15 for those getting placebo, a 31% improvement. Mortality rates, while not significant, also trended in favor of remdesivir (8% vs 11.6% control group). Remdesivir has now been granted emergency use authorization.

• The Lancet published the results of a terminated trial in China that investigated remdesivir. These results showed a trend towards improvement in the patients on remdesivir, but it was not statistically significant. This trial also did not show a correlation between remdesivir and decreased viral load.

Vaccines

• Phase 1 trials are ongoing and phase 2 trials will be initiated this summer.

Update on Antivirals and Vaccines

7

Center for Disease Research and Policy (CIDRAP) Second Wave Analysis

https://www.cidrap.umn.edu/sites/default/files/public/downloads/cidrap-covid19-viewpoint-part1_0.pdf

Three Scenarios for Second Wave

• Scenario 1: A series of smaller waves occur consistently over a 1-2 year period and finally conclude “sometime in 2021”

• Scenario 2: A larger wave occurs in fall or winter of 2020 and then smaller waves through 2021. They believe this will require the reinstitution of mitigation measures in the fall. This would be similar to what happened in the 1918 pandemic.

• Scenario 3: The initial bolus we are seeing now is followed by a “slow burn” of ongoing case occurrences. This scenario will “likely not require the reinstitution of mitigation measures.”

8

Virus Takes a Toll on U.S. Economy

Source: Strategas. As of 4/30/20

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

01/19 03/19 05/19 07/19 09/19 11/19 01/20 03/20 05/20

U.S.: Initial Jobless Claims(SA, Thous)

-10%-8%-6%-4%-2%0%2%4%6%8%

10%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

U.S. Real Gross Domestic Product(QoQ AR%)

30

35

40

45

50

55

60

65

70

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

U.S.: ISM Manufacturing PMI(SA, 50+ = Increasing)

0

20

40

60

80

100

120

140

160

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

U.S. Consumer Confidence Index

9

Data We Are Watching as Economy Re-opens

Weekly Economic Index, https://www.newyorkfed.org/research/policy/weekly-economic-index.

-12-10-8-6-4-20246

Weekly Economic Index

10

Investment Theme Fixed Income/ Credit Equity Alternatives/ Other

Governments and central banks as the

lenders and buyers of last resort

• Municipal Bonds• Fallen Angels • Structured Credit / ABS• Opportunistic Fixed

Income• EMD & HY

• Small Cap• Value• Emerging Markets

• Multi-sector Credit

Deflation now/ Inflation later • TIPS • Infrastructure Equity • Real Assets

• Commodities

Stressed andDistressed Assets

• Opportunistic Fixed Income

• Municipal Bonds• Fallen Angels

• Deep Value• Concentrated

Opportunities

• Distressed PE• Distressed Credit• HFs (L/S & Market

Neutral)• Small Buyout

Permanent shifts in behavior of

governments and consumers

• Special Situations• Direct Lending• Trade Finance

• Thematic Equity (multi-theme and single theme)

• L/S & Market Neutral Equity

• Venture Capital• Distressed Real Estate

Investment Opportunity Matrix

COVID-19 and Post-pandemic Investment Ideas

11

The Coronavirus Aid, Relief, and Economic Security (CARES) Act

$2 Trillion Stimulus Package. The package includes:

• Individuals: $250B in payments to individuals ($1200 per adult for incomes up to $75,000, $500 per child). ~$250B broader unemployment insurance to replace workers’ lost wages, on average.

• Small Businesses:$377B small business program that will provide affected businesses with loans that they will not need to repay if the proceeds are used to pay wages or other necessities.

• Distressed Sectors: $50B secured lending facility to U.S. passenger and cargo air carriers, and "national security" sectors.

• State Aid: $150B in state aid, to partly offset the effects of COVID-19 on state/local budgets.

• Other spending: $340B, including $130B in funding for hospitals/other health activities, $200B for other federal programs.

• Loans and Loan Guarantees: $500B in capital for loans and loan guarantees, including $454B that the Treasury may use to backstop Fed facilities to provide business credit.

12

Components of the Federal Reserve’s Stimulus Measures

As of 4/28/2020. Source: The Federal Reserve*Initial $10 billion equity investment in the Special Purpose Vehicle (SPV)**Credit protection

Name Start Date Amount

Open Market Purchases: Treasuries March 15, 2020 $500 billion

Open Market Purchases: Mortgage Backed Securities March 15, 2020 $200 billion

Commercial Paper Funding Facility (CPFF) March 17, 2020 $100 billion+*

Primary Dealer Credit Facility (PDCF) March 17, 2020

-No specified size-Primary dealers only-Overnight to 90 days

Money Market Mutual Fund Liquidity Facility (MMMFLF) March 18, 2020 $100 billion+**

Primary Market Corporate Credit Facility (PMCCF) March 23, 2020 $100 billion+*

Secondary Market Corporate Credit Facility (SMCCF) March 23, 2020 $100 billion+*

Term Asset-Backed Securities Loan Facility (TALF) March 23, 2020 $100 billion+*

Municipal Liquidity Facility (MLF) April 9, 2020 $500 billion

13

Federal Reserve’s Initiatives to Help Fixed Income Markets

Source: Strategas. As of 4/30/20

0

1

2

3

4

5

6

7

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

U.S.: Assets on Federal Reserve Balance

Treasuries

MBS

Other

Dec '08: QE1 Starts

Mar '10: QE1 Ends

Nov '10: QE2 Starts

Sept '11: Op Twist Starts

Sept '12:QE3 Starts

Dec '12:Op Twist Ends

Dec '13:Tapering Starts

Oct '14:QE3 Ends

Oct '17:Runoff Starts

Jul '19:Runoff Ends

Oct '19:Purchases

Restart

Mar '20:COVID-19 Stimulus

Starts

14

SIFMA* Municipal 7-Day Swap Index

As of 4/29/2020. Source: Bloomberg/Barclays Live*Securities Industry & Financial Markets Association

0.220.0

1.0

2.0

3.0

4.0

5.0

6.0

Yiel

d

SIFMA Municipal Swap Index

15

Flows Stabilize

As of 4/29/2020. Source: Lipper

Fixed Income Flows

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

U.S. Municipal U.S. Corporate Investment Grade

Billio

ns ($

)

16

Relative Credit Risk: Municipals Versus Corporates

As of 4/30/2020. Source: Bloomberg/Barclays Live

0

10

20

30

40

50

60

Aaa Aa A Baa

Bloomberg/Barclays Municipal Bond Index Bloomberg/Barclays U.S. Corporate Index

Perc

enta

ge

17

Municipal Yield Volatility

As of: 4/30/2020. Source: AAA MMD

Municipal Yield Curves

1.09

1.46

2.28

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Yiel

d

5-Year AAA Municipal Yield 10-Year AAA Municipal Yield 30-Year AAA Municipal Yield

18

Municipal Bonds Can Weather the Storm

• Municipalities entered this period of weakness in strong financial health

• Historically, default rates for municipal bonds have been extremely low

• Municipal bonds have some unique, built-in strengths

• Payment of debt service on bonds is a priority expense for issuers

• Assistance from the federal government in times of need

19

Equities Bottom before Earnings

Source: Strategas

S&P Bottom EPS Bottom Price Bottoms

2Q 1949 4Q 1949 2 Quarters before EPS

4Q 1957 3Q 1958 3 Quarters before EPS

2Q 1962 No Decline in EPS N/A

4Q 1966 3Q 1967 3 Quarters before EPS

2Q 1970 4Q 1970 2 Quarters before EPS

4Q 1974 3Q 1975 3 Quarters before EPS

3Q 1982 1Q 1983 2 Quarters before EPS

4Q 1987 No Decline in EPS N/A

4Q 1990 4Q 1991 4 Quarters before EPS

4Q 2002 4Q 2001 4 Quarters after EPS

1Q 2009 3Q 2009 2 Quarters before EPS

20

Mindful of Seasonality

Source: Strategas

1.1%

0.0%

1.0%

1.5%

0.2%0.1%

1.1%

-0.1%

-0.4%

0.8%

1.6%1.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

JAN. FEB. MAR. APR. MAY JUN. JUL. AUG. SEP. OCT. NOV. DEC.

% P

ositi

ve

Aver

age

Mon

thly

Per

form

ance

S&P 500 Average Monthly Performance and % PositiveData Since 1950 to 2019

21

Asset Class Positioning: Investment Strategy Committee Recommendations

As of 4/1/20.

Underweight Small Underweight Neutral Small

Overweight Overweight

Equity Large Cap Mid Cap Small Cap International Developed Large Cap International Developed Small Cap Emerging Markets Private Equity Private Equity-Real Estate

Fixed Income Treasuries Investment-grade Corporate Tax-exempt High Yield

Diversifiers Real Estate (REITs) Long/Short Hedge Absolute Return Hedge Managed Futures Commodities

M153105

22

Monitoring Re-opening of the Economy

Progress on COVID-19 Treatments. Evaluating Scenarios on Second Wave

Municipalities Under Pressure, But Well Positioned to Weather the Storm

Period of Digestion; 12 – 18 Month Time Horizon Important

Active Wealth Critical in a Volatile, More Challenging Return Environment

Key Takeaways

Q&A

Thank You

25

Disclosure AppendixThis material is provided for illustrative/educational purposes only. All investment strategies referenced in this material come with investment risks, including loss of value and/or loss of anticipated income. Past performance does not guarantee future results. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.

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