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Review & OutlookApril 2014

Harald Hvideberg, CFA

Tyler Pullen, CFARobert Stovall Sr., CFA

Colleen KenefickMat Lepak

What we will cover today:

o Asset Class Review

o Macro Monitor

o Portfolio Update

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• Flip-flop: March was an up month for US equities; the S&P 500 Index finished the 1st quarter up 1.8%. However, this left equities in last place versus bonds and commodities (see table to the right) -- a complete reversal in leadership compared to 2013.

• This reversal continued at the sector level during the quarter with the standout being Utilities, which climbed 9.0% while Discretionary pulled up the rear, dropping 3.6%. Last year discretionary surged 41% and Utilities delivered a 6.5% total return.

Asset Class Review

INDEXTOTAL RETURN

1Q14Bloomberg Investement Grade Bond Index 3.1%Bloomberg 7-10 YR Treasuries Index 2.7%Goldman Sachs Commodity Index 2.4%S&P 500 1.8%

SECTORTOTAL RETURN

1Q14Utilities 9.0%Health Care 5.4%Materials 2.3%Financials 2.2%Information Technology 1.9%Energy 0.2%Consumer Staples -0.2%Industrials -0.4%Telecommunications Services -0.7%Consumer Discretionary -3.2%

Q: So why the reversal in leadership and how long will it last?

A: Macro forces at play; some new headline: риск (Russian for “risk”); weather

Source: Wood Asset Management, FactSet, Bloomberg

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar-40

-20

0

20

40

60

80

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

S&P 500 / Utilitie s - SEC209.55 0.70 0.33% 2:35:55 PM VWAP: High: 210.64 Low: 183.44 Chg: 5.59%

Citi Economic Surprise Index - United States US Benchmark Bond - 10 Year - Yield

A mix of less favorable economic datacontributed to a “risk off” environment in 1Q14

4Source: Wood Asset Management, FactSet

Economic Surprises declined during the first quarter (left axis)• Housing• Retail sales• Employment • Manufacturing survey data• Oil and gasoline prices

Interest rates fell during the quarter

(right axis)

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Three reasons why we believe economicdata (and risk appetite) will improve going forward

• ISI’s Company surveys have bounced. This data series has a strong correlation to changes in the economic surprise index, indicating possible improvement in the surprise index in coming months.

• Real Consumer Spending Is Likely to Reaccelerate in 2Q. Real consumer spending in 1Q was depressed due to severe weather. Support for consumer spending includes pent-up demand from the months of severe weather, house prices are up 13% y/y (Case-Shiller), consumer confidence remains in a rising trend, the S&P is up significantly over the past year, average hourly earnings are up 2.2% y/y, private employment hit a record high in March.

• Bank loan growth has been anemic, but starting in late ’13, growth has accelerated.

Source: ISI Group

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China Watch

Source: ISI Group