FEATURED INSIGHTS Market Optics · Nonfarm payroll monthly change Most recent Average last year Average last 3 years Average 2000-2007 Average 1990s 6.70 1.90 0.70 4.41 1.87 1.48

FEATURED INSIGHTS

Market OpticsVisualizing data to power decision-making

Third Quarter 2020

All data as of 9/30/2020 unless otherwise indicated.

Wells Fargo Asset Management is a trade name used by certain asset management businesses of Wells Fargo & Company.

WFAM PAR-0920-01027

1Market Optics 3Q2020

INVESTMENT PRODUCTS: NOT FDIC INSURED – NO BANK GUARANTEE – MAY LOSE VALUE

WELLS FARGO ASSET MANAGEMENT | 2Market Optics 3Q2020

WFAM Market Optics

You’ve likely seen chartbooks from our industry—but do they visualize data that you can use to solve real-time challenges?

With your needs in mind, Wells Fargo Asset Management (WFAM) created the Market Optics chartbook. Through our charts, you’ll gain a direct sightline into the data-driven insights that power our portfolio management teams’ opinions, ideas, and decisions.

We take topical market dynamics, describing them visually, in order to extrapolate conclusions that influence our decision-making in WFAM portfolios.

Market Optics covers a range of views expressed at not only a macro level but also from an asset class perspective, broadly highlighting equity, fixed-income, and multi-asset insights. This resource is updated on a quarterly basis and may be used in connection with other timely opinions produced by WFAM. Please note that all views expressed within Market Optics are unique to WFAM.

Third Quarter 2020

FEATURED INSIGHTS


WELLS FARGO ASSET MANAGEMENT |Market Optics 3Q2020 3

Featured Insights:


U.S. and global economy

Fixed incomeMulti-asset

incomeEquities

Multi-asset preservation

$

Index definitions


US AND GLOBAL ECONOMY FIXED INCOME MULTI-ASSET INCOME EQUITIES MULTI-ASSET PRESERVATION$

U.S. economy: From a big drop to a big bounce?• Going into the coronavirus crisis, economic growth was slow but stable. It looked to be improving, with

manufacturing staging a rebound after the trade deal between the U.S. and China.• The National Bureau of Economic Research’s Business Cycle Dating Committee quickly identified February as the

peak of economic activity, which meant the longest economic expansion in U.S. records had come to an end. The expansion had lasted 128 months, running from June 2009 to February 2020.

• The coronavirus pandemic has been like a natural disaster in that it quickly crippled economies. While the recovery is unlikely to be as aggressive as the drop, significant ground can be made up over the course of the next few quarters.

-31.40-33.20

-46.60

2.50

-64.40

-54.10

-3.72 -4.15-6.31

2.26

-10.26 -8.77

2.45 2.63 4.271.61

5.04 5.25

-70.00

-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

Gross domesticproduct

Consumptionspending

Investmentspending

Gov't spending onconsumption and

investment

Exports Imports

Ave

rage

of q

uart

erly

ann

ualiz

ed ra

tes

of g

row

th (%

)

Latest Last 3 years Last 50 years

Sources: Wells Fargo Asset Management (WFAM), Bloomberg. Quarterly data annualized over the past 50 years. Concepts are from the National Income and Product Accounts.



U.S. economy: Changing composition• Goods and services were both hit hard in March and April 2020 with the various shutdowns. The services recovery

lags the goods recovery as people continue to practice social distancing.• Credit conditions have been helped by the Federal Reserve’s actions. Residential investment has been springing

back faster than nonresidential as businesses try to navigate how to invest for a COVID-19 world. Spending onhousing has been helped by historically lower mortgage interest rates.

17.64 17.98

23.34

0.59

35.81

24.93

13.13 13.86

19.76

1.35

25.82

22.31

4.72 4.50

16.45

3.33

12.77 13.79

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Gross domesticproduct

Consumptionspending

Investmentspending

Gov't spending onconsumption and

investment

Exports Imports

Stan

dard

dev

iatio

n of

qua

rter

ly a

nnua

lized

rate

s of

gro

wth

(%)

Last year Last 3 years Last 50 years

Sources: WFAM, Bloomberg. Quarterly data annualized over the past 50 years. Concepts are from the National Income and Product Accounts.



U.S. economy: Labor market• The unemployment rate went from near-record lows to a record high very quickly.• While the worst may be behind us in terms of the labor market rout, it's likely to be a slow recovery. Thankfully, it appears that it could

be a more rapid recovery than the one following the Global Financial Crisis (GFC). After the GFC, it took a long time for the banking system to start contributing to growth. This time, the banking system is in a much better place. Also, the nature of the currentdownturn has been very different, which means the nature of this recovery is also likely to be different.

8.40%

61.70%56.50%

5.05%

66.36%63.01%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Unemployment rate Labor forceparticipation rate

Employment topopulation ratio

Most recent Average 2000-2007

1371.00

-756.92

-129.00

77.10 180.94

-1,000

-500

0

500

1,000

1,500

Nonfarm payroll monthly change

Num

ber o

f job

s (in

thou

sand

s)

Most recent Average last year Average last 3 yearsAverage 2000-2007 Average 1990s

4.90% 4.90%

2.80%

4.56%

2.81%

1.92%

3.25%

1.43%

2.78%3.23%

1.83% 2.03%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Average hourly earnings(production & non-supervisory, nominal, year-over-year)

Unit labor costs(year-over-year)

Productivity(year-over-year)

Year

-ove

r-ye

ar (%

)

Most recent Average last year Average 2000-2007 Average 1990s

Sources: WFAM, Bloomberg. Based on monthly data, except unit labor costs and productivity, which are reported quarterly. Data are for January 1990 through September 2020.

WELLS FARGO ASSET MANAGEMENT | 7


Market Optics 3Q2020

U.S. economy: Leading economic indicators• Housing (building permits) and manufacturing new orders have rebounded. Jobless claims remain extremely

elevated and will likely take a long time to return to normal.• The fear of a recession rapidly became the reality of one, so investors were able to quickly pivot to thinking about

the pattern of the recovery. We think the recovery will initially be impressive but then taper off rather quickly—but at least will likely continue making progress.

-2-1.5

-1-0.5

00.5

11.5

2Average work week

Jobless claims

Manufacturing new orders(consumer goods)

ISM new orders

Manufacturing new orders capital goods(ex. aircraft and defense)

Building permits

Credit index

Consumer expectations

Latest (positive = pro-growth) Normalized average of last 25 years

Sources: WFAM, Bloomberg. Based on monthly data over the past 25 years. The average is normalized to zero and the latest number is the number of standard deviations above or below average such that it points in the direction that is typically associated with a strong economy. For example, jobless claims are very low, which is associated with a strong economy, so it is converted to a positive number.


Global economy: Growth and inflation comparison• Coming into 2020, it was supposed to

be the year of synchronized growth asmanufacturing and trade recoveredfrom the U.S.-China trade war of2019. Instead, COVID-19 struck, andthere was a synchronized shutdown.

• Now that economies are beginning toreopen, there’s a lingering fear of aresurgence in coronavirus casesbefore a vaccine is available. Butinvestors seem to be looking outtoward 2021 for a decent rebound.

• Investing is about the future, not thepast. The consensus seems to becalling for a brighter 2021, but stillagainst a backdrop of low inflation.While a brighter outlook, it’s notoverly optimistic. If there’s a 10% dropin GDP, it takes just over 11% growthto get back to even.

1.3

-0.2

0.50.2

2.4

6.7

4.1

2.43.1

1.9

1.01.5

0.2

2.2

5.5

3.53.1

2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

U.S. Eurozone U.K. Japan China India Mexico Brazil SouthAfrica

Year

-ove

r-ye

ar (%

)

Latest inflation Consensus inflation next calendar year


-9.0

-14.7

-21.5

-9.9

3.2

-23.9

-18.7

-11.4

-17.1

3.85.5 6.4

2.5

8.0

-8.0

3.5 3.5 3.3

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

U.S. Eurozone U.K. Japan China India Mexico Brazil SouthAfrica

Year

-ove

r-ye

ar (%

)Latest GDP growth Consensus growth next calendar year

Sources: WFAM, Bloomberg. Consensus is from the Bloomberg survey.


Global economy: Business activity• Globally, manufacturing and services were both hit hard by the COVID-19 shutdowns, but incremental progress is

being made.• The recovery in purchasing manager indices has been driven by increases in new orders, employment, and

production activity from historically low levels. Services led the way higher initially as restaurants and stores re-opened, but consumers have remained cautious. Manufacturing has been staging a rebound.


51.8 51.9

56.0 56.9

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

Global manufacturing Global services U.S. manufacturing U.S. services

PMI (

horiz

onta

l lin

e is

50

)

Latest Min last 12 months Max last 12 months

Sources: WFAM, Bloomberg. Based on monthly data as of 9/30/2020.



Global economy: Monetary policy• In response to the manufacturing recession of 2019 induced by the U.S.-China trade war and Brexit uncertainty, central banks pivoted

from tightening to loosening policy.• In the wake of the coronavirus crisis, central banks had to do even more to provide economic relief. For central banks that had already

pushed rates to their lowest comfort level, this meant more asset purchases. A lot of these asset-purchase programs were designed to keep credit flowing and served as a type of “bridge loan” until the coronavirus lockdowns were lifted.

• Now, central banks seem prepared to be very patient with removing accommodation. If anything, their bias appears to be quick to provide more support rather than to be quick to get too optimistic.

• Extraordinary monetary support does not need to be inflationary. In this case, it was offsetting a possible collapse in credit. Central banks can sop up excess liquidity, if necessary, by paying interest on reserves and slowly letting the acquired assets mature.

0

20

40

60

80

100

120

140

12/1

/199

9

12/1

/20

00

12/1

/20

01

12/1

/20

02

12/1

/20

03

12/1

/20

04

12/1

/20

05

12/1

/20

06

12/1

/20

07

12/1

/20

08

12/1

/20

09

12/1

/20

10

12/1

/20

11

12/1

/20

12

12/1

/20

13

12/1

/20

14

12/1

/20

15

12/1

/20

16

12/1

/20

17

12/1

/20

18

12/1

/20

19

Bala

nce

shee

t as

% o

f GD

P 1

Federal Reserve European Central Bank Bank of Japan

0.25

-0.10

0.00

0.10

0.25

0.25

4.35

0.50

3.35

2.00

3.50

4.25

4.25

-1.50

0.00

0.00

-0.65

-0.50

-1.50

0.00

-0.75

-1.55

-3.00

-3.00

-2.25

-3.50

-6 -4 -2 0 2 4 6

United States

Japan

Eurozone

United Kingdom

Australia

Canada

China

South Korea

India

Brazil

South Africa

Russia

Mexico

Policy rates2 Change from 1 year ago (percentage point)Latest policy rate (%)

Sources: WFAM, Bloomberg. 1 Based on monthly data from December 1999. 2 Data as of 9/30/2020.



Global economy: Fiscal policy• Entering the coronavirus crisis, investors were worried about elevated deficits in countries like the U.S. Deficits as a percentage of GDP were

never that high during peacetime. Other countries, like Germany, were reluctant to engage in deficit spending. The concern was that if a shock happened, those who needed to spend wouldn’t have the “fiscal space” to do so while those who could spend wouldn’t be willing to.

• When the pandemic hit, the fiscal policy response was uniformly big and bold. The U.S. showed that despite high budget deficits, there was plenty of appetite for more government debt. Even Germany announced spending programs in the low double digits of GDP.

• The policy response seemed proportionate to the COVID-19 problem, provided economic activity was put on hiatus for only a couple of months. Now that economic restrictions are lifting, investors are beginning to wonder how the bills will be paid. If post-wartime fiscal policies are any historical guide, it’ll likely be from a combination of central banks keeping government financing costs abnormally low, a slight bending of the government spending curve, a little faster economic growth, and perhaps eventually higher taxes. The bills will come due, but not all at once.

(10)

(5)

-

5

10

15

20

0

50

100

150

200

250

⬤D

efic

it-t

o-G

DP

(%)

Deb

t-to

-GD

P (%

)

Sources: WFAM, Bloomberg. Data as of 9/30/2020.



Global economy: Foreign exchange• The dollar has been strengthening over the longer term. Over the shorter term, there has been some dollar weakness against some

developed economies’ currencies. Hedging costs are elevated, making higher U.S. yields relatively less attractive to foreign investors.• In risk-off scenarios, we expect the dollar can still strengthen as a perceived safe-haven currency. In an equity market rally—a more

risk-on scenario—we expect the dollar can weaken, favoring emerging market currencies and their stocks in the process.

Broad trade-weighted dollarJapan

Eurozone

United KingdomAustralia

Canada

China

South Korea

Taiwan

India

Brazil

South Africa

Russia

Mexico

-10

-5

0

5

10

15

20

25

30

35

40

-4 -2 0 2 4 6 8

1-ye

ar d

olla

r app

reci

atio

n (%

)

5-year dollar appreciation (%)

Sources: WFAM, Bloomberg. Based on monthly data from 2/28/2007 to 9/30/2020.


Visualizing data to power decision-making

Featured Insights:

Market Optics

U.S. and global economy Fixed income Multi-asset

incomeEquities


$

Index definitions



Fixed income: Global yield curves• The level of yields is historically low, meaning investors are looking at other assets to generate income. • Slopes of yield curves have steepened as central banks seem to have the short end of curves pinned to the ground and

the longer end of curves may be pricing in a slow increase in inflation.

-15%

0%

15%

30%

45%

-1

0

1

2

3

4

5

Past

10-y

ear p

erce

nt ra

nk

10- y

ear g

over

nmen

t bon

d yi

eld

(%) 10-year Own history rank

0%

20%

40%

60%

80%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Past

10-y

ear p

erce

nt ra

nk

Slope Own history rank

10-y

ear m

inus

2-y

ear g

over

nmen

t bon

dyi

eld

(%)

Past performance is no guarantee of future results. Sources: WFAM, Bloomberg. Based on weekly yields over the past 10 years.


Fixed income: Real yields and breakeven rates of inflation• Nominal yields can be decomposed into their real and breakeven components.• Real yields are negative across the developed world but positive in emerging economies. Breakeven rates of inflation

have moved slightly higher since last year but still remain well below central banks’ targets for long-term inflation.


-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

Cha

nge

in re

al y

ield

ove

r las

t yea

r

5-ye

ar re

al y

ield

(%)

Real yield Change over last year

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

Cha

nge

in b

reak

even

ove

r las

t yea

r

5-ye

ar b

reak

even

infla

tion

(%)

Break even yield Change over last year

Past performance is no guarantee of future results.. Sources: WFAM, Bloomberg. Based on trailing 12 months of weekly data.



Fixed income: Yields and returnsDespite more than $14 trillion in negative-yielding debt, returns have been broadly positive.

Trill

ions

of d

olla

rs o

f neg

ativ

e-yi

eldi

ng d

ebt

0

2

4

6

8

10

12

14

16

18

10/1/2014 3/1/2015 8/1/2015 1/1/2016 6/1/2016 11/1/2016 4/1/2017 9/1/2017 2/1/2018 7/1/2018 12/1/2018 5/1/2019 10/1/2019 3/1/2020 8/1/2020

Trill

ions

of d

olla

rs o

f neg

ativ

e-yi

eldi

ng d

ebt

Country as of 09/30/2020 Trailing 3-month total return Trailing 12-month total return 5-year total return (annualized)United States 0.77 7.14 4.21Japan 0.13 -1.96 1.20Eurozone 1.50 0.45 2.72United Kingdom -0.59 3.66 5.37Australia 1.08 3.05 4.27Canada 1.59 6.83 4.51China 2.94 7.92 2.50South Korea 0.39 1.57 2.71Taiwan 0.80 3.34 2.57India 1.20 10.97 9.16Brazil 3.99 3.68 9.49South Africa 0.69 19.67 8.33Mexico 1.12 11.09 7.18

Past performance is no guarantee of future results. Sources: WFAM, Bloomberg. Negative-yielding debt from the Bloomberg Barclays Global Aggregate Index. Each country’s total return is from the Bloomberg Barclays Aggregate Index except the following: South Korea, Taiwan, India, and Mexico are from the S&P Bond Indices while Brazil and South Africa are from the JP Morgan Emerging Market Bond Indices.



Fixed income: Yields and returns• Starting yield-to-worst is a pretty good predictor of total return with a five-year holding period.• When spreads relative to Treasuries are particularly tight, yield-to-worst is still a decent predictor for investment-grade returns, but it

does tend to overstate returns for high yield.• Spreads went from historic highs to merely median very quickly after central banks intervened to support financial conditions. Now,

investors are left with historically low absolute levels of yields.

2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

0 2 4 6 8 10 12

Forw

ard

5-ye

ar a

nnua

lized

tot

al re

turn

(%)

Starting yield-to-worst (%)IG top quartile spread IG bottom quartile spreadIG middle quartiles spread EqualityCurrent YTW

5.89

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

0 5 10 15 20 25

Forw

ard

5-ye

ar a

nnua

lized

tot

al re

turn

(%)

Starting yield-to-worst (%)HY top quartile spread HY bottom quartile spreadHY middle quartiles spread EqualityCurrent YTW

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg. Indices are for the Bloomberg Barclays U.S. Corporate Index and the Bloomberg Barclays U.S. High Yield index. Calculations are based on monthly data over the trailing 20 years. Abbreviations in chart legends are as follows: IG (Investment Grade); HY (High Yield); YTW (Yield to Worst)..



1 month 3 month 12 month

Fixed income: Municipal bonds• During the market crash of February‒March, there were some big swings in municipal markets. But liquidity has improved.• There are worries about the fiscal position of many states and municipalities. The coronavirus crisis has affected the traditional

sources of revenue—sales, income, and property taxes—while increasing the costs of providing health care services. Federal aid has helped, but there’s still a budget gap that could lead to downgrades. Defaults are likely to stay—as they always have been—very low.

Tax-exempt curve returns

-0.4

7

-0.0

1

-0.19

-0.7

4

-0.7

8

2.0

4

0.7

8

1.95 2.

36

3.0

7

3.24

2.88

3.66

3.40

3.0

5

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Muni 1 year 5 year 10 year 20 year

Ret

urn

%

Tax-exempt credit returns

-0.4

7

-0.5

4

-0.3

5

-0.0

4

0.2

6

2.0

4

1.29

2.96

6.65 7.

06

3.24 3.

58

2.75

1.33

0.9

6-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Muni AA A BBB HY

Ret

urn

%

Taxable municipal index

-1.13

0.2

0

-1.6

9

0.19

-2.0

8

-2.11

-1.2

9

4.32

3.0

8

4.81

3.34

4.50

6.42

8.57

6.0

2

5.67 6.

18

8.43 8.

66

6.30

3.17

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Ret

urn

%

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg. Bloomberg Barclays municipal indices of the indicated category (by maturity or by credit quality).



Fixed income: Municipal bondsCorporate and municipal spreads are both below their historical averages.

-

100

200

300

400

500

600

700

800

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

BAA

/AA

A S

prea

d in

bas

is p

oint

s

Municipals (last = 167 bps) Corporates (last = 191 bps)Municipal average Corporate average

Municipal average: 134 bps

Corporate average: 208 bps

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg. Monthly data over the past 26 years from the Bloomberg Barclays U.S. Corporate Index and the Bloomberg Barclays Municipal Bond index. BPS (basis points).



Fixed income: Structured product• Agency mortgage-backed-securities (MBS) spreads widened dramatically in mid-March, but the Federal Reserve

stepped in with nearly a trillion dollars in purchases to restore some order to the market. Spreads remain wide and, in our view, supply/demand favor agency MBS versus Treasuries. Treasury net issuance could easily exceed $3 trillion due to the record pace of fiscal stimulus.

• Asset-backed-securities (ABS) spreads have tightened even though there has been some deterioration in credit quality with increased forbearances and modification rates. Auto sales have shown signs of recovery.

-2

0

2

4

6

8

10

12

14

16

18

12/1

/200

0

12/1

/200

1

12/1

/200

2

12/1

/200

3

12/1

/200

4

12/1

/200

5

12/1

/200

6

12/1

/200

7

12/1

/200

8

12/1

/200

9

12/1

/201

0

12/1

/201

1

12/1

/201

2

12/1

/201

3

12/1

/201

4

12/1

/201

5

12/1

/201

6

12/1

/201

7

12/1

/201

8

12/1

/201

9

Spre

ads

in %

Bloomberg Barclays U.S. Mortgage Backed Securities Conventional

Bloomberg Barclays U.S. Aggregate Commercial Mortgage Backed Securities

Bloomberg Barclays Asset Backed Securities Auto Average

Bloomberg Barclays Asset Backed Securities Credit

0.86

1.07

0.470.32

0.00

0.20

0.40

0.60

0.80

1.00

1.20

BloombergBarclays U.S.

Mortgage BackedSecurities

Conventional


AggregateCommercial

Mortgage BackedSecurities

BloombergBarclays Asset

Backed SecuritiesAuto Average

BloombergBarclays Asset

Backed SecuritiesCredit

Opt

ion-

adju

sted

spre

ad (%

)

Second quartile Third quartile Current

Source: WFAM and Bloomberg. Floating chart is on a rolling 5-year basis.



Fixed income: Money market• Investors have plowed into government money market funds and out of prime funds. Yields across the board have fallen dramatically.

Given the possibilities of market stresses, we are maintaining higher-than-normal weekly liquidity.• While the Treasury has issued more than $2 trillion of net new Treasury bills to fund COVID-related deficits, inflows into money market

funds have offset the increase in supply.• The Federal Reserve’s (Fed) interventions continued to support markets and helped the markets get closer to “normal.” Asset purchases

have tapered and are at a $120-billion-per-month pace.• The Fed does not seem to want to tread into negative territory with policy rates. It seems to believe its guidance that its target rate will

stay near zero until inflation hits 2%, it looks like it will modestly overshoot 2%, and that the economy is at full employment is a good way to provide monetary accommodation. Their bias is likely to alter the pace or composition of asset purchases if more easing is needed.

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Trill

ions

$

Money market fund assets: Government (trillions $) Money market fund assets: Prime (trillions $)

Past performance is no guarantee of future results. Sources: WFAM, Bloomberg. Negative-yielding debt from the Bloomberg Barclays Global Aggregate Index. Each country’s total return is from the Bloomberg Barclays Aggregate Index except the following: South Korea, Taiwan, India, and Mexico are from the S&P Bond Indices while Brazil and South Africa are from the JP Morgan Emerging Market Bond Indices.


Featured Insights:




incomeEquities


$

Index definitions


Multi-asset income: Diversify income• In a low-yield world, consider a broader set of investments to meet income needs.• Many asset categories derive a significant portion of their returns from dividends or coupons.• Some dividends may be cut in the short term, but dividend income will likely stay a significant and stable source of return.• Distributable income could be enhanced through the use of options strategies.

$US AND GLOBAL ECONOMY FIXED INCOME MULTI-ASSET INCOME EQUITIES MULTI-ASSET PRESERVATION

Income share of 10-year total return

16.02 14.60 26.63

9.11

65.06

102.33

68.98 70.45 81.96

108.85

52.47

(166.68)

1.79 1.63 2.66

0.84

2.75 2.31

0.46 0.94

2.00

5.89

4.49

17.25

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

(200.00)

(150.00)

(100.00)

(50.00)

-

50.00

100.00

150.00

S&P 500 Russell 2000 Russell 3000Value

Russell 3000Growth

MSCI EAFE MSCIEmergingMarkets


Treasury

BloombergBarclays

GlobalAggregate

Governmentex U.S.

SovereignsIndex


CorporateBond Index


CorporateHigh Yield

Bond Index

MSCI REITs Alerian MLP

Yiel

d as

of 9

/30

/20

20

% o

f tot

al re

turn

ove

r pas

t 10

yea

rs fr

om in

com

e

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg based on indicated indices. Calculation is from comparing the total return of the index over 10 years with the price return of the index over 10 years.


Featured Insights:




income Equities Multi-asset preservation

$

Index definitions



Equities: Returns and currencies• For a good portion of the past five years, a stronger dollar was a drag on non-U.S. equity returns, but since the

beginning of the year, that drag has turned to a boost. Opportunistically hedging currency exposure may add value.• We believe there is no reason the U.S. dollar cannot maintain its value relative to other currencies. But it is unlikely

to appreciate aggressively over the next five years. We believe that, if anything, there could be a downward bias in the dollar’s value.

5.27

-1.91

0.37

-0.65

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

MSCI EAFE MSCI Emerging Markets

Cur

renc

y ef

fect

on

USD

retu

rn (%

)

Currency effect last 1 year Currency effect last 5 years

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg. MSCI country-specific indices in both local currency terms and unhedged U.S. dollar terms.



Equities: Size versus style• Small caps have struggled to keep pace with large caps, but they have had periods when they significantly

outperformed. This seems to be when rates were stable or rising and economic growth was accelerating.• Value has struggled to keep up with growth since 2006, but value outperformed growth from the Tech Bubble

Burst to the Global Financial Crisis. That was a period of rising rates—perhaps helping financials—and stable growth, which helped the more cyclical areas like industrials.

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

9/30

/202

0

12/3

1/20

19

3/29

/201

9

6/29

/201

8

9/29

/201

7

12/3

0/20

16

3/31

/201

6

6/30

/201

5

9/30

/201

4

12/3

1/20

13

3/29

/201

3

6/29

/201

2

9/30

/201

1

12/3

1/20

10

3/31

/201

0

6/30

/200

9

9/30

/200

8

12/3

1/20

07

3/30

/200

7

6/30

/200

6

9/30

/200

5

12/3

1/20

04

3/31

/200

4

6/30

/200

3

9/30

/200

2

12/3

1/20

01

3/30

/200

1

6/30

/200

0

9/30

/199

9

12/3

1/19

98

3/31

/199

8

6/30

/199

7

9/30

/199

6

12/2

9/19

95

3/31

/199

5

6/30

/199

4

9/30

/199

3

12/3

1/19

92

3/31

/199

2

6/28

/199

1

9/28

/199

0

12/2

9/19

89

3/31

/198

9

6/30

/198

8

Cum

ulat

ive

outp

erfo

rman

ce (%

)

Russell 3000 Value/Russell 3000 Growth Russell 2000/Russell 1000

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg. Monthly data from 1988.



Equities: Opportunities in diversity?• While small caps and value stocks have “underperformed” large caps and growth, this has only applied to the

indices. Within the indices, there’s a great diversity of opportunity.• Perhaps the key lesson is that stock selection matters most in those asset classes.

0%

10%

20%

30%

40%

50%

60%

70%Percent of Russell 2000 stocks outperforming the S&P 500 Percent of S&P 500 Value stocks outperforming the S&P 500

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg based on quarterly data from the past five years.



Equities: Region• U.S. equities have outperformed developed non-U.S. equities, but during the post-Tech Bubble Burst period, non-

U.S. equities outperformed.• Emerging markets outperformed developed non-U.S. equities except from 2012 through 2016, when there were

concerns about China navigating its growth slowdown.• Diversifying across regions can help diversify across market cycles as market cycles are not all synchronized.

Emerging markets held up relatively better than U.S. equities during the past few market corrections, mainly because they had their corrections before the U.S. had its correction.

-0.5

0.0

0.5

1.0

1.5

2.0

5/1/

1988

1/1/

1989

9/1/

1989

5/1/

1990

1/1/

1991

9/1/

1991

5/1/

1992

1/1/

1993

9/1/

1993

5/1/

1994

1/1/

1995

9/1/

1995

5/1/

1996

1/1/

1997

9/1/

1997

5/1/

1998

1/1/

1999

9/1/

1999

5/1/

2000

1/1/

2001

9/1/

2001

5/1/

2002

1/1/

2003

9/1/

2003

5/1/

2004

1/1/

2005

9/1/

2005

5/1/

2006

1/1/

2007

9/1/

2007

5/1/

2008

1/1/

2009

9/1/

2009

5/1/

2010

1/1/

2011

9/1/

2011

5/1/

2012

1/1/

2013

9/1/

2013

5/1/

2014

1/1/

2015

9/1/

2015

5/1/

2016

1/1/

2017

9/1/

2017

5/1/

2018

1/1/

2019

9/1/

2019

5/1/

2020

Cum

ulat

ive

outp

erfo

rman

ce (%

)

S&P 500/MSCI EAFE (USD) MSCI EM (USD)/MSCI EAFE (USD)

Past performance is no guarantee of future results. Sources: WFAM, Bloomberg. Monthly data from 1988.



Equities: Return decomposition• With earnings expectations for 2020 collapsing, returns over the past 12 months were mainly driven by changes in multiples.• Over the longer term, earnings matter more—as do dividends, which are paid out from earnings. This illustrates Ben Graham's

aphorism: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." Prospectively, we like to think about which companies will have the best earnings power regardless of country, size, style, or sector.

Past 12 months as of 9/30/20

0.0% 1.1%33.6%

-21.4%

13.3%0.0% 1.2%

120.0%

-121.0%

0.2%5.1% 2.3%39.5%

-45.8%

1.2%

-1.9%

2.2%29.2%

-20.7%

8.8%

-200.0%

-100.0%

0.0%

100.0%

200.0%

Currency effect Dividends Price-to-earnings effect Earnings effect Total return (U.S. dollars)

Ret

urn

and

cont

ribut

ions

(%)

S&P 500 Russell 2000 MSCI EAFE MSCI EM

Past 10 years as of 9/30/20

0.0%19.9%

61.5%46.6%

127.9%

0.0%13.6%

139.3%

-59.1%

93.8%

-15.8%

27.9%52.4%

-18.7%

45.8%

-30.1%

24.1% 31.0%

-1.5%

23.5%

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

Currency effect Dividends Price-to-earnings effect Earnings effect Total return (U.S. dollars)

Ret

urn

and

cont

ribut

ions

(%)

S&P 500 Russell 2000 MSCI EAFE MSCI EM

Past performance is no guarantee of future results.Sources: WFAM, Bloomberg.



Equities: MultiplesMultiples (price-to-cash flow) are elevated across many market segments, but this is because the denominators (next-12-months’ free-cash-flow expectations) have collapsed. Next 12 months is only useful if it’s a predictor of long-term cash flow’s generating power. We would argue that investors are looking beyond the next year when picking places to invest.

Price/cash flow range since 9/30/2005

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

S&P 500 Value S&P 500 S&P 500 Growth Russell MidGrowth

Russell Mid Russell MidGrowth

Russell 2000Value

Russell 2000 Russell 2000Growth

Sources: WFAM, Bloomberg. MSCI country-specific indices. Based on Bloomberg estimates of next 12 months’ cash flows per share.

Min P/CF Max P/CF Median P/CF Current P/CF



Equities: Multiple measures of multiplesMultiples can be a poor guide to near- and medium-term opportunities, but across almost all measures, large-cap and small-cap stocks are trading at multiples below their historical tendencies.

S&P 500

0%10%20%30%40%50%60%70%80%90%

100%Forward P/E

Trailing P/E

P/dividend

Forward P/B

Forward P/S

Forward P/CF

Current Median

Russell 2000

0%10%20%30%40%50%60%70%80%90%

100%Forward P/E

Trailing P/E

P/dividend

Forward P/B

Forward P/S

Forward P/CF

Sources: WFAM, Bloomberg. Based on Bloomberg estimates and monthly data from 1990. P/B, (Price/ Book); P/E (price/earnings), P/S (price/sales), P/CF (price/cash flow), P/Dividend (price/dividend)

Current Median


Size of bubble represents trailing 1-year relative return


Equities: Sector multiplesThere is a diversity of multiple and momentum opportunities across the S&P 500 Index sectors.

Communication services

Consumer discretionary

Consumer staples

Energy

Financials

Health care

IndustrialsInformation technology

Materials

Real estate

Utilities

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

-0.20 0.00 0.20 0.40 0.60 0.80 1.00 1.20

Cas

h fl

ow y

ield

rela

tive

per

cent

rank

(%)

Relative momentum (%) High momentum—relatively more expensiveLow momentum—relatively more expensive

Low momentum—relatively cheap High momentum—relatively cheap

Sources: WFAM, Bloomberg. S&P 500 sector indices. Momentum is the sector’s percentile of all sectors’ trailing 12-month return. Calculations based on daily values from September 30, 2005 through September 30, 2020.



Equities: Fundamentals—profit marginsProfit margins have been high and robust for companies in the S&P 500 Index. Companies in the Russell 2000 Index have struggled to keep margins positive. This indicates it’s likely more important to separate the profitable from the unprofitable companies among small caps as compared with the large-cap universe.

-8

-6

-4

-2

0

2

4

6

8

10

12

4/1/

1995

5/1/

1996

6/1/

1997

7/1/

1998

8/1/

1999

9/1/

2000

10/1

/200

1

11/1

/200

2

12/1

/200

3

1/1/

2005

2/1/

2006

3/1/

2007

4/1/

2008

5/1/

2009

6/1/

2010

7/1/

2011

8/1/

2012

9/1/

2013

10/1

/201

4

11/1

/201

5

12/1

/201

6

1/1/

2018

2/1/

2019

3/1/

2020

Prof

it m

argi

ns (%

)

S&P 500 Russell 2000

Sources: WFAM, Bloomberg. Based on Bloomberg estimates and monthly data from 1995.


Equities: Fundamentals—leverage• Only financials within the S&P 500 have materially reduced their leverage since the Global Financial Crisis.• Balance sheet health—strength and flexibility—have become top of mind for many investors when thinking about

which companies will be able to emerge in a favorable market position from the coronavirus crisis.

S&P 500

86.29

284.07

145.0461.29

152.41

96.26162.2

87.24 73.56 102.89143.55

0.00

200.00

400.00

600.00

800.00



Consumer staples

Energy Financials Health care Industrials Information technology

Materials Real estate Utilities

Deb

t-to

-equ

ity (%

)

Q1 Q2 Q3 Q4 Current

Russell 2000

88.31

235.13

121.0992.33

133.1

91.86117.87

76.597.17

129.07 123.2

0.00

100.00

200.00

300.00

400.00



Consumer staples

Energy Financials Health care Industrials Information technology

Materials Real estate Utilities

Deb

t-to

-equ

ity (%

)

Sources: WFAM, Bloomberg. Based on Bloomberg estimates and monthly data from 1/31/1990 through 9/30/2020. The data are monthly and goes back to 1990. At the end of every month, the indexes have a Debt-to-equity ratio. That creates a distribution of debt-to-equity ratios. The dots and icons (above) indicate the most recent value.

Q1 Q2 Q3 Q4 Current




Equities: Fundamentals—earnings power• U.S. companies have been able to out-earn non-U.S. companies over the long term.• A resumption of global growth could bode well for all equity market segments.• Many emerging market companies are becoming more agile and more competitive within their home markets and

even outside their home markets.• Increasingly, country of domicile—or where the stock trades—doesn’t determine where the company makes its

money.

3.02

-180.69

-9.78-3.29

-200.00

-150.00

-100.00

-50.00

0.00

50.00

S&P 500 trailing EPS Russell 2000 trailing EPS MSCI EAFE trailing EPS MSCI EM trailing EPS

Five

-yea

r ann

ualiz

ed g

row

th o

f ear

ning

s (%

) as

of 9

/30

/20

20

Sources: WFAM, Bloomberg. Based on Bloomberg estimates and monthly data from 1990. Forward Earnings Per Share (EPS) is calculated by dividing price per share by forecasted EPS over the next 12 months.



Equities: FactorsSize and growth have had the biggest improvement in risk-adjusted returns compared with their long-term average. Quality (profitability) and low volatility might help when markets get choppy.

9.14

-0.01

3.43

0.18

7.47

-7.14

3.59

1.051.86

0.25 0.69

-5.85

1.000.15 0.37

1.040.04

-0.39

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Growth Profitability Size Momentum Volatility Value

Ann

ualiz

ed to

tal r

etur

n (%

)

Trailing 12 month total return Trailing 3 year total return Trailing 10 year total return

-0.77

5.00

-0.46

-3.61

-0.01

4.65

0.72

-0.61

-2.73

1.51

0.42

3.95

0.41

-1.12

0.761.49 1.77 1.74

-4.00

-2.00

0.00

2.00

4.00

6.00

Growth Profitability Size Momentum Volatility Value

Ann

ualiz

ed a

vera

ge p

ayof

f (%

)

Top quartile VIX Middle quartiles VIX Bottom quartile VIX

Sources: WFAM, Bloomberg. Bloomberg U.S. Pure Factor Total Return Indices using monthly data from 1998 to the present. Factors, in this context, are features of companies.


Featured Insights:




incomeEquities


$

Index definitions



Multi-asset: Downside diversification• Negative correlations are not required to diversify a portfolio. It just requires correlations that are less than one.• The effectiveness of an asset to diversify equities depends on how extreme the equity market moves are.• Diversifying differently—by thinking beyond just spreading money across asset classes—can improve the risk-

return profile of a portfolio. This means diversifying: • Within asset classes• The mix of income and capital gains• Across approaches and strategies• Possibly into derivatives

-0.28

0.08

0.45

0.02

0.29

-0.07 -0.05

0.03 0.02

0.08

0.02 0.02

-0.10

-0.03 -0.02

0.01

0.00-0.04 -0.03

0.02

-0.34

-0.19

0.28

-0.01

0.27

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

Treasuries Corporate High yield Gold Industrial metals

Cor

rela

tion

of d

aily

retu

rns

whe

n S&

P 50

0 d

eclin

es

Down first quartile Down second quartile Down third quartile Down fourth quartile Up and down correlations

Sources: WFAM, Bloomberg. Time period: 8/7/1998-9/30/2020.



Multi-asset: Diversification during correction periods• The three classic triggers of market corrections are fears of recession, fears of inflation, and fears of geopolitics. Whether a correction

turns into a bear market depends on whether those fears become a reality.• The recent bear market is a good example of how quickly the fear of a recession can turn into the reality of a recession. This is one

reason, we believe, the turn from a bull into a bear market was the fastest in recent history.• Depending on the trigger of the correction, different assets will diversify differently. Prior to the mid-1980s, most corrections were

accompanied by fears of inflation. As a result, Treasuries did not reliably gain as equity markets sold off.• Since the 1990s, Treasuries were more consistent diversifiers to equities. The gains in Treasuries during downturns softened the blow

of equity market downturns, but they did not completely offset the losses.• Looking forward, with low interest rates, we think Treasuries can still diversify stocks, but possibly not as reliably as in the past. One thing

to consider is whether stocks should diversify Treasuries instead of thinking in terms of whether Treasuries should diversify stocks.

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

8/1/

1962

11/1

/196

3

2/1/

1965

5/1/

1966

8/1/

1967

11/1

/196

8

2/1/

1970

5/1/

1971

8/1/

1972

11/1

/197

3

2/1/

1975

5/1/

1976

8/1/

1977

11/1

/197

8

2/1/

1980

5/1/

1981

8/1/

1982

11/1

/198

3

2/1/

1985

5/1/

1986

8/1/

1987

11/1

/198

8

2/1/

1990

5/1/

1991

8/1/

1992

11/1

/199

3

2/1/

1995

5/1/

1996

8/1/

1997

11/1

/199

8

2/1/

2000

5/1/

2001

8/1/

2002

11/1

/200

3

2/1/

2005

5/1/

2006

8/1/

2007

11/1

/200

8

2/1/

2010

5/1/

2011

8/1/

2012

11/1

/201

3

2/1/

2015

5/1/

2016

8/1/

2017

11/1

/201

8

2/1/

2020

Cor

rect

ion

perio

d re

turn

(%)

S&P 500 10 year Gold

Sources: WFAM, Bloomberg. Past performance is no guarantee of future results.



Multi-asset: Diversification during recovery periods• Corrections and bear markets are not the norm. As a result, long-term investors should also consider how they are

positioned for equity market recoveries. • With low levels of yields and the likelihood of meager total return potential, Treasuries seem likely to continue

their trend of underperforming during the subsequent equity market rallies.• We believe keeping a long-term orientation and managing cash needs to help keep from being a forced seller in

equity market downturns can help improve the likelihood of achieving long-term financial goals.

-50%

0%

50%

100%

150%

200%

250%

10/1

/196

2

1/1/

1964

4/1/

1965

7/1/

1966

10/1

/196

7

1/1/

1969

4/1/

1970

7/1/

1971

10/1

/197

2

1/1/

1974

4/1/

1975

7/1/

1976

10/1

/197

7

1/1/

1979

4/1/

1980

7/1/

1981

10/1

/198

2

1/1/

1984

4/1/

1985

7/1/

1986

10/1

/198

7

1/1/

1989

4/1/

1990

7/1/

1991

10/1

/199

2

1/1/

1994

4/1/

1995

7/1/

1996

10/1

/199

7

1/1/

1999

4/1/

2000

7/1/

2001

10/1

/200

2

1/1/

2004

4/1/

2005

7/1/

2006

10/1

/200

7

1/1/

2009

4/1/

2010

7/1/

2011

10/1

/201

2

1/1/

2014

4/1/

2015

7/1/

2016

10/1

/201

7

1/1/

2019

Rec

over

y pe

riod

retu

rn (%

)

S&P 500 10 year Gold

Sources: WFAM, Bloomberg. Past performance is no guarantee of future results.



Multi-asset: Risk management• A classic 60/40 portfolio of stocks and bonds sources 60% of its returns from stocks and 40% of its returns from

bonds. However, it does not get 60% of its risk—as measured by volatility—from stocks and 40% of its risk from bonds.

• Monitoring those shifting risks can help an investor ask whether they are appropriately compensated for the risks they are taking.

• Downside risk management uses diversification, derivatives, or active strategies to try to favorably reshape the distribution of possible portfolio returns.

Risk contributions to a 60/40 S&P 500 and 10-year Treasury portfolio

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Trai

ling

one-

year

risk

con

trib

utio

n (%

)

S&P risk contribution Treasury risk contribution

Sources: WFAM, Bloomberg.


Featured Insights:




incomeEquities


$

Index definitions


US AND GLOBAL ECONOMY FIXED INCOME MULTI-ASSET INCOME EQUITIES MULTI-ASSET PRESERVATION

Index definitionsAlerian MLP IndexThe Alerian MLP Index is the leading gauge of energy Master Limited Partnerships (MLPs). The float-adjusted, capitalization-weighted index, whose 50 constituents represent approximately 75% of total market capitalization, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX). You cannot invest directly in an index.

Bloomberg Barclays ABS Auto Index AverageThe average yield on the Bloomberg Barclays ABS Auto index, which is a market cap weighted index of asset backed securities (ABS). The ABS consist of automobile loans. You cannot invest directly in an index.

Bloomberg Barclays ABS Credit IndexA market cap weighted index of asset backed securities (ABS), which consists of credit card receivables. You cannot invest directly in an index.

Bloomberg Barclays Emerging Markets Hard Currency Aggregate IndexThe Bloomberg Barclays Emerging Markets Hard Currency Aggregate Index is a flagship hard currency emerging markets (EM) debt benchmark that includes U.S. dollar-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers. You cannot invest directly in an index.

Bloomberg Barclays Emerging Markets Local Currency Government IndexThe Bloomberg Barclays Emerging Markets Local Currency Government Index is a flagship index that measures the performance of local currency emerging markets debt. You cannot invest directly in an index.

Bloomberg Barclays Euro High Yield IndexThe Bloomberg Barclays Euro High Yield Index measures the market of non-investment grade, fixed-rate corporate bonds denominated in euros. Inclusion is based on the currency of issue, not the domicile of the issuer. The index excludes emerging market debt. You cannot invest directly in an index.

Bloomberg Barclays Global Aggregate Government IndexThe Bloomberg Barclays Global Aggregate Government Index measures the performance of the global investment grade, fixed-rate bond markets. You cannot invest directly in an index.

Bloomberg Barclays Global Aggregate Government ex U.S. Sovereigns IndexThe Bloomberg Barclays Global Aggregate Government ex U.S. Sovereigns Index is a measure of investment grade rated debt from 25 local currency markets excluding the U.S. This multi-currency benchmark includes government-related fixed-rate bonds from both developed and emerging markets issuers. Bonds classified as sovereign are only eligible. It is a market capitalization weighted index. You cannot invest directly in an index

Bloomberg Barclays Global Contingent Capital IndexThe Bloomberg Barclays Global Contingent Capital Index tracks the market of hybrid capital securities with explicit equity conversion or write-down loss absorption mechanisms that are based on an issuer’s regulatory capital ratio or other explicit solvency-based triggers. You cannot invest directly in an index.

Bloomberg Barclays Municipal Bond IndexThe Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

Bloomberg Barclays High Yield Municipal Bond IndexThe Bloomberg Barclays High Yield Municipal Bond Index measures the non-investment-grade and nonrated U.S.-dollar-denominated, fixed-rate, tax-exempt bond market within the 50 United States and four other qualifying regions (Washington, D.C.; Puerto Rico; Guam; and the Virgin Islands). The index allows state and local general obligation, revenue, insured, and pre-refunded bonds; however, historically the index has been composed of mostly revenue bonds. You cannot invest directly in an index.

The Bloomberg Barclays U.S. Aggregate CMBS IndexThe Bloomberg Barclays U.S. Aggregate CMBS Index tracks commercial mortgage-backed securities issued both by agencies of the federal government and those issued by non-agencies. The index is market cap weighted. You cannot invest directly in an index.

Bloomberg Barclays U.S. MBS Conventional IndexThe Bloomberg Barclays U.S. MBS Conventional Index tracks investment grade fixed-rate mortgage-backed securities (MBS) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and FeddieMac (FHLMC). The index is market cap weighted. You cannot invest directly in an index.

Bloomberg Barclays Pan-European Aggregate IndexThe Bloomberg Barclays Pan-European Aggregate Index tracks fixed-rate, investment-grade securities issued in the following European currencies: euro, British pound, Norwegian krone, Danish krone, Swedish krona, Czech koruna, Hungarian forint, Polish zloty, and Slovakian koruna. You cannot invest directly in an index.

Bloomberg Barclays U.S. Corporate Bond IndexThe Bloomberg Barclays U.S. Corporate Bond Index is an unmanaged market-value-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more. You cannot invest directly in an index

Bloomberg Barclays U.S. Corporate High Yield Bond IndexThe Bloomberg Barclays U.S. Corporate High Yield Bond Index is an unmanaged, U.S.-dollar-denominated, nonconvertible, non-investment-grade debt index. The index consists of domestic corporate bonds rated Ba and below with a minimum outstanding amount of $150 million. You cannot invest directly in an index.

Bloomberg Barclays U.S. Securitized IndexThe Bloomberg Barclays U.S. Securitized Index is an unmanaged composite of asset-backed securities, collateralized mortgage-backed securities (ERISA-eligible), and fixed-rate mortgage-backed securities. You cannot invest directly in an index.

Bloomberg Barclays U.S. Short Treasury Index: 9–12 MonthsThe Bloomberg Barclays U.S. Short Treasury Index: 9–12 Months is an unmanaged index that includes aged U.S. Treasury bills, notes, and bonds with a remaining maturity from 9 up to (but not including) 12 months. It excludes zero-coupon STRIPS. You cannot invest directly in an index.

$


Index definitions (continued)


Bloomberg Barclays U.S. Treasury IndexThe Bloomberg Barclays U.S. Treasury Index is an unmanaged index of prices of U.S. Treasury bonds with maturities of 1 to 30 years. You cannot invest directly in an index.

Bloomberg Industrial Metals SubindexThe Bloomberg Industrial Metals Subindex is composed of futures contracts on aluminum, copper, nickel and zinc. It reflects the return of underlying commodity futures price movements only. You cannot invest directly in an index.

Bloomberg U.S. Pure Factor Total Return IndicesThe Bloomberg U.S. Pure Factor Total Return Indices represent the return of the indicated factor from Bloomberg’s U.S. equity model. You cannot invest directly in an index.

Dividend YieldDividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.

CBOE S&P 500 5% Put Protection IndexThe CBOE S&P 500 5% Put Protection Index is designed to track the performance of a hypothetical strategy that holds a long position indexed to the S&P 500® Index and buys a monthly 5% out-of-the-money S&P 500 Index (SPX) put option as a hedge. You cannot invest directly in an index.

J.P. Morgan CLO IndexThe J.P. CLO Index offers total returns and analytics based on observable pricings of a representative pool of bonds following a stated methodology. It is published daily. You cannot invest directly in an index.

MSCI Australia IndexThe MSCI Australia Index is designed to measure the performance of the large and mid-cap segments of the Australia market. With 69 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Australia. You cannot invest directly in an index.

MSCI Brazil IndexThe MSCI Brazil Index is designed to measure the performance of the large and mid-cap segments of the Brazilian market. With 55 constituents, the index covers about 85% of the Brazilian equity universe. You cannot invest directly in an index.

MSCI Canada IndexThe MSCI Canada Index is designed to measure the performance of the large and mid-cap segments of the Canada market. With 89 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Canada. You cannot invest directly in an index.

MSCI China IndexThe Morgan Stanley Capital International (MSCI) China Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure equity market performance in China. You cannot invest directly in an index.

MSCI EAFE Index (Net)The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. You cannot invest directly in an index.

MSCI Emerging Markets (EM) Asia IndexThe MSCI Emerging Markets (EM) Asia Index captures large and mid-cap representation across nine emerging markets countries: China, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Taiwan, and Thailand. With 1,117 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. You cannot invest directly in an index.

MSCI Emerging Markets EMEA IndexThe MSCI Emerging Markets EMEA Index captures large and mid-cap representation across 11 emerging markets countries in Europe, the Middle East, and Africa: the Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, Saudi Arabia, South Africa, Turkey, and United Arab Emirates. With 173 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. You cannot invest directly in an index.

MSCI Emerging Markets Europe IndexThe MSCI Emerging Markets Europe Index captures large and mid-cap representation across six emerging markets countries in Europe: the Czech Republic, Greece, Hungary, Poland, Russia, and Turkey. With 70 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. You cannot invest directly in an index.

MSCI Emerging Markets Index (Net)The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure equity market performance of emerging markets. You cannot invest directly in an index.

MSCI Emerging Markets Latin America IndexThe MSCI Emerging Markets Latin America Index captures large and mid-cap representation across six emerging markets countries in Latin America: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. With 112 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. You cannot invest directly in an index.

MSCI EMU IndexThe MSCI EMU Index is a eurozone equity index that tracks mid- and large-cap companies in 10 developed markets in the European Union. Roughly 85% of the EMU's free float-adjusted market capitalization is covered by the index. The index is heavily weighted in holdings from France, Germany, and the Netherlands. You cannot invest directly in an index.

MSCI India IndexThe MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. With 84 constituents, the index covers approximately 85% of the Indian equity universe. You cannot invest directly in an index.

MSCI Japan IndexThe MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese market. With 323 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan. You cannot invest directly in an index.

MSCI Korea IndexThe MSCI Korea Index is designed to measure the performance of the large and mid-cap segments of the South Korean market. With 110 constituents, the index covers about 85% of the Korean equity universe. You cannot invest directly in an index.


Index definitions (continued)


MSCI Mexico IndexThe MSCI Mexico Index is designed to measure the performance of the large and mid-cap segments of the Mexican market. With 25 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Mexico. You cannot invest directly in an index.

MSCI Russia IndexThe MSCI Russia Index is designed to measure the performance of the large and mid-cap segments of the Russian market. With 23 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Russia. You cannot invest directly in an index.

MSCI South Africa IndexThe MSCI South Africa Index is a measure of the performance of the large and mid-cap segments of the South African market. Investors can gain exposure to 85% of the free float-adjusted market capitalization in South Africa through futures or options. You cannot invest directly in an index.

MSCI Taiwan IndexThe MSCI Taiwan Index is designed to measure the performance of the large and mid-cap segments of the Taiwan market. With88 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Taiwan. You cannot invest directly in an index.

MSCI United Kingdom IndexThe MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the U.K. market. With 96 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the U.K. You cannot invest directly in an index.

MSCI US REIT IndexThe MSCI US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). REITs are companies that in most cases own and operate income producing real estate assets. To qualify as a REIT under the Internal Revenue Code, a REIT is required to distribute at least 90% of its taxable income to shareholders annually and receive at least 75% of that income from rents, mortgages and sales of property. You cannot invest directly in an index.

MSCI USA IndexThe MSCI USA Index is designed to measure the performance of the large and mid-cap segments of the U.S. market. With 636 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the U.S. You cannot invest directly in an index.

Price/Book (P/B)P/B is the ratio used to compare a stock’s market value with its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

Price/Cash Flow (P/CF)P/CF is the price of a share of stock divided by the company’s operating cash flow per share.

Price/Earnings (P/E)P/E is the price of a share of a stock divided by earnings per share, usually calculated using the latest year’s earnings.

Price/Sales (P/S)P/S is the market capitalization (the number of outstanding shares multiplied by the share price) divided by the company's total sales over the past 12 months.

Russell 2000® IndexThe Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index.

Russell 3000® Growth IndexThe Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index.

Russell 3000® Value IndexThe Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index.

S&P 500 Communication Services IndexThe S&P 500 Communication Services Index comprises those companies included in the S&P 500 that are classified as members of the GICS® communication services sector. You cannot invest directly in an index.

S&P 500 Consumer Discretionary IndexThe S&P 500 Consumer Discretionary Index comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector. You cannot invest directly in an index.

S&P 500 Consumer Staples IndexThe S&P 500 Consumer Staples Index comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector. You cannot invest directly in an index.

S&P 500 Dividend Aristocrats IndexThe S&P 500 Dividend Aristocrats Index is designed to measure the performance of the S&P 500 Index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. You cannot invest directly in an index.

S&P 500 Dividend Aristocrats Covered Call (7.2% Premium) TR IndexThe S&P 500 Dividend Aristocrats Covered Call (7.2% Premium) TR Index is designed to track the performance of a hypothetical buy-write strategy composed of a long position in the S&P 500 Dividend Aristocrats Net Total Return and a short position in the standard S&P 500 monthly call option. You cannot invest directly in an index.

S&P 500 Energy IndexThe S&P 500 Energy Index comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector. You cannot invest directly in an index.

S&P 500 Financial IndexThe S&P 500 Financial Index comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector. You cannot invest directly in an index.



Index definitions (continued)S&P 500 Health Care IndexThe S&P 500 Health Care Index comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector. You cannot invest directly in an index.

S&P 500 Industrials IndexThe S&P 500 Industrials Index comprises those companies included in the S&P 500 that are classified as members of the GICS® industrials sector. You cannot invest directly in an index.

S&P 500 Information Technology IndexThe S&P 500 Industrials Index comprises those companies included in the S&P 500 that are classified as members of the GICS® information technology sector. You cannot invest directly in an index.

S&P 500 Utilities IndexThe S&P 500 Utilities Index is a market-value-weighted index that measures the performance of all stocks within the utilities sector of the S&P 500 Index. You cannot invest directly in an index.

S&P Materials IndexThe S&P Materials Index comprises those companies included in the S&P 500 that are classified as members of the GICS® materials sector. You cannot invest directly in an index.

S&P Real Estate IndexThe S&P Real Estate Index comprises stocks included in the S&P 500 that are classified as members of the GICS® real estate sector. You cannot invest directly in an index.

S&P/LSTA Leveraged Loan IndexThe S&P/LSTA Leveraged Loan Index is a capitalization-weighted, syndicated loan index based upon market weightings, spreads, and interest payments. It covers the U.S. market back to 1997 and currently calculates on a daily basis. You cannot invest directly in an index.

Standard & Poor's 500 Index (S&P 500 Index)The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock's weight in the index proportionate to its market value. You cannot invest directly in an index.

DisclosuresAll investing involves risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors, some of which may be unpredictable. Each asset class has its own risk and return characteristics.For MSCI index data: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.The ratings indicated are from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit-quality ratings: Credit-quality ratings apply to underlying holdings of the fund and not the fund itself. Standard & Poor's rates the creditworthiness of bonds from AAA (highest) to D (lowest). Ratings from A to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories. Moody’s rates the creditworthiness of bonds from Aaa (highest) to C (lowest). Ratings Aa to B may be modified by the addition of a number 1 (highest) to 3 (lowest) to show relative standing within the ratings categories. Fitch rates the creditworthiness of bonds from AAA (highest) to D (lowest).

Floating NAV (FNAV)For floating NAV money market funds: You could lose money by investing in the fund. Because the share price of the fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.RetailFor retail money market funds: You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.GovernmentFor government money market funds: You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

All flag icons made by Freepik at flaticon.com. The views expressed and any forward-looking statements are as of June 30, 2020, and are those of the authors and/or Wells Fargo Asset Management. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. Discussions of individual securities, or the markets generally are not intended as individual recommendations. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Asset Management disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

WELLS FARGO ASSET MANAGEMENT |

INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE PAR-0920-01027 – –


http://www.flaticon.com

Thank you

WellsFargoAssetManagement.com

Wells Fargo Asset Management is a trade name used by certain asset management businesses of Wells Fargo & Company.


http://www.wellsfargoassetmanagement.com/

Documents

FEATURED INSIGHTS Market Optics · Nonfarm payroll monthly change Most recent Average last year Average last 3 years Average 2000-2007 Average 1990s 6.70 1.90 0.70 4.41 1.87 1.48