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WEALTH SOLUTIONS GROUP

Market Update Q3 2018 Review and Outlook

US equity markets rose to new all-time highs in Q3 with the S&P 500 up 11% YTD. Growth dominated as did mega-cap stocks. Developed international and emerging mar-kets trailed and lag the US materially YTD. The broad US bond market was flat as investors struggled to keep pace with higher rates.

The Markets at a Glance

Performance returns are as of 9/30/18

Q3 Recap

Domestic equity markets posted another quarter of impressive gains with the S&P 500 hitting new all-time highs. It notched an 8% return in Q3, bringing its YTD return to +11%. The economic back-drop remains favorable with GDP accelerating to 3-4% in 2018, which will in turn drive corpo-rate earnings growth of more than 20% as the corporate tax cuts also provide a one-time bene-fit. Growth continued to dominate value and mega-caps outperformed smaller caps.

Foreign equity markets continued to underperform US markets in the quarter as the dollar re-mained strong. Developed international equities returned 1%, while emerging markets dropped 1%. For the year, developed and emerging markets now trail the US by 12% and 18%, respec-tively. After a resilient first half, China slumped 8% in the quarter on elevated trade tensions.

The broad US bond market was flat on the quarter as fixed income investors struggled to keep pace with higher rates. The 10-year Treasury ended the quarter at 3.05% vs. 2.85% in June and 2.40% at the end of 2017. The upward pressure was driven by strong underlying economic da-ta, which also drove three Fed rate hikes this year; the FOMC expects one more increase in 2018 and three more in 2019. The 2-10 spread narrowed to 24 bps as the yield curve remains relatively flat.

Asset Manager Research

(414) 298-7359

October 15, 2018

IN THIS ISSUE PAGE 2: DIVERSIFICATION Performance Disparity Market Breadth Diversification PAGE 3: US EQUITY Q3 Performance Sector Rotation Active Management Business Cycle PAGE 4: INT’L EQUITY Int’l Underperforms Pain in EU Periphery Trading Places Brazilian Politics PAGE 5: FIXED INCOME Home Field Advantage Corporates Strong Securitized In Tact Munis Underperform

Asset Class Representative Benchmark Q3

Return YTD

Return

U.S. Large Cap S&P 500 7.7% 10.6%

U.S. Small Cap Russell 2000® 3.6% 11.5%

International MSCI EAFE 1.4% -1.4%

Commodities Bloomberg Commodity -2.0% -2.0%

Municipal Bonds BBgBarc. Municipal -0.2% -0.4%

Taxable Bonds BBgBarc. Aggregate 0.0% -1.6%

Cash Citi 3-mo T-Bills 0.5% 1.3%

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Revisiting the Importance of Diversification

Global Performance Disparity

Perhaps the most notable trend in the first three quarters of 2018 was the dis-persion of returns between asset classes. The market picked its favorites: larger cap over smaller, growth over value, and US over international. For instance, as of September 30, Large Cap Growth stocks (as measured by the Russell 1000 Growth) were up 17% vs. Emerging Mar-kets (MSCI EM), which were down 8%.

A Look at US Market Breadth

The duration of asset class performance trends was more sustained domestically in that growth materially and consistently outperformed value over the past few years (seven consecutive quarters) and cyclicals outperformed defensive names. At the sector level, Technology was king in 2017 and YTD 2018.

When we consider market breadth more broadly, it narrowed in Q3 as depicted below by the divergence between the market cap and equal weighted indices. Domestic equity indices were dominated by the largest mega cap companies as the three largest stocks (Apple, Mi-crosoft, and Amazon) accounted for ap-proximately 25% of the Russell 1000’s Q3 return.

Figure 1: YTD Performance

During this narrowly-driven market envi-ronment led by a few mega cap compa-nies, diversification was detrimental for

short-term performance. It was also a challenging environment for active man-agement in general.

This theme of narrow market leadership can be applied more broadly in recent years when all things FAANG (think high growth, momentum) worked all the time. It was a trying time for diversified portfolios and active management; many capitulated and went passive. While re-cency can be a strong behavioral bias, it is important to take a longer-term per-spective and let the client’s financial goals and ultimately risk tolerance guide investment decisions.

The Importance of Diversification

Two factors have historically reduced fluctuations in portfolio returns: time horizon and diversification. Determining a proper asset allocation (historically leading to less volatility) and maintaining a longer-term perspective (historically leading to higher average returns) are hallmarks of successful investing.

Attempting to time the market such that you participate in the upside and side-step the downside is a tricky proposition and can come at a great cost. Missing large market moves, even over short time periods, can impact long-term wealth creation. While ongoing portfolio modifications can be beneficial, large and frequent allocation changes are often detrimental.

As highlighted in the chart to the right, over the 20-year period ending Decem-ber 2017, the average investor under-performed both the broad stock and bond markets. According to the Dalbar study, poor investment selection and knee-jerk reactions are key reasons for this underperformance.

Even in years of strong gains, the market can experience pronounced temporary losses. It is important to remember that markets can be volatile and overreac-

tions to losses (or gains) can be detri-mental to long-term results.

Stocks and bonds have historically main-tained an inverse performance relation-ship. When one zigs, the other zags. The strong negative relationship has broken recently though that has happened at various points throughout history. Re-gardless, the long-term trend of inverse performance is beneficial to a diversified portfolio in that it leads to a better risk-return trade-off.

Additionally, we would stress that diver-sification works over time. In today’s day in age where immediate satisfaction is a necessity, it can be difficult to see the benefits of diversification where the breadth of strong market performance is limited to select pockets of the market.

Given the strength of the equity market over the last 10 years, it makes sense to review your portfolio holdings and asset allocation for current risk tolerance.

Figure 2: Most Investors Underperform

11%

7%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

S&P 500 S&P 500 Equal Weight

Source: Morningstar Direct

Source: Morningstar Direct, Dalbar, Inc. “Quantitative Analysis of Investor Behavior, Advisor Edition.” April 2017.

Note: 60/40 and 40/60 are representative stock/bond portfolios comprised of the S&P 500 and Bloomberg Barclays U.S. aggre-gate index in respective percent allocations.

2.1%

2.6%

5.0%

6.1%

6.4%

7.2%

0% 2% 4% 6% 8%

Inflation

Ave. Investor

Bonds

40/60

60/40

S&P 500

20-Year Annualized Return (%)

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U.S. Equity

U.S. Equity Market Benchmarks

Performance returns as of 9/30/2018

Q3 Up and to the Right

Domestic equity markets posted another quarter of impressive gains with the S&P 500 notching a 7.7% return in Q3, taking its YTD return to +10.6%. The economic backdrop remains favorable with GDP accelerating to 3-4% in 2018, which will in turn drive corporate earnings growth of more than 20%, also experiencing a one-time benefit from the tax cuts.

Growth continued to dominate value this quarter, as the Russell 3000 Growth Index rallied 9% while the Russell 3000 Value Index returned 5% QTD. On the year, value lags growth by almost 13% as investors question how long this diver-gence can persist. The recent magnitude and duration of growth outperformance is massive though it is unclear what the catalyst will be for a sustained perfor-mance reversion.

Among market capitalization leadership, a decided shift took place in Q3, as large-cap outperformed small-cap for the first time this year. Thanks to strong earn-ings, the mega-cap stocks of Amazon, Apple, and Microsoft posted double-digit returns and drove the Russell Top 50 Index up 9.3%, while the Russell 2000 Index rose just 3.6%. Small caps continue to lead YTD though have been giving up ground recently in favor of mega caps.

Sector Rotation Started in Q3

Perhaps the largest change in terms of performance patterns was a rotation in absolute sector performance. Health

Care was the best performing sector in Q3 followed by Industrials and Commu-nications Services. While Technology broadly, and the FAANG stocks specifi-cally experienced some weakness. Mate-rials, Energy and Real Estate were the worst performer in Q3.

Active Management Challenged

Market breadth narrowed in Q3 and re-turns were driven largely by select mega cap companies, which was a challenging environment for active management. Lack of exposure to Apple was costly for many growth managers whereas other widely held stocks including Facebook stumbled and Netflix was down slightly after doubling in 1H18. Domestic manag-ers’ selective exposure to foreign stocks such as Chinese ecommerce company Alibaba and internet giant Tencent de-tracted in some cases as trade tensions escalated. The environment was also challenging for value managers as stocks with higher price multiples and low divi-dend yields outperformed cheaper

stocks within the value benchmark.

Thoughts on the Business Cycle

Consensus now seems to be that the US economy is in the late stage of the eco-nomic cycle. It’s not entirely surprising after a nine year bull market, making it one of the longest in duration in history. It remains an unloved bull market as in-vestors are skittishly trying to call a mar-ket top and every data point is dissected for potential cracks.

It remains to be seen if the market sell-off in early-Q4 is a temporary reset or a ma-terial shift. When you dig in to the under-lying economic data, there are a slew of conflicting indicators. For instance, GDP, corporate earnings growth, and employ-ment/household income remain robust. Market valuation is still high but less ex-treme as the multiple contracted YTD. Fed policy remains neutral as they gradu-ally tighten in response to modest infla-tion and full employment. While rates have risen materially in the last year, spreads still remain tight.

Equities Representative Benchmark

Q3 YTD

Return Return

Large Cap S&P 500 7.7% 10.6%

Mid Cap Russell Midcap® 5.0% 7.5%

Small Cap Russell 2000® 3.6% 11.5%

Value Russell 3000 Value 5.4% 4.2%

Growth Russell 3000 Growth 8.9% 17.0%

Facebook -7%

Apple 35%

Amazon 71%

Netflix 95%

Google 15%

Alibaba -4%

Baidu -2%

NVIDIA 45%

Tesla -15%

Twitter 19%

FANG+ 25%

S&P 500 11%

Performance through 9/30/18

Components of FANG+ Index

YTD Performance

25%

11%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18

YTD Performance

FANG+ Index S&P 500

-8%

5%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Jun-18 Jul-18 Aug-18 Sep-18

Performance since FANG+ Peak

Source: Morningstar Direct

Figure 3: FANG vs. S&P 500 through 9/30/18

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International Equity

International Market Benchmarks

Performance returns as of 9/30/2018

International Equities Underperform US

Foreign equity markets continued to underperform US markets this quarter. While the S&P 500 rallied 8%, developed international equities (MSCI EAFE Index), returned 1% and emerging markets (MSCI EM Index) dropped 1% during the quarter.

From a sector perspective, Health Care and Energy led for the second quarter in a row, each climbing 4%, while Consumer Discretionary and Information Technology moved lower by 2%. Like domestic markets, small-cap lagged large-cap in international markets, though there was very little dispersion between value and growth.

When Negatives turn into Positives

As the Fed’s tightening affected global markets, countries that maintain negative interest rate policies rallied in the quarter. Stock markets in Sweden and Switzerland rose 7% and Japan’s market increased 4% in Q3. The Swiss National Bank surprised investors by keeping interest rates steady at minus 0.75% even as unemployment and GDP growth remained attractive. The Bank of Japan will likely keep rates steady at minus 0.1%, but Sweden’s central bank is expected to raise rates in December from minus 0.5% to minus 0.25%. All three countries are experiencing sub 2% inflation even as they remain historically accommodative.

Pain in the Periphery

The story was quite different in the Eurozone. While EU officials made headway in Brexit negotiations with the UK, problems materialized in Italy, the third largest economy in the Eurozone. Italy’s new government announced a deficit target of 2.4% of GDP this year in order to fund their campaign promises of creating universal income and lowering taxes. Although this target is within the EU’s limit, the estimate was 3x higher than initially proposed, leaving EU officials wondering if Italians can rein in their spending longer-term. Italy’s equity markets dropped 4% and took Spain down with it in the third quarter.

Trading Places: Mexico and China

Q3 was mixed for emerging markets. The strong dollar, while still a headwind, was not a universal problem in emerging markets. Taiwan, Mexico, Russia, and Brazil all rose between 6-8% during the quarter. In contrast, China slumped 7% on trade tariff worries and South Africa fell on political uncertainty and recessionary worries.

Figure 4: Q3 Country Performance

China had been resilient for the first half of the year while Mexico traded lower on fears about NAFTA negotiations. Then, a significant divergence took place in Q3. Now YTD, China is behind Mexico by over 13%. The MSCI Mexico Index is in positive territory, up +4% YTD, following progress on the US-Mexico-Canada Agreement (“USMCA”). Tariff talks with China haven’t proven successful yet and the MSCI China Index is down 9% so far in 2018. If there’s any chance at an agreement, the Chinese markets might just turn.

Brazilian Politics

Following a rough second quarter in Brazil when markets sold off 26% on political uncertainty and a nation-wide strike, equity markets rebounded 7% in Q3 for a YTD return of –12%. The political landscape became clearer as right-wing candidate Jair Bolsonaro gained ground, reassuring investors that budget reforms would be more likely. The final round of the presidential election is scheduled for October 28 between Bolsonaro and left-wing candidate, Fernando Haddad.

Equities Representative

Benchmark

Q3 YTD

Return Return

Developed MSCI EAFE 1.4% -1.4%

Europe MSCI Europe 0.8% -1.9%

Japan MSCI Japan 3.8% 1.9%

Asia MSCI Pacific ex-Japan -0.5% -2.5%

Emerging MSCI Emerging Mkts -1.1% -7.7%

Source: Morningstar Direct

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Fixed Income

U.S. Fixed Income Benchmarks

Performance returns as of 9/30/2018

Home Field Advantage Plays Out

Fixed income investors saw rates trend higher in Q3 on the heels of strong eco-nomic growth, solid consumer spending prompted by last year’s tax bill, and an encouraging corporate earnings back drop. Rising trade tensions, increased geopolitical risks abroad and investor contagion spilling over from emerging market economies further roiled the fixed income market and pushed rates even higher. Strong US growth translat-ed into an appreciating USD, suppress-ing sentiment and returns for non-US fixed income markets during the quar-ter. Worries related to protectionist trade policy, fresh signs of stress in emerging markets and an opaque path forward for Brexit and Italian budgetary negotiations caused global investors to panic in Q3. The resurgence of EM con-cerns were largely directed at a select few countries (Argentina, Turkey, Brazil, South Africa), but at what point does this increase in idiosyncratic events transition to broader systemic issues?

During the quarter, it was not a surprise to market participants that the Fed chose to move forward with another 25bps hike in September. The Fed’s overriding message continues to be one of gradual policy tightening. As inflation and growth seem be to be trending in

line with broad expectations, chairman Powell and his cohort of FOMC mem-bers will be keeping a watchful eye on economic trends and any signs of slow-ing growth.

Corporates Stay Strong

US investment grade corporate credit reversed course from its sluggish perfor-mance in Q2. Outperforming US Treas-uries in Q3 by almost 160bps, corporate credit spreads tightened as investors digested strong bottom line growth, low default rates, and robust demand. In-vestors, however, have become increas-ingly concerned about the rise in BBB-rated bonds (Figure 5). Once highly sought after, the AAA-rating from agen-cies is no longer in high demand as low rates have incentivized management teams to adapt and optimally increase the use of cheap debt in their capital structure. Any surge in downgrades from BBB to junk will cause markets to be severely distorted. High yield corpo-rates were the best performing segment of the taxable bond market, with spreads approaching their tightest levels in more than a decade. High yield bond investors have been beneficiaries of

technical factors affecting supply/demand dynamics. New high yield issu-ance has fallen 27% YoY driving YTD re-turns of 2.5%.

Securitized Debt Remains In Tact

Securitized debt has been a safe haven for investors during times of increased volatility. Agency MBS struggled to keep up in Q3 as increased rate volatility sup-pressed returns. As the Fed’s balance sheet run-off increases net supply, in-vestors continue to demand extra yield for stepping in as the marginal buyer of these securities. Non-Agency Mortgage Backed Securities continue to generate strong returns supported by solid funda-mentals and a growing housing market.

Munis Underperform in Q3

Municipal bonds fell short of their taxa-ble peers, down 0.2% in Q3 due to more than expected supply coming to the sec-ondary market. Rates trending higher and a significant cut in the corporate tax rate also caused larger muni buyers to question their allocation to tax-exempt bonds.

Equities Representative

Benchmark

Q3 YTD

Return Return

Taxable BBgBarc. Aggregate 0.0% -1.6%

Treasury BBgBarc. Treasury -0.6% -1.7%

Corporate BBgBarc. Corporate 1.0% -2.3%

High Yield BofAML HY Master II 2.4% 2.5%

Municipal BBgBarc. Municipal -0.2% -0.4%

Internat’l BBgBarc. Global Agg. -0.9% -2.4%

©2018 Robert W. Baird & Co., Incorporated.

Member SIPC. MC-76300W.

Robert W. Baird & Co., Incorporated. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. 1-800-RW-BAIRD. www.rwbaird.com

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Figure 5: Growth of BBB-Rated Corporate Debt

Source: Bloomberg

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Appendix Definitions and Disclosures

Benchmark and Asset Class Definitions S&P 500 Index (Large Cap / U.S. Stocks): A representative sample of 500 leading compa-nies in leading industries of the U.S. econo-my. These are equity securities of large capi-talization (generally $7 billion plus market cap) companies having growth and value characteristics. Russell 3000® Growth Index (All Cap Growth / Growth Stocks): Measures the performance of the 3,000 largest U.S. com-panies based on total market capitalization with higher price-to-book ratios and higher forecasted growth values. Russell 3000® Value Index (All Cap Value / Value Stocks): Measures the performance of the 3,000 largest U.S. companies based on total market capitalization with lower price-to-book ratios and lower forecasted growth values. Russell 1000® Growth Index (Large Growth): Measures the performance of those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. These are equity securities of large capitalization ($7 billion plus market cap) companies having growth stock characteris-tics (high price to earnings, high return on equity and low dividend yield. Russell 1000® Value Index (Large Value): Measures the performance of those Russell 1000® Index companies with lower price-to-book ratios and lower forecasted growth values. These are equity securities of large capitalization ($7 billion plus market cap) companies having value stock characteristics (low forecasted price-to-earnings ratio, low price-to-book ratio, high dividend yield). Russell Midcap® Index (Mid Cap / Mid Core): Measures the performance of the 800 small-est companies of the Russell 1000® Index, which represent approximately 31% of the total market capitalization of the Russell 1000® Index. These are equity securities of middle capitalization ($2-7 billion plus mar-ket cap) companies having growth and value characteristics. Russell 2000® Index (Small Cap / Small Core): Measures the performance of the 2,000 smallest companies in the Russell

3000® Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index. These are equity securi-ties of small capitalization (<$2 billion plus market cap) companies having growth and value characteristics. Russell Micro Cap Index (Micro Cap): Measures the performance of the 1,000 smallest companies in the Russell 2000® In-dex, which represent approximately 3% of the total market capitalization of the Russell 3000® Index. MSCI EAFE Index Net (International / Devel-oped Markets): A free float-adjusted market capitalization index that is designed to meas-ure the equity market performance of devel-oped markets, excluding the US & Canada. As of May 27, 2010 the MSCI EAFE Index consisted of the following 22 developed mar-ket country indices: Australia, Austria, Bel-gium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Ja-pan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzer-land, and the United Kingdom. Citigroup 3-month T-bill Index (Cash): This index measures monthly return equivalents of yield averages that are not marked to market. It consists of the last one-month and three-month Treasury bill issues, respective-ly. Dow Jones-UBS Commodity Index (Commodities): Composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). Sub-indices include Petroleum, Grains, Industrial Metals, Livestock, Precious Metals, and Softs

MSCI Emerging Markets Index Net (Emerging Markets): A free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of May 27, 2010 the MSCI Emerging Markets Index consisted of the following 21 emerging market country indices. MSCI Country Indices (Country-Specific Mar-kets): To construct an MSCI Country Index, every listed security in the market is identi-fied. Securities are free float adjusted, classi-

fied in accordance with the Global Industry Classification Standard (GICS®), and screened by size and liquidity. MSCI then constructs its indices by targeting for index inclusion 85% of the free float adjusted market capitaliza-tion in each industry group, within each country. By targeting 85% of each industry group, the MSCI Country Index captures 85% of the total country market capitalization while it accurately reflects the economic diversity of the market. This includes the MSCI Japan Index. International indices. BBgBarc Aggregate Bond Index (Taxable Bonds / Bonds): Comprised of approximately 6,000 publicly traded bonds, including U.S. Government, mortgage-backed, corporate, and Yankee bonds with an average maturity of approximately 10 years. BBgBarc Global Aggregate Bond Index (Global Bonds): Provides a broad-based measure of the global investment-grade fixed income markets. The three major com-ponents of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also in-cludes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities. BBgBarc Muni Bond Index (Municipal Bonds): Bonds must have a minimum credit rating of at least Baa, an outstanding par value of at least $3 million, part of a transac-tion of at least $50 million, issued after De-cember 31, 1990 and have a year or longer remaining maturity. BBgBarc U.S. High Yield Bond Index (High Yield): Covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerg-ing markets (e.g., Argentina, Brazil, Venezue-la, etc.) are excluded, but Canadian and glob-al bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also included. BBgBarc U.S. Treasury Bond Index (Treasury Bonds): Comprised of U.S Treasury securities with at least one-year maturities.

©2018 Robert W. Baird & Co., Incorporated.

Member SIPC. MC-76300W.

Robert W. Baird & Co., Incorporated. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. 1-800-RW-BAIRD. www.rwbaird.com

7

Appendix Definitions and Disclosures

GICS

The Global Industry Classification Standard ("GICS") is the exclusive property of Morgan Stanley Capital International Inc. ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by Robert W. Baird & Co. Inc. MSCI and S&P hereby provided all infor-mation "as is" and expressly disclaim all war-ranties. Without limiting any of the forego-ing, in no event shall MSCI or S&P have any liability.

The Russell Indices are a trademark of the Frank Russell Company. Russell® is a trade-mark of the Frank Russell Company.

Investors should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. This and other information is found in the pro-spectus and summary prospectus, which can be obtained from your Baird Financial Advisor. Please read the prospectus or sum-mary prospectus carefully before investing.

Appendix – Important Disclosures and Defi-nitions.

Disclaimers

This is not a complete analysis of every ma-terial fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accu-racy. Past performance is not a guarantee of future results and diversification does not ensure against market loss.

There are risks associated with all invest-ments which should be considered prior to investing. Small-capitalization and mid-capitalization stocks are often more volatile and less liquid than investments in larger companies. Satellite and alternative invest-ments can be volatile and are not appropri-ate as large percentages of an investor’s to-tal asset allocation. Foreign issuers are sub-ject to certain risks, such as the potential for political or economic disruptions or instabil-ity of the country of issue, the difficulty of predicting international trade patterns, for-eign currency fluctuations, and the possibil-

ity of imposition of exchange controls. In-vestments in lower-rated debt securities (commonly referred to as high-yield or junk bonds) involve additional risks because of their lower credit quality which could equate to a possibly higher level of volatility and increased risk of default. While sector in-vesting reduces company specific risk, it will still be more volatile than the overall stock market due to its narrow focus and lack of diversification.

Stocks represent partial ownership of a cor-poration. If the corporation does well, its value increases, and investors share in the appreciation. However, if it goes bankrupt, or performs poorly, investors can lose their entire initial investment (i.e., the stock price can go to zero). Bonds represent a loan made by an investor to a corporation or gov-ernment. As such, the investor gets a guar-anteed interest rate for a specific period of time and expects to get their original invest-ment back at the end of that time period, along with the interest earned. Investment risk is repayment of the principal (amount invested). In the event of a bankruptcy or other corporate disruption, bonds are senior to stocks. Investors should be aware of these differences prior to investing. Additionally, an investment decision should not be made solely due to a security’s stated yield as divi-dends can be reduced or suspended alto-gether. The indices referenced in this report are unmanaged common indices used to measure and report performance of various sectors of the stock and fixed income mar-kets; direct investment in indices is not avail-able.

Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Secu-rities and Exchange Commission, FINRA, NYSE, and various other self-regulatory or-ganizations and those laws and regulations may differ from Australian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers and not Australian laws.

Credit Quality Ratings: Measured on a scale that ranges from AAA or Aaa (highest) to D or C (lowest). Investment grade investments are those rated from highest down to BBB- or Baa3.

Other Disclosures

UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W Baird Limited holds an ISD passport.

This report is for distribution into the United Kingdom only to persons who fall within Arti-cle 19 or Article 49(2) of the Financial Ser-vices and Markets Act 2000 (financial promo-tion) order 2001 being persons who are in-vestment professionals and may not be dis-tributed to private clients. Issued in the United Kingdom by Robert W Baird Limited, which has offices at Mint House 77 Mansell Street, London, E1 8AF, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the Financial Conduct Authority requirements, this investment research report is classified as objective.

Robert W Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FCA re-quirements and not Australian laws.

Copyright 2018 Robert W. Baird & Co. Incor-porated.

©2018 Robert W. Baird & Co., Incorporated.

Member SIPC. MC-76300W.

Robert W. Baird & Co., Incorporated. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. 1-800-RW-BAIRD. www.rwbaird.com