2016 Investment Outlook
October 2016
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Presentation By:
Robert C. Doll, CFASenior Portfolio Manager
Chief Equity Strategist
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Frustrating the Bulls and the Bears
A Look at U.S. Returns
2015 2016
JAN 1 – FEB
11FEB 12 –APR 20
APR 21 –JUNE 30
YTD JAN 1 –JUNE 30
Stocks 1.4% –10.3% 14.0% 0.4% 3.8%
Bonds 0.6% 2.3% 1.0% 1.9% 5.3%
Cash 0.1% 0.0% 0.1% 0.1% 0.2%
Data source: Morningstar Direct as of 6/30/16. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index. For U.S. Returns, Stocks: S&P 500 Index; Bonds: Barclays U.S. Aggregate Bond Index; Cash: BofAML 3-Month U.S. Treasury Bill Index.
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Data source: Bloomberg, Nuveen Asset Management for all forecasted, estimated and target figures, which are based on the S&P 500 Index.
EARNINGS & RETURN
EXPECTATIONS
2015RESULTS
2016 OUTLOOK
Economy (Earnings) $118 $124
P/E Target 17.3x 17.3x
S&P 500 Target 2044 2150
COMPONENTS OF RETURN
Earnings –1% 5%
P/E 0% ─
Yield 2% 2%
Total Return 1% 7%
Equity Market Forecast
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POSITIVES
1. Earnings recession is over in U.S.
2. Central bank policy is friendly
3. Consumer is in good shape
4. Fiscal policy is likely
5. Sentiment is bearish
NEGATIVES
1. Economic growth is sluggish
2. Deflationary forces continue
3. Brexit creates uncertainties
4. Geopolitical risks remain
5. Fiscal policy lacking and over-regulation
Stock Market Balance Sheet
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Earnings Prospects Are Improving
Consumer spending is moderate (jobs, wages, lower gas prices, slower rent increases)
ISM data is improving (services, manufacturing, exports)
Oil prices have increased
Interest rates have fallen (including corporate yields)
U.S. dollar is down year over year
9.7%
5.3%
8.1%
11.0%
6.5%
3.6%
1.5%
-0.5%
-2.1%
-4.6%
-0.6%
3.0%
5.2%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
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Earnings Are Key for the Stock Market
Data source: RBC Capital Markets, S&P, Compustat, Thomson Financial and FactSet as 7/8/16. Data for 2Q16 – 4Q16 is estimated. Assumes historical degradation for 2Q16 – 4Q16 and recent buyback rate. Past performance is no guarantee of future results. Used with permission.
Earnings Per Share Growth of S&P 500 Companies
Ear
nin
gs
Per
Sh
are
Gro
wth
(%
)
Estimated
1Q16 Was the Bottom of the Earnings Recession
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More than 300 S&P 500 Stocks Have a Higher Yield than 10-Year Treasuries
Data source: Cornerstone Macro from 1/1/90 – 6/30/16. Past performance is no guarantee of future results. Used with permission.
_Stocks with a Dividend Yield Greater than 10-Year U.S. Treasury
It’s Not Often that Many Stocks Yield More than 10-Year Treasuries
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
300
350
400
450
500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Nu
mb
er o
f S
tock
s Percen
t of To
tal
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S&P 500 Dividend Yield Is Greater than 30-Year Treasuries
2009 Was the Last Time This Occurred
Data source: Cornerstone Macro from 1/1/06 – 7/12/16. Past performance is no guarantee of future results. Used with permission.
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
_S&P 500 Dividend Yield
_30-Year U.S. Treasury Yield
S&
P 5
00 D
ivid
end
Yie
ld
30-Year U
.S. Treasu
ry Yield
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1. Recession prospects
2. Accelerating inflation
3. Tight money
4. Excessive wage inflation
5. High interest rates
6. Investor euphoria
The Bull Market Is Not Over Yet
What Ends A Bull Market?
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Returns and Suggested Asset Mixes
Data source: Morningstar Direct as of 6/30/16. Past performance is no guarantee of future results.
2015RETURNS
2016 YTDRETURNS
SUGGESTED
ASSET MIX
Stocks +1.4% 3.8% +5% vs normal (was +10)
Bonds 0.6% 5.3% –10% vs normal (was –10)
Cash 0.1% 0.2% +5 vs normal (was 0)
Stocks Should Outperform Bonds in 2016
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Data source: Morningstar Direct as of 6/30/16. Past performance is no guarantee of future results.
EQUITIES BONDS
RUSSELL
1000®
INDEX
MSCI WORLD
EX-U.S. INDEX
BARCLAYS U.S. AGGREGATE
BOND INDEX
BARCLAYS GLOBAL
AGGREGATE BOND
EX-U.S. INDEX
2010 16.1% 9.4% 6.5% 5.0%
2011 1.5% –11.8% 7.8% 4.4%
2012 16.4% 17.0% 4.2% 4.1%
2013 33.1% 21.6% –2.0% –3.1%
2014 13.2% –3.9% 6.0% –3.1%
2015 0.9% –2.6% 0.6% –6.0%
2016 (6 mos) 3.7% –2.6% 5.3% 11.9%
U.S. Markets Have Outperformed in Recent Years
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In 2016, Anger Is the New Hope
Voters Feel the U.S. Economy Is Broken and Want Change_
3.1% GDP Growth Rate Trend _
Actual GDP
Data source: Strategas Research Partners. Past performance is no guarantee of future results. Used with permission. GDP: Gross Domestic Product.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
U.S
. Rea
l GD
P G
row
th (
US
D B
illio
ns)
$2.6 Trillion
GDP Gap
2008:
HopeBarack Obama
2016:
Anger
Donald Trump
Bernie Sanders
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Data source: Strategas Research Partners. Past performance is no guarantee of future results. Used with permission.
YEAR
S&P 500 PRICE
RETURN
INCUMBENT
PARTY YEAR
S&P 500 PRICE
RETURN
INCUMBENT
PARTY
1928 14.91% Won 1972 6.91% Won
1932 -2.56% Lost 1976 -0.09% Lost
1936 7.92% Won 1980 6.73% Lost
1940 8.56% Won 1984 4.80% Won
1944 2.29% Won 1988 1.91% Won
1948 5.36% Won 1992 -1.22% Lost
1952 -3.26% Lost 1996 8.17% Won
1956 -2.58% Won 2000 -3.21% Lost
1960 -0.74% Lost 2004 2.16% Won
1964 2.63% Won 2008 -19.48% Lost
1968 6.45% Lost 2012 2.48% Won
The S&P 500 Index Predicted 19 of 22 Presidential Elections Since 1928
Incumbent Party Generally Wins When Stocks Higher Before Election
3-Month Performance Prior to Election
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Highest marginal tax rate
High taxation on repatriated earnings
(Perhaps coupled with infrastructure spending legislation)
Corporate Tax Reform
Biggest Washington, D.C. Issue After the Election
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Sector Preferences
POSITIVE NEUTRAL NEGATIVE
Cyclicals Information Technology
Consumer Discretionary
Industrials
Financials
Materials
Energy
Defensives Health Care Telecom Services
Consumer Staples
Utilities
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Strength of Defensive Sectors Waning in Second Half of 2016
Sector Performance Has Shifted Since Mid Year
Data source: Factset, 1/1/16 – 8/31/16. Past performance is no guarantee of future results. Sector performance based on the Russell 1000 Index.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Util
ities
Tel
ecom
mun
icat
ions
Ene
rgy
RE
ITs
Con
sum
er S
tapl
es
Mat
eria
ls
Indu
stria
ls
Rus
sell
1000
Inde
x
Con
sum
er D
iscr
etio
nary
Hea
lth C
are
Tec
hnol
ogy
Fin
anci
als
Tota
l Ret
urn
First Half of 2016 Third Quarter Through 8/31
1. U.S. real GDP remains below 3% and nominal GDP below 5% for an unprecedented tenth year in a row
2. U.S. Treasury rates rise for a second year, but high yield spreads fall
3. S&P 500 earnings make limited headway as consumer spending advances are partially offset by oil, the dollar and wage rates
4. For the first time in almost 40 years, U.S. equities experience a single-digit percentage change for the second year in a row
5. Stocks outperform bonds for the fifth consecutive year
6. Non-U.S. equities outperform domestic equities, while non-U.S. fixed income outperforms domestic fixed income
7. Information technology, financials and telecommunication services outperform energy, materials and utilities
8. Geopolitics, terrorism and cyberattacks continue to haunt investors but have little market impact
9. The federal budget deficit rises in dollars and as a percentage of GDP for the first time in seven years
10. Republicans retain the House and the Senate and capture the White House
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2016 Ten Predictions – as of 7/18/16
MUDDLE THROUGH CONTINUES
Overall Scoring
Heading in the Right Direction 6
Too Early to Call 2
Heading in the Wrong Direction 2
Scoring as of 7/18/16. Based on data available at the time of publication and subject to change.
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Data source: MRB Partners, Nuveen Asset Management as of December 2015. The forecast data reflects the opinion of the author, Bob Doll, and not the firm. The information provided herein is not intended to be a forecast or guarantee of future events or results. It is not a recommendation to buy or sell any specific securities and should not be considered investment advice of any kind. Investing in securities involves risk of loss that clients should be prepared to bear. There is no assurance that an investment will provide positive performance over any period of time. Past performance is no guarantee of future results and different periods and market conditions may result in significantly different outcomes.
Think About the Long-Term and Remain Diversified
10-YEAR RETURN FORECAST BY ASSET CLASS FORECASTED RETURN RANGE
EQUITIES 6 – 8%
U.S. 6 – 8%
Non-U.S. Developed Markets 4 – 6%
Emerging Markets 8 – 10%
BONDS 2 – 4%
U.S. Government 0 – 2%
U.S. Investment Grade 2 – 4%
U.S. High Yield 4 – 6%
Emerging Market Sovereign 5 – 7%
CASH 1 – 2%
INFLATION 2 – 3%
DIVERSIFIED PORTFOLIO 4 – 6%
Important Disclosures
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This presentation is for general information purposes only and should not be construed as specific tax or investment advice.
The statements contained in this presentation are the opinions of Nuveen Asset Management, LLC and data available at the time of publication, and is not intended to be
a forecast or guarantee of future events or results. It contains information from third party sources believed to be reliable but are not guaranteed as to accuracy and not
intended to be all inclusive. It does not constitute an offer, solicitation, or recommendation regarding securities or investment strategy and is not intended to predict or
depict performance of any investment. Past performance is no guarantee of future results.
A Word on Risk
Equity investments are subject to market risk, active management risk, and growth stock risk; dividends are not guaranteed. Foreign investments involve additional risks,
including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging
markets. The use of derivatives involves additional risk and transaction costs.
Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, derivatives risk, income risk, and
other investment company risk. As interest rates rise, bond prices fall. Credit risk refers to an issuer’s ability to make interest payments when due. Below investment
grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Foreign investments involve additional risks as noted above.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.
Index Definitions
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GP
P-1
0P
RE
D-0
816
1
8825
-IN
V-Y
-01/1
7
The Barclays Global Aggregate Bond ex U.S. Index measures the performance of non-U.S. global bonds. It includes government, securitized and corporate sectors.
The Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment grade
fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities.
The Consumer Price Index (CPI) is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing,
electricity, food, and transportation.
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of a company's profitability.
Gross domestic product (GDP) is a primary indicator used to gauge the health of a country's economy. It represents the total dollar value of all goods and services
produced over a specific time period. Real GDP is adjusted for inflation. Nominal GDP is not adjusted for inflation.
The MSCI World Index ex-U.S. Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of
developed markets minus the United States.
The Russell 1000® Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, which represents about 90% of the total
market capitalization of that index.
The S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy.
The West Texas Intermediate (WTI) Index is used as a benchmark for pricing much of the world’s crude oil production.
Large Cap Equity Series
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Important Information
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This presentation includes information on strategies that may be available within different product types: institutional and retail managed accounts and mutual funds.
Financial Advisers should understand the differences of each product type — especially the impact of fees, which may affect performance when evaluating investment
products. It is important to review your client’s investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
This information represents the opinion of Nuveen Asset Management, LLC, and is not intended to be a forecast or guarantee of future events or results. It is not intended
to provide specific advice and should not be considered investment advice of any kind. Information was obtained from sources we believe to be reliable, but are not
guaranteed as to their accuracy or completeness. This report contains no recommendations to buy or sell specific securities or investment products. All investments carry
a certain degree of risk, including possible loss of principal. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an
investment style or manager.
Large Cap Equities Series Risk: Risks may include: equity security risk, large cap stock risk, non-diversification risk, smaller company risk, growth stock risk, and value
stock risk. Non-U.S. investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and
accounting standards. A portfolio's use of futures contracts involves transaction costs and the potential for negative impact on performance. A portfolio engaging in
frequent trading of securities may result in taxable gains to investors and involve trading costs that may impact fund performance. A portfolio’s use of short selling is a
form of leverage and involves additional expense and risks including market loss and increased volatility of returns.
Investing in securities involves risk of loss that clients should be prepared to bear. There is no assurance that an investment will provide positive performance over any
period of time. Past performance is no guarantee of future results and different periods and market conditions may result in significantly different outcomes.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.
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Large Cap Equity Series Overview
One investment process is applied to nine strategies in U.S. large cap equities.
Alternative strategies are not available as retail managed accounts.1 Positions for Retail Managed Accounts range from 45 to 60.
Active share is calculated by MorningstarDirect and represents the proportion of portfolio holdings that differ from those in the benchmark index. This information should not be considered investment advice of any kind. Investing in securities involves risk of loss that clients should be prepared to bear. There is no assurance that an investment will provide positive performance over any period of time.
BENCHMARK
HOLDINGS
RANGE
TRACKING
ERROR RANGE
ALPHA/
MARKET CYCLE
(TARGET)
BETA RANGE
(TARGET)
ACTIVE SHARE
RANGE
(TARGET)
TRADITIONAL
Large Cap Value R1000 Value 90 – 1201 3% – 6% 200 – 300 bp 70% – 80%
Large Cap Core R1000 90 – 1201 3% – 6% 200 – 300 bp 70% – 80%
Large Cap Growth R1000 Growth 90 – 1201 3% – 6% 200 – 300 bp 70% – 80%
SPECIALTY
Core Dividend R1000 90 – 1201 3% – 6% 200 – 300 bp 70% – 80%
Concentrated Core R1000 ~20 n/a 200 – 400 bp 85% – 95%
Stable Growth R1000 Growth 40 – 60 3% – 6% 200 – 300 bp 65% – 75%
ALTERNATIVE
Large Cap Core Plus R1000 ~100 long/~100 short 5% – 8% 300 – 500 bp 1.0 n/a
Equity Long/Short R1000 ~100 long/~100 short n/a 300 – 500 bp 0.4 to 1.0 (0.7) n/a
Equity Market Neutral T-bills ~100 long/~100 short n/a 400 – 600 bp -0.2 to +0.4 (0.1) n/a
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Themes and Sector Highlights
Source: FactSet, as of 6/30/16. See nuveen.com holdings pages for more information. Holdings are for informational purposes only and should not be deemed as a recommendation to buy or sell any specific securities or securities in the
industries shown above. This information should not be considered investment advice of any kind. Investing in securities involves risk of loss that clients should be prepared to bear. There is no assurance that an investment will provide
positive performance over any period of time.
Thoughts on Themes and Overweights
THEMES
Pro
- Risk-On
- Free cash flow
- Unit growth
- Cyclical
Con
- Risk-Off
- Bond-like equities
- Sectors requiring
pricing power
- Defensive
EXAMPLE OVERWEIGHTS
Technology - Apple
- Qualcomm
Health Care - McKesson
- Gilead Sciences
Consumer - Lowe’s
- CBS
Financials - MasterCard
- Discover Financial
Industrials - Delta Airlines
- Southwest Airlines
Glossary
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Alpha is the measure of the incremental return generated from active portfolio management.
Active share represents the proportion of portfolio holdings that differ from those in the benchmark index.
Alternative strategies have more investment flexibility, such as the ability to take short positions.
Basis point is one one-hundredth of one percentage point, or 0.01%. For example, 25 basis points equals 0.25%.
Beta is a measure of the variability of the change in the share price for a fund in relation to a change in the value of the fund’s market benchmark. Securities with betas
higher than 1.0 have been, and are expected to be, more volatile than the benchmark; securities with betas lower than 1.0 have been, and are expected to be, less
volatile than the benchmark.
Tracking error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark.
The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with
higher price-to-book ratios and higher forecasted growth values.
The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with
lower price-to-book ratios and lower expected growth values.
The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes
approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92%
of the U.S. market.
A Treasury bill (T-bill) is a short-term debt obligation backed by the U.S. government with a maturity of less than one year.
1813
3-IN
V-Q
-10/
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