Quarterly Update

Aug. 2019

Garrett R. D'Alessandro, Chief Executive Officer | Aug. 2019

From the Desk of Garrett D’Alessandro, CFA, CAIA, AIF®

Going forward, the U.S. government needs to develop new policies that can manage the challenges we face with a future whereby jobs will be impacted by robotics, artificial intelligence and other technologies that will again change our economy dramatically.

The Key to Prosperity: National Competitive Advantage

The trade war with China, the Fed’s inability to bring interest rates to normal levels, the declining share of income earned by labor, the rising national debt — all are manifestations of short-term policies that undermine the U.S.’s long-term competitiveness and future economic growth. We believe different strategies are required if we expect our standard of living to rise. We see the path to this goal originating from long-term policies that have repeatedly been proven to drive growth, that increase national productivity, and that encourage the development of world-class, globally competitive industries.1 Tariffs, interest rate changes and higher taxes will not achieve these goals.

The U.S. has averaged GDP growth of 2.2% during the current expansion, which is better than Europe or Japan. However, compared to China and India, which recorded average GDP growth during the same timeframe of 7.8% and 7.5%, respectively, U.S. growth looks modest.

Two challenges the U.S. faces are declines in the share of income going to workers and in some sectors’ industrial competitiveness. Both contribute to income inequality and are at the root of the current trade war. We do not see compelling evidence that tariffs lead to sustainably competitive manufacturing unless there is a plan in which the government works collaboratively with these industries. Labor market dynamics and accelerating technological change are two reasons why the U.S. should not seek to upgrade its competitive position relative to large-scale global manufacturing companies.

The current conflict with China is rooted in the long-held belief that each nation should dedicate its resources to industries that can excel globally. The U.S. has many successful manufacturers producing in higher-value and more sophisticated industries. Long ago, the U.S. decided not to compete in sectors where China, India and Vietnam had innate advantages. This was due to their focus on low-value manufacturing sectors, which results in greater productivity and lower labor costs.

Going forward, the U.S. government needs to develop new policies that can manage the challenges we face with a future whereby jobs will be impacted by robotics, artificial intelligence and other technologies that will again change our economy dramatically.2 We should be:

1. Creating policies that fully support important industries that can be globally competitive

2. Creating job skills that help workers adapt to changes throughout their careers

3. Improving our education system

4. Developing policies to support individuals and industries adversely affected by transition periods

1Porter, Michael E. “National Competitive Advantage in Services.” The Competitive Advantage of Nations, Apr. 1990, pp. 239–273, doi:10.1007/978-1-349-11336-1_6. 2Frey, Carl Benedikt. The Technology Trap: Capital, Labor, and Power in the Age of Automation. Princeton, NJ: Princeton University Press, 2019.

Going forward, the U.S. government needs to develop new policies that can manage the challenges we face with a future whereby jobs will be impacted by robotics, artificial intelligence and other technologies that will again change our economy dramatically.

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Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. Investing in international markets carries risks such as currency fluctuation, regulatory risks, and economic and political instability. Emerging markets involve heightened risks related to the same factors, as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks and less developed legal and accounting systems than developed markets.

There are inherent risks with fixed-income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer-duration fixed-income securities and during periods when prevailing interest rates are low or negative. The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar income-bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax (AMT), and taxable gains are also possible. Investments in below-investment-grade debt securities, which are usually called “high yield” or “junk bonds,” are typically in weaker financial health and such securities can be harder to value and sell, and their prices can be more volatile than more highly rated securities. While these securities generally have higher rates of interest, they also involve greater risk of default than do securities of a higher-quality rating.

Alternative investments are speculative, entail substantial risks, offer limited or no liquidity and are not suitable for all investors. These investments have limited transparency to the funds’ investments and may involve leverage which magnifies both losses and gains, including the risk of loss of the entire investment. Alternative investments have varying, and lengthy lockup provisions.

Investments in emerging market bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging market bonds can have greater custodial and operational risks and less developed legal and accounting systems than developed markets.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Returns include the reinvestment of interest and dividends. Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk. Past performance is no guarantee of future performance.

Index Definitions

The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute for Supply Management (ISM). The ISM Manufacturing Index monitors employment, production, inventories, new orders and supplier deliveries. A composite diffusion index monitors conditions in national manufacturing and is based on the data from these surveys.

The ISM Non-Manufacturing Index is an index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys, that monitors economic conditions of the nation.

CreditFlux maintains a comprehensive database of credit fund returns. The CreditFlux CLO Index is a collection of funds categorized based not on their current investments but on their investment mandate, CLOS, showing the median monthly return of funds in the category.

ICE BofAML 0-1 Year Emerging Markets Corporate Plus Index tracks the performance of short maturity U.S. dollar (USD) and Euro denominated Emerging Markets non-sovereign debt publicly issued within the major domestic and Eurobond markets

The MSCI EAFE Index (Europe, Australia, and Far East) is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises the MSCI country indices that represent developed markets outside of North America. The MSCI EAFE Index consists of the following 21 countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom.

The Bloomberg Barclays U.S. Municipal Index is a market-value weighted index that covers the U.S. dollar-denominated, long-term tax-exempt bond market and has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and pre-refunded bonds.

The Bloomberg Barclays U.S. Government Index is comprised of the U.S. Treasury and U.S. Agency Indices. The U.S. Government Index includes Treasuries (public obligations of the U.S. Treasury that have remaining maturities of more than one year) and U.S. agency debentures (publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The U.S. Government Index is a component of the U.S. Government/Credit Index and the U.S. Aggregate Index.

The Bloomberg Barclays U.S. Credit Bond Index measures the performance of investment grade corporate debt and agency bonds that are dollar denominated and have a remaining maturity of greater than one year.

The Bloomberg Barclays U.S. Corporate High Yield Index covers the U.S.-dollar denominated, non-investment grade, fixed-rate, taxable corporate bond market and includes securities with ratings by Moody’s, Fitch and S&P of Ba1/BB+/BB+ or below.

The Bloomberg Barclays Emerging Markets High Yield Bond Index tracks the performance of the below-investment-grade U.S. dollar-denominated emerging market sovereign and corporate bond market.

Indices are unmanaged and one cannot invest directly in an index

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