Quarterly Update

Garrett R. D'Alessandro, Chief Executive Officer | Jul. 2020

Cautious, Realistic, Hopeful

U.S. COVID-19 practices need improvement to gain control over spread of COVID-19

We have no choice but to rely heavily on fiscal and monetary policies to bridge the economy to normal

Investment conditions require a strategic allocation toward equities and opportunistic income

The U.S. and global economies are experiencing the most significant health and economic shock in decades. The consequences of COVID-19 require governments around the world to control the spread of the virus as well as stabilize the economic fallout. Each country has its own distinct history, culture and priorities. Countries like South Korea, Japan and China that have dealt with previous viruses like SARS, MERS and H1N1 have experience that has enabled them to handle this COVID-19 situation rather well. The U.S. and European countries are learning as they go, with activities like reopening too early being adjusted as cases rise.

We believe COVID-19 will be here until there is a vaccine, probably a 2021 outcome. Therefore, governments worldwide will have continuing battles with new cases. We all hope each country develops a set of proven practices that gives people confidence to gradually trend their behaviors toward normal. But normal is quite some time away.

The U.S. is forging its own path on dealing with COVID-19, but some large city comparisons indicate how we are doing relative to Asian countries: Tokyo -- 325 deaths, population 14 million; Seoul, South Korea -- 282 deaths, population 9.8 million; New York City -- 31,137 deaths, population 8.3 million.

While U.S. culture and norms are fundamentally different from those of Asian countries, how successfully we address COVID-19 going forward will ultimately determine how confident individuals will be in resuming normal activities.

At present, the U.S. government and state governments are in control, in terms of economic support and health policies. There are three primary implications of government controlling substantial parts of U.S. society and the economy:

  • The federal and state governments are trying to determine the optimum practices and protocols for a healthy return to normal.
  • The economy is highly dependent upon continued fiscal and monetary support.
  • Interest rates are being held at historically low levels to alleviate borrower debt payments and make consumption easier.

We believe equity markets are looking past the decline in 2020 earnings and focusing entirely on 2021 results. Based on our best estimate, we anticipate a strong rebound in 2021 earnings, which supports present market price levels. Although valuations are at the upper end of historical ranges, they are justified by very low interest rates and the assumption that in 2021 the economy will achieve 90-95% of 2019 earnings.

We are sanguine about the U.S. economy, and we believe that our nation’s resiliency will overcome the many challenges we are all facing.

U.S. COVID-19 practices need improvement to gain control over spread of COVID-19

We have no choice but to rely heavily on fiscal and monetary policies to bridge the economy to normal

Investment conditions require a strategic allocation toward equities and opportunistic income

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Important Disclosures

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

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.

Concentrating assets in a particular industry, sector of the economy, or markets may increase volatility because the investment will be more susceptible to the impact of market, economic, regulatory, and other factors affecting that industry or sector compared with a more broadly diversified asset allocation.

Private investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information.

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. Please see the Offering Memorandum for more complete information regarding the Fund’s investment objectives, risks, fees, and other expenses.

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.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

Indices are unmanaged and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.

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.

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.

Bloomberg Barclays Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

Bloomberg Barclays Municipal Bond Index is a market-value-weighted index for the long-term tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least 1 year from their maturity date.

Bloomberg Barclays Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers.

Indices are unmanaged and one cannot invest directly in an index.

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