2020 INVESTMENT OUTLOOK: AN ALTERNATIVE VIEW FEBRUARY 13, 2020 - PowerPoint PPT Presentation

2020 INVESTMENT OUTLOOK: AN “ALTERNATIVE” VIEW FEBRUARY 13, 2020 Michael G. Dow, CFA, CPA Derek Newcomer, CFA, CAIA Chief Investment Officer Director of Alternative Investment Research

T ABLE OF C ONTENTS • Macro and Markets • Chicago Weather and Stock Market Returns • The Beacon Pointe Investment Process • Macro Outlook • Market Themes • Investment Solutions • What Can Alternative Investments Do for You? • Alternative Investment Research Process • Solutions: Addressing the Market Themes • Concluding Remarks

C HICAGO W EATHER - B RRRRR ‐ 49 0 That’s MINUS 49. Degrees. Fahrenheit. (Wind Chill, Not Air Temperature…) SOURCE: Beacon Pointe Advisors, time.com, National Weather Service

D OES C HICAGO W EATHER P REDICT S TOCK M ARKET R ETURNS ? Daily Temperature in Chicago, January 2020 Coldest Temperatures in Chicago Since 1871 Normal January Average = 23 degrees Stock Average Stock Lowest Market January Market Year Temperature Return Year Temperature Return 1982 ‐25 and ‐26 22% 1931 32.0 ‐43% 1983 ‐25 23% 1932 33.6 ‐8% 1985 ‐23 and ‐27 32% 1990 33.9 ‐3% 2019 ‐23 31% 2002 31.9 ‐22% “Lower Chicago Temperatures = 2020 36.0 ? Higher Equity Returns?” 1 SOURCE: Beacon Pointe Advisors, time.com, National Weather Service 1 We analyze a variety of factors before determining our outlook for the stock market. Temperatures in Chicago is not really one of them.

B EACON P OINTE I NVESTMENT P ROCESS The foundation of our process is research: macro, manager and asset allocation. Macroeconomic Valuation and Manager Research Forecasting Asset Allocation and Analysis Financial Conditions + MonPol +  Capital Market Volatility + Long Term Institutional Quality Due Diligence  GDP/Recession Probabilities + Cap Mkt Assumptions + Cyclical “Best in Class” Investment Managers Valuation  Optimized Asset Inflation + Capital Market Volatility Allocation Investment Themes SOURCE: Beacon Pointe Advisors; As of February 12, 2020

I NVESTMENT T HEMES The foundation of our process is research: macro, manager and asset allocation. 2020 Investment Themes Low Public Equity Low Public Fixed Higher Volatility in Risk Premium Income Yields Public Markets H OW SHOULD WE INVEST IN THIS ENVIRONMENT ? SOURCE: Beacon Pointe Advisors

R EVIEW OF OUR 1Q2019 “P REDICTIONS ” Fed to the Rescue Fed to the Rescue Slowing Global Slowing Global Growth Growth No Recession in No Recession in the U.S. the U.S. No “No‐Deal Brexit” No “No‐Deal Brexit” SOURCE: Beacon Pointe Advisors

2020 M ACROECONOMIC O UTLOOK

I NVESTMENT T HEMES The foundation of our process is research: macro, manager and asset allocation. 2020 Investment Themes Low Public Equity Low Public Fixed Higher Volatility in Risk Premium Income Yields Public Markets H OW SHOULD WE INVEST IN THIS ENVIRONMENT ? SOURCE: Beacon Pointe Advisors

F INANCIAL C ONDITIONS U.S. Financial Conditions F INANCIAL C ONDITIONS ARE “E ASY ” = B ETTER O UTLOOK FOR THE E CONOMY SOURCE: Beacon Pointe Advisors

F EDERAL R ESERVE IS THE M OST I MPORTANT V ARIABLE Total Assets of the Federal Reserve Bank and S&P Total Assets of the Federal Reserve Bank, $ 500 Index (rhs), $ billions and Index level, 2008‐2018 billions and S&P 500, level 3328 3400 3000 Federal Reserve 4,400 $4,500 balance sheet 4,700 normalization. 3100 2500 $4,146 3,900 4,100 2000 2800 3,100 1500 3,800 2500 2,300 1000 $3,762 Fed Balance Sheet 3,500 2200 1,500 500 Jan‐18 Jul‐18 Jan‐19 Jul‐19 Jan‐20 2009 2011 2013 2015 2017 Fed Total Assets, $billions S&P 500 Index Fed Total Assets (lhs) S&P 500 (rhs) T HE F EDERAL R ESERVE HAS – O NCE A GAIN – C OME TO THE R ESCUE OF THE E QUITY M ARKET SOURCE: Beacon Pointe Advisors

N O R ECESSION IN THE U.S. U.S. GDP Probability of Recession W E D O N OT S EE A R ECESSION IN THE F IRST H ALF OF 2020 SOURCE: Beacon Pointe Advisors

B EACON P OINTE R ECESSION I NDICATORS Jan-1 9 Feb-1 9 M ar-1 9 Apr-1 9 M ay-1 9 Jun-1 9 Jul-1 9 Aug-1 9 Sep-1 9 Oct-1 9 Nov-1 9 Dec-1 9 Jan-20 ) Average Workweek 0 . 8 6 0 . 2 2 ( 0 . 1 0 ) ( 0 . 1 0 ) 0 . ( 4 1 ) ( 0 . 1 0 ) ( 0 . 7 3 ) 0 . ( 7 3 ) ( 0 . 7 3 ) ( 1 . 0 5 ) 1 ( . 0 5 ) ( 1 . 0 5 ) ( 1 0 5 . 7 Initial Jobless Claims 1 0 7 . 1 . 1 2 1 . 2 2 1 2 . 3 1 . 2 0 1 . 1 1 1 2 . 4 1 1 . 8 1 . 2 3 1 . 2 0 1 . 1 7 0 . 9 7 0 . 9 9 Manufct New Orders 3m MA 0 . 2 5 0 . 1 2 0 . ( 7 9 ) ( 1 . 2 5 ) ( 0 . 8 4 ) 0 . 7 1 1 . 3 8 1 . 4 1 0 . ( 0 8 ) 0 . ( 7 6 ) ( 0 . 8 7 ) ( 0 . 4 9 ) 0 . 1 ) ISM New Orders 0 . 1 1 ( 0 . 2 7 ) ( 0 . 1 5 ) 0 . ( 6 3 ) ( 0 . 7 5 ) ( 1 1 . 5 ) ( 1 . 0 3 ) ( 1 7 . 2 ) 1 ( 5 . 4 ) ( 1 . 4 6 ) ( 1 . 8 8 ) 1 ( . 7 2 ) ( 1 . 7 2 ) ISM New Orders Non‐defense 3m MA 0 . ( 8 8 ) ( 0 . 3 5 ) 0 . 3 0 ( 0 . 3 7 ) ( 0 . 4 1 ) ( 0 . 2 2 ) 0 . 1 1 0 . ( 1 9 ) ( 0 . 6 6 ) ( 0 . 2 7 ) 0 2 0 . 0 . 2 4 ( 0 . 1 1 0 ) Building Permits 3m MA 0 . 0 8 ( 0 . 8 7 ) ( 0 . 9 2 ) ( 0 . 6 4 ) 0 . ( 1 9 ) ( 1 . 0 0 ) ( 0 . 0 2 ) 1 1 . 4 1 6 . 2 1 . 3 2 0 . 1 9 ( 0 . 0 6 ) 0 . ( 8 8 LEI Stock Prices 3m MA ( 1 . 8 6 ) ( 0 . 3 3 ) 1 . 2 9 1 . 7 3 0 . 1 6 0 . 0 5 0 . 0 7 ( 0 . 2 6 ) 0 . 0 8 ( 0 . 6 9 ) 0 . 8 8 0 . 7 5 0 . 7 ) LEI Leading Credit Index 0 . 3 0 ( 0 . 3 2 ) ( 0 . 4 7 ) ( 1 . 6 3 ) 1 ( 0 3 . ) ( 1 . 7 1 ) ( 1 2 . 9 ) 0 . 2 3 ( 0 . 4 0 ) 0 . 1 8 0 . ( 4 2 ) 0 . ( 4 7 ) ( 0 . 4 7 ) LEI Yield Curve Spread ( 1 . 5 8 ) 1 ( . 6 1 ) ( 1 7 . 4 ) ( 1 8 . 0 ) ( 1 . 9 1 ) ( 2 . 2 6 ) ( 2 2 . 9 ) ( 2 . 4 7 ) ( 2 . 2 9 ) ( 2 . 0 5 ) ( 1 . 6 3 ) ( 1 5 . 8 ) ( 1 . 5 8 2 LEI Consumer Expectations ( 0 . 5 7 ) 0 . 6 6 0 . 8 0 0 . 8 6 1 . 4 0 0 . 5 4 1 . 3 7 0 . 5 4 0 . 2 3 0 . 3 0 0 . 5 2 0 . 9 2 0 . 9 ) VIX Index 1 . 5 3 ( 0 . 1 0 ) ( 0 . 4 3 ) ( 0 . 6 2 ) ( 0 . 7 3 ) 0 . 3 0 ( 0 . 3 7 ) ( 0 . 1 8 ) 0 . 3 5 0 . ( 1 6 ) ( 0 . 7 1 ) ( 0 . 8 2 ) 0 . ( 6 1 0 7 SPX 3m MA 0 . 8 7 1 . 2 0 1 . 3 3 1 . 4 2 1 . 6 0 1 . 2 8 1 6 . 0 1 . 6 6 1 . 5 7 1 6 . 5 1 . 7 5 1 . 9 3 2 . ) USD Trade Weighted 0 . ( 9 1 ) ( 0 . 8 4 ) ( 0 . 9 1 ) ( 1 . 0 5 ) ( 1 . 0 7 ) 1 ( 1 . 0 ) ( 0 . 9 1 ) ( 1 . 1 9 ) 1 ( . 2 4 ) ( 1 . 2 9 ) 1 ( 0 5 . ) 1 ( . 1 6 ) ( 0 . 9 4 2 US IG Corp Spread 4 ( 0 . 0 ) 0 . 3 6 0 . 5 7 0 . 6 3 0 . 8 7 0 . 3 6 0 . 7 5 0 . 9 6 0 . 6 0 0 . 7 5 0 . 9 0 1 . 0 5 1 . 4 3 US HY Corp Spread 0 . ( 3 9 ) 0 . 4 9 0 . 8 6 0 . 7 6 1 . 0 4 0 . 4 1 0 . 8 8 0 . 9 3 0 . 7 5 0 . 9 2 0 . 7 5 0 . 9 4 1 . 2 ) UST 10yr 3m MA 0 . 7 1 0 . 9 4 0 . 5 2 0 . 5 9 0 . 2 7 1 2 . 6 0 . 9 6 1 . 1 3 1 . 7 2 0 . 9 8 0 . 9 3 ( 1 . 1 2 ) ( 0 . 9 1 5 US Fed Funds 3m MA 0 . 0 4 0 . 0 5 0 . 1 3 0 . 2 9 0 . 3 2 0 . 3 5 0 . 3 3 0 . 6 2 0 . 7 2 0 . 9 9 1 0 9 . 1 0 0 . 0 . 7 More Recent Data  M OST L EADING I NDICATORS ARE IN “OK” T ERRITORY , BUT THERE ARE SOME WORRYING SIGNS … SOURCE: Beacon Pointe Advisors

2020 M ARKET T HEMES

Low Public Equity Risk Premium P UBLIC M ARKET E QUITY R ISK P REMIUM T HE P UBLIC M ARKET E QUITY R ISK P REMIUM IS H ISTORICALLY LOW SOURCE: Beacon Pointe Advisors

Low Public Fixed Income Yields P UBLIC M ARKET B OND P REMIUM US Treasury 10yr Yield ‐ 1790 ‐ present UST 10y Yield ‐ 2015‐present 13.98 14.00 3.24 3.25 12.00 10.00 2.75 8.00 2.32 2.25 6.00 4.82 4.00 1.75 1.65 2.00 1.67 1.36 ‐ 1.25 1790 1805 1820 1835 1850 1865 1880 1895 1910 1925 1940 1955 1970 1985 2000 2015 Feb‐15 Feb‐16 Feb‐17 Feb‐18 Feb‐19 US 10y UST 10yr Yield 229yr Avg UST 10y Yield 5yr Avg U.S. I NTEREST R ATES ARE N EAR M ULTI ‐C ENTURY L OWS … SOURCE: Beacon Pointe Advisors

Low Public Fixed Income Yields G LOBAL F IXED I NCOME – C URRENT Y IELDS Municipal Bond Yield Yields 2.0‐3.0% Yields < 0.00% Yields > 5.0% Yields Yields > Yields < 2.0‐3.0% 5.0% 0.00% Emerging Mkt Sovereign U.S. Investment Grade Corporate Japan 10yr Bond U.S. Core Bond Turkey 10‐year Sovereign Debt U.S. Treasury 10yr Inflation Bond U.S. Treasury 30yr Bond Swiss 10yr Bond U.S. High Yield Corporate SOURCE: Bloomberg LLC