July 1, 2013 BMO Economy and Markets Retrospective and ... · 2 BMO Economy and Markets:...

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July 1, 2013

BMO Economy and Markets

Retrospective and Perspective

1 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013

Table of Contents

REVIEW 2

• Retrospective and Perspective 2

• Highlighted Chart 3

• Market Performance Summary 4

ECONOMY 6

STOCKS 20

BONDS 25

ALTERNATIVE ASSETS 31


Retrospective and Perspective June – Drama as Global Markets React to U.S. Fed Review

U.S.: Stock and bond markets both in the U.S. and globally took dramatic twists

and turns focused on the last ten days of the month. What sparked this market

wild fire: reaction to comments from U.S. Federal Reserve (Fed) chairman Ben

Bernanke.

In late May, Bernanke’s testimony before Congress hinted that the U.S.

economy, while weak, showed some signs of improvement. Bond yields rose

from 1.6% to 2.2%, and total returns for May were -2.6%. Then, at the podium

again on June 20 in a news briefing following the Fed Board meeting, Bernanke

made similar comments. One indication he made in regards to the U.S.

economy was “If things are worse, we will do more. If things are better, we will

do less.” On the surface, this seemed like a balanced (and more or less

benign) statement. But coupled with select data points of a weak yet improving

U.S. economy, investors concluded the Fed is about to “taper” the amount of

their monthly asset purchases. Bond yields spiked again in June, this time

reaching 2.5% for the 10-year Treasury; total returns for the month were again

-2.6%. Total returns for high yield and investment grade corporate bonds fell

similar amounts for June. Global bonds were adversely impacted, too.

Unlike May, when equities did not really react to "Fed speak,” stocks this time

reacted poorly at first. The Dow Jones Industrial Average tumbled from 15,318

on June 18 to 14,659 on June 24. Most major non-U.S. stock markets reacted

poorly, too. Then the markets seemingly concluded an improving U.S. economy

might be a good thing, and stocks staged a month-end rally that returned the

Dow to 14,909 at month-end. Housing, auto sales and employment conditions

all seem to be part of the favorable data package on the economy. However,

remember there are still many continued signs of weakness: slow job growth,

tepid velocity of money, and below peak capacity utilization, to name a few.

Asia: Japan and China took center stage in June. In Japan, after an incredible

run up in stock prices and a rapid depreciation of the yen, investors were found

taking profits and perhaps re-evaluating the prospects for success of new

initiatives across monetary, fiscal and structural reforms. Their currency has

reversed course, and stocks corrected over 20% from the highs, but they

managed to close with just a modest loss for June. Country-wide elections for

Japan’s upper house are coming in July and will be an important barometer for

the public’s reaction to Prime Minister Shinzo Abe’s programs.

China experienced a short-term credit crisis which shook local, regional and

global markets. Short-term, interbank loan rates in China (SHIBOR) shot up

dramatically and worried investors that a slowdown in China might deepen.

However, by month-end the People's Bank of China had intervened to lower

rates, and those actions reassured markets. China and emerging markets in

general produced poor stock market returns not only in June, but year-to-date,

as well. Stock valuations remain cheap in most Emerging Markets (EM) markets

but patience has weakened.

Europe: Europe continues its struggle to generate growth. There are some

encouraging signs, but not in great quantity. The UK shows better economic

growth than expected, and retail sales and consumer confidence have ticked up.

Germany has managed to avoid a recession, and modest upticks in business

confidence are encouraging. However, programs to spur lending and resolve

banking oversight initiatives are slowed by the complex political realities of the

European Union (EU). Interest rates in Spain and Italy, which have fallen

dramatically, backed up a bit during the month.

EU stocks took it on the chin: -4.5%. The riskier countries like Italy and Greece

saw their stock markets decline 9.7% and 18.4%, respectively.

Important forward-looking issues:

• U.S. economic performance and interest rate direction

• Election outcomes in Japan

• China policies to sustain slowed but steady growth

• EU progress on bank oversight and lending initiatives

TOTAL RETURNS

(as of 06/30/2013)June YTD 2013 2012

S&P 500® Index -1.34 13.82 16.00

STOXX Europe 600 Index -5.02 4.58 19.08

MSCI Emerging Markets Index -6.37 -9.57 18.22

U.S. 10-Yr Treasury -2.63 -4.89 4.18

Sources: Bloomberg L.P., BMO Global Asset Management


Highlighted Chart Bernanke Speaks; Markets React

Review

• Bond and Equity Markets have reacted to statements made by Chairman Bernanke regarding Fed

purchases of bonds

• In reaction to the markets’ actions, the Fed has gone to great lengths to explain that Quantitative Easing will

not ease until the Fed judges that the economy is growing at a sustained rate

Bernanke, Treasury Yields & S&P 500

1.01.21.41.61.8

2.02.22.42.62.8

4/1

/13

4/1

5/1

3

4/2

9/1

3

5/1

3/1

3

5/2

7/1

3

6/1

0/1

3

6/2

4/1

3

Tre

asu

ry Y

ield

(%

)

1500

1540

1580

1620

1660

S&

P 5

00

Bernanke Speaks 10-Yr. Treasury Yield S&P 500



Highlighted items represent either the best- or worst-performing equity sector for the period. Total returns for periods of one year or more are annualized. MSCI

indices performance is net of foreign taxes on dividends. Sources: Bloomberg L.P., FactSet, BMO Global Asset Management

Market Performance Summary As of June 30, 2013

EQUITIES (% Returns) 1-Mo 3-Mo 6-Mo 1-Yr 3-Yrs 5-Yrs 10-Yrs YTD 2013 1Q 2013 2012

U.S. Large Cap Equities

S&P 500® Index -1.34 2.91 13.82 20.60 18.45 7.01 7.30 13.82 10.61 16.00

Dow Jones Industrial Average Index -1.25 2.91 15.20 18.87 18.23 8.64 7.91 15.20 11.93 10.24

Russell 1000® Index -1.36 2.65 13.91 21.24 18.63 7.12 7.67 13.91 10.96 16.42

Russell 1000® Growth Index -1.88 2.06 11.80 17.07 18.68 7.47 7.40 11.80 9.54 15.26

Russell 1000® Value Index -0.88 3.20 15.90 25.32 18.51 6.67 7.79 15.90 12.31 17.51

U.S. Mid Cap Equities

Russell Midcap® Index -1.21 2.21 15.45 25.41 19.53 8.28 10.65 15.45 12.96 17.28

Russell Midcap® Growth Index -1.22 2.87 14.70 22.88 19.53 7.61 9.94 14.70 11.51 15.81

Russell Midcap® Value Index -1.19 1.65 16.10 27.65 19.53 8.87 10.92 16.10 14.21 18.51

U.S. Small-Mid Cap Equities (SMID)

Russell 2500TM Index -1.09 2.27 15.42 25.61 19.57 9.21 10.34 15.42 12.85 17.88

U.S. Small Cap Equities

Russell 2000® Index -0.51 3.08 15.86 24.21 18.67 8.77 9.53 15.86 12.39 16.35

Russell 2000® Growth Index -0.62 3.74 17.44 23.67 19.97 8.89 9.62 17.44 13.21 14.59

Russell 2000® Value Index -0.41 2.47 14.39 24.76 17.33 8.59 9.30 14.39 11.63 18.05

International Equities

MSCI ACWI ex USA Index (Devlp. & EM) -3.75 -1.61 3.01 17.07 9.43 -0.84 7.86 3.01 4.70 16.41

MSCI EAFE Index (Developed Markets) -3.55 -0.98 4.10 18.62 10.04 -0.63 7.67 4.10 5.13 17.32

MSCI European Monetary Union Index (in €) -5.43 0.24 2.80 18.76 5.27 -1.11 4.83 2.80 2.55 18.99

MSCI AC Asia Pacific Index -2.90 -3.03 2.26 14.33 7.79 1.60 9.23 2.26 5.46 16.78

MSCI Emerging Markets Index -6.37 -8.08 -9.57 2.87 3.38 -0.43 13.66 -9.57 -1.62 18.22

Technology and Growth Stocks

NASDAQ Composite Index -1.42 4.52 13.42 17.85 18.79 9.48 8.85 13.42 8.51 17.75

ALTERNATIVES (% Returns) 1-Mo 3-Mo 6-Mo 1-Yr 3-Yrs 5-Yrs 10-Yrs YTD 2013 1Q 2013 2012

DJ UBS Commodity Index -4.71 -9.45 -10.47 -8.01 -0.26 -11.61 2.39 -10.47 -1.13 -1.06

MSCI ACWI Commodity Producers Index -6.11 -8.54 -10.88 -5.31 0.82 -9.74 7.66 -10.88 -2.55 -0.64

Wilshire U.S. REIT Index -2.11 -2.22 4.17 4.56 14.31 2.72 5.91 4.17 6.53 13.40

S&P Global REIT Index -2.75 -4.01 3.58 11.15 14.16 1.28 4.99 3.58 7.91 20.27

S&P Global Infrastructure Index -2.09 -2.80 2.40 9.96 11.86 -1.04 8.11 2.40 5.36 12.18

Review


Total returns for periods of one year or more are annualized. Sources: Barclays Capital, Bloomberg L.P., BMO Global Asset Management

Market Performance Summary As of June 30, 2013

U.S. FIXED INCOME (% Returns) 1-Mo 3-Mo 6-Mo 1-Yr 3-Yrs 5-Yrs 10-Yrs YTD 2013 1Q 2013 2012

Barclays U.S. Aggregate Index -1.55 -2.32 -2.44 -0.68 3.51 5.19 4.52 -2.44 -0.12 4.22

Barclays U.S. Interm. Gov/Crd Index -1.20 -1.70 -1.45 0.28 3.14 4.57 4.03 -1.45 0.26 3.89

Barclays U.S. Corporate Index -2.76 -3.31 -3.41 1.36 5.73 7.30 5.18 -3.41 -0.11 9.82

Barclays U.S. Treasury Index -1.10 -1.92 -2.11 -1.64 3.12 4.49 4.14 -2.11 -0.19 1.99

Barclays Securitized Index -0.98 -1.92 -1.95 -0.81 2.84 4.93 4.61 -1.95 -0.03 3.01

Barclays High Yield Index -2.62 -1.44 1.42 9.49 10.74 10.94 8.91 1.42 2.89 15.81

Merrill Lynch High Yield BB/B Constr. Index -2.68 -1.62 0.75 8.47 9.97 9.40 7.93 0.75 2.40 14.58

Barclays 1-10 yr Municipals Index -1.61 -1.83 -1.34 0.34 3.36 4.60 3.84 -1.34 0.49 3.56

Barclays Global Aggregate Bond Index -1.18 -2.79 -4.82 -2.17 3.56 3.68 4.79 -4.82 -2.09 4.32

Barclays Global Credit Index -2.52 -2.46 -3.25 3.70 6.56 5.51 5.71 -3.25 -0.82 12.09

BOND YIELDS (%) Jun 2013 Mar 2013 Dec 2012 Jun 2012 Jun 2010 Jun 2008 Jun 2003

Fed Funds Rate (Effective Rate) 0.09 0.09 0.09 0.09 0.09 2.47 1.45

3-month Treasury Bill 0.03 0.07 0.04 0.08 0.18 1.74 0.85

2-year Treasury Note 0.36 0.24 0.25 0.30 0.61 2.62 1.30



30-year Treasury Bond 3.50 3.10 2.95 2.75 3.89 4.53 4.56

Barclays U.S. Aggregate Index 2.36 1.87 1.74 1.99 2.84 5.10 3.64

Barclays U.S. Corporate Index 3.36 2.78 2.72 3.29 4.23 6.35 4.17

Barclays High Yield Index 7.02 6.47 6.79 7.88 9.28 10.92 9.07

Barclays Emerging Markets Index 5.43 4.34 4.38 5.48 6.26 7.26 7.90

Barclays Emerging Markets Corporate Index 5.96 4.66 4.72 5.85 6.45 7.88 8.44

INFLATION (%) May 2013 Mar 2013 Dec 2012 Jun 2012 Jun 2010 Jun 2008 Jun 2003

Headline CPI YoY 1.40 1.50 1.70 1.70 1.10 5.00 2.10

Core CPI YoY 1.70 1.90 1.90 2.20 0.90 2.40 1.50

Core PCE YoY 1.06 1.17 1.43 1.76 1.65 2.52 1.44

OTHER MARKETS Jun 2013 Mar 2013 Dec 2012 Jun 2012 Jun 2010 Jun 2008 Jun 2003

US$ / Euro 1.301 1.282 1.319 1.267 1.224 1.576 1.151

WTI Crude Oil Price ($/barrel) 96.6 97.6 93.8 88.7 82.3 136.1 30.2

Gold ($/troy oz) 1,235 1,599 1,675 1,597 1,242 925 346

Review

Barclays U.S. Aggregate Index

Barclays U.S. Interm. Gov/Crd Index

Barclays U.S. Corporate Index

Barclays U.S. Treasury Index

Barclays Securitized Index

Barclays High Yield Index

BofA Merrill Lynch High Yield BB/B Constr. Index

Barclays 1-10 yr Municipals Index

Barclays Global Aggregate Bond Index

Barclays Global Credit Index


Components of Real GDP

Government

Spending 17.7%

Consumption

70.8%

Investment (ex.

Housing) 11.6%

Housing 2.9%

Net Exports

-2.9%

Sources: w w w .BEA.com, BMO Global Asset Management

As of 03/31/2013

U.S. Real GDP Growth

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Dec 0

1

Dec 0

2

Dec 0

3

Dec 0

4

Dec 0

5

Dec 0

6

Dec 0

7

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Dec 1

2

QoQ

gro

wth

(%

)

11,000

11,500

12,000

12,500

13,000

13,500

14,000

GD

P L

evel (

$ b

ln)

Recession

Real GDP QoQ

Real GDP Level


$625 bln of

output lost

$1,025 bln of

output gained

U.S. Economic Growth The U.S. economy expanded 1.8% in the first quarter of 2013, slower than the prior estimate of 2.4% growth. Despite its large downward revision, consumer spending experienced the largest increase in two years. Investments and housing had a positive contribution to growth in the first quarter, which were partly offset by a drop in defense outlays and slow exports.

Economy

Real GDP QoQ Growth and Components Contribution

1.8

1.8

-0.9

0.7

0.3

-0.1

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Real GDP QoQ Grow th

Personal Consumption Contribution

Government Spending Contribution

Investment (ex. Housing) Contribution

Housing Investment Contribution

Net Exports Contribution1Q 2013

Sources: w w w .BEA.com, BMO Global Asset Management


Inflation Expectations and Nominal CPI

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Jun 1

3

CPI YoY

Short-Term Inflation Expectations

Long-Term Inflation Expectations


Headline Inflation and 5-yr Treasury Bond Yield

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

Dec 9

9

Dec 0

0

Dec 0

1

Dec 0

2

Dec 0

3

Dec 0

4

Dec 0

5

Dec 0

6

Dec 0

7

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Dec 1

2

5-Yr Tsy BondCPI YoY


negative

real yield

negative

real yield

U.S. Inflation Headline inflation (CPI including food and energy) inched up in May to 1.4% on a year-over-year basis. Despite tame inflation, low nominal yields have kept real yields in negative territory since early 2011.

Urban CPI Components

YoY %

Change

05/31/2013

YoY %

Change

04/30/2013

Weight in

Headline CPI

(%)

Headline CPI 1.4 1.1 100.0

Food 1.4 1.5 14.2

Energy -0.8 -4.1 10.0

Core CPI (excl. Food and Energy) 1.7 1.7 75.8

Housing 2.2 1.9 37.9

Transportation 2.6 2.5 10.7

Medical Care 2.2 2.7 6.5

Recreation 0.8 0.6 6.4

Education & Communication 1.3 1.5 6.1

Apparel 0.2 0.3 3.6

Other Goods & Services 1.8 1.8 3.5

Beverages 1.6 1.8 0.9

Seasonally adjusted values, as of 05/31/2013


Economy


Savings Rate and Debt

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Savin

gs R

ate

(%

)

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

Debt

U.S. Savings Rate

Total Consumer Debt


40.1%

17.9%

10.9%

6.3%

24.8%Real Estate

Other Tangible

Deposits

Pension Funds

Other Financial

Assets

84.0%

11.2%

4.8%Other Liabilities

Mortgages

Net Worth

Consumer Balance Sheet

U.S. Consumer The U.S. savings rate nudged higher again in May, rising to 3.2% of disposable income. Despite its steady increase over the past few months, the savings rate is low compared to recent history, as higher income taxes in 2013 reduced disposable income. Despite higher consumer debt compared to December 2008, consumer balance sheets appear healthier, as indicated by an increase in net worth.

36.3%

15.5%

11.9%

7.1%

29.3%Real Estate

Other Tangible

Deposits

Pension Funds

Other Financial

Assets

Sources: Federal Reserve Bank, BMO Global Asset Management

12/31/2008 03/31/2013

Economy

79.3%

15.4%

5.2%Other Liabilities

Mortgages

Net Worth

Consumer Confidence

0

20

40

60

80

100

120

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Jun 1

3

Ind

ex L

evel

Univ. Of Michigan Survey of Consumer Confidence Sentiment

Conference Board Consumer Confidence Index



U.S. Home Prices

-26%

-53%

-43%

-42%

-40%

-34%

-32%

-30%

-30%

-26%

-26%

-24%

-24%

-22%

-18%

-17%

-17%

-10%

-6%

-1%

0%

12%

22%

13%

22%

11%

20%

9%

15%

19%

24%

15%

21%

3%

7%

5%

13%

11%

8%

7%

10%

7%

S&P/Case-Shiller Home Price Index

Las Vegas NV

Miami FL

Phoenix AZ

Tampa FL

Detroit MI

Chicago IL

San Diego CA

Los Angeles CA

San Francisco CA

Minneapolis MN

Atlanta GA

New York NY

Washington DC

Cleveland OH

Portland OR

Seattle WA

Boston MA

Charlotte NC

Denver CO

Dallas TX

Apr 2013 vs. Peak (Jul 2006)

Apr 2013 vs. Apr 2012


Housing Affordability Index and Existing Home Sales

80

100

120

140

160

180

200

220

Dec 9

8

Dec 9

9

Dec 0

0

Dec 0

1

Dec 0

2

Dec 0

3

Dec 0

4

Dec 0

5

Dec 0

6

Dec 0

7

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Dec 1

2

Afford

ability

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Sale

s (

mill u

nits

)

Housing Affordability Index

Existing Homes Sales


Homebuilders Sentiment and Building Permits

0

10

20

30

40

50

60

70

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Build

ers

Sentim

ent

0

500

1,000

1,500

2,000

2,500

Perm

its (

thousand u

nits

)Homebuilders Sentiment

Building Permits


U.S. Housing Market Residential real estate prices increased in April by 12.1% on a year-over-year basis, at the highest pace since the price peaked in July 2006. Home prices increased across the nation, in many cases at a double-digit pace over the past 12 months, but remain below their 2006 high. Thinning inventories and rising home prices pushed homebuilders’ confidence higher in May.

Economy


Job Gain/Losses

-1,100

-900

-700

-500

-300

-100

100

300

500

700

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Month

ly (

thousand jo

bs)

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

Cum

ula

tive (

mill jo

bs)

Monthly

Cumulative


Payrolls Change by Industry

-1%

14%

10%

5%

3%

0%

-1%

-2%

-2%

-3%

-4%

-5%

-10%

-12%

-20%

2%

1%

2%

3%

3%

1%

1%

1%

2%

0%

1%

1%

1%

0%

3%

Total Non-Farm Payrolls

Mining

Education and Health Services

Leisure and Hospitality

Professional and Business Services

Utilities

Other Services

Transportation and Warehousing

Retail

Govt Payrolls

Wholesale

Finance, Insurance, and Real Estate

Information

Manufacturing

Construction

5-Yr Payroll Change

1-Yr Payroll Change


As of 05/31/2013

U.S. Job Gains/Losses The economy added an average of 189,000 jobs in the first five months of 2013, slightly more than the 2012 average of 183,000 jobs per month. However, the pace was significantly below the average of 205,000 jobs recorded in the first five months of 2012. Initial jobless claims in June remained near a post-recession low.

Jobless Claims

250

300

350

400

450

500

550

600

650

700

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Jun 1

3

Initi

al C

laim

s

(4 w

eek a

vg, in

thousands)

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Contin

uin

g C

laim

s (

thousands)

Continuing Claims

Initial Jobless Claims


Economy


Unemployment Rate

Worst 10 States

13.4

9.5

9.1

9.1

8.9

8.8

8.6

8.6

8.5

8.4

Puerto Rico

Nevada

Mississippi

Illinois

Rhode Island

North Carolina

New Jersey

California

Washington D.C.

Michigan


Best 10 States

3.2

3.8

4.0

4.1

4.6

4.6

4.6

4.7

5.0

5.3

North Dakota

Nebraska

South Dakota

Vermont

Iow a

Utah

Wyoming

Haw aii

Oklahoma

Minnesota

05/31/2013

05/31/2012


Unemployment Rate and Duration

3

4

5

6

7

8

9

10

11

12

Dec 7

1

Dec 7

6

Dec 8

1

Dec 8

6

Dec 9

1

Dec 9

6

Dec 0

1

Dec 0

6

Dec 1

1

Unem

plo

ym

ent R

ate

(%

) .

5

10

15

20

25

30

35

40

45

Dura

tion (

weeks)

Recession

Avg. Unemployment Duration

Unemployment Rate


U.S. Unemployment The unemployment rate increased to 7.6% in May, from 7.5% in April. While unemployment duration is significantly below its peak of 40.7 weeks reached at the end of 2011, it remains stubbornly high, at 36.9 weeks. Private employment continues its steadily increasing trend which began in early 2010, while government employment has seen the effect of budget cuts.

Government and Private Employment

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

23.0

23.5

Dec 9

5

Dec 9

7

Dec 9

9

Dec 0

1

Dec 0

3

Dec 0

5

Dec 0

7

Dec 0

9

Dec 1

1

Govern

ment E

mplo

ym

ent (m

ill)

.

95

100

105

110

115

120

Private

Em

plo

ym

ent (m

ill)

.

Private Employment

Government Employment


Economy


Other U.S. Economic Indicators Leading economic indicators have shown mixed results: the ECRI remained relatively flat in June, while CFNAI plunged in May, to the lowest level in eight months, and consumer expectations improved in May. Building permits corrected in June, after a large jump in May, which was likely prompted by sustained price improvement in the housing market.

Economic Cycle Research Institute (ECRI) Weekly Leading Index

-40

-30

-20

-10

0

10

20

30

Dec 8

7

Dec 8

9

Dec 9

1

Dec 9

3

Dec 9

5

Dec 9

7

Dec 9

9

Dec 0

1

Dec 0

3

Dec 0

5

Dec 0

7

Dec 0

9

Dec 1

1

Index G

row

th (

%)

Recession

ECRI US Weekly Leading Grow th Rate

Sources: w w w .businesscycle.com, BMO Global Asset Management

Conference Board Leading Index Growth

-25

-20

-15

-10

-5

0

5

10

15

Dec 8

7

Dec 8

9

Dec 9

1

Dec 9

3

Dec 9

5

Dec 9

7

Dec 9

9

Dec 0

1

Dec 0

3

Dec 0

5

Dec 0

7

Dec 0

9

Dec 1

1

Index G

row

th (

%)

Recession

LEI CHNG (YoY)


Chicago Fed National Activity Index (CFNAI) and Credit Spreads

(3-month moving average for CFNAI)

-4.5

-3.5

-2.5

-1.5

-0.5

0.5

1.5

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

CF

NA

I M

A3

Recession

CFNAI 3-Mo MA

-0.7 Line

Sources: Chicago Federal Reserve Bank, Barclays Capital, BMO Global Asset Management

Leading Index Selected Components

0

10

20

30

40

50

60

70

80

90

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Jun 1

3

Consum

er

Expecta

tions

0

200

400

600

800

1000

1200

1400

Build

ing P

erm

its

Consumer Expectations

Building Permits

Sources: Conference Board, BMO Global Asset Management

Economy


U.S. Fixed Investment

65

265

465

665

865

1,065

1,265

1,465

1,665

1,865

Dec 8

0

Dec 8

2

Dec 8

4

Dec 8

6

Dec 8

8

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

($ b

illio

ns)

Recession

Investment (ex. Housing)

Housing


ISM Purchasing Managers Index (PMI)

30

35

40

45

50

55

60

65

70

75

Dec 8

0

Dec 8

2

Dec 8

4

Dec 8

6

Dec 8

8

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

Index L

evel

Recession

ISM Manufacturing PMI

ISM Non-Manufacturing PMI

Sources: Institute for Supply Management, Bloomberg L.P., BMO Global Asset

Management

U.S. Corporate Profits

65

265

465

665

865

1,065

1,265

1,465

1,665

Dec 8

0

Dec 8

2

Dec 8

4

Dec 8

6

Dec 8

8

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

($ b

illio

ns)

Recession

U.S. Corporate Profits


U.S. Business Activity Housing investment level, while still low, shows the beginning of a recovery. Other fixed investment activity has steadily increased to pre-recession levels. Capacity utilization has been trending slightly below its average during non-recessionary periods. Corporations continue to report solid profits.

Economy

Capacity Utilization

65

70

75

80

85

90

Dec 8

0

Dec 8

2

Dec 8

4

Dec 8

6

Dec 8

8

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

Uti

lizati

on

(%

)

Recession

% Capacity Utilization

Avg. Capacity Utilization During Non-Recessionary Periods



U.S. Banks Tightening or Easing Credit Standards

(based on Fed survey)

0

10

20

30

40

50

60

70

80

90

2Q

2007

3Q

2007

4Q

2007

1Q

2008

2Q

2008

3Q

2008

4Q

2008

1Q

2009

2Q

2009

3Q

2009

4Q

2009

1Q

2010

2Q

2010

3Q

2010

4Q

2010

1Q

2011

2Q

2011

3Q

2011

4Q

2011

1Q

2012

2Q

2012

3Q

2012

4Q

2012

(%)

% Tightening

% Easing


Net % of U.S. Lenders Reporting Higher Demand for Commercial

and Industrial Loans

-80

-60

-40

-20

0

20

40

60

Dec 0

3

Jun 0

4

Dec 0

4

Jun 0

5

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

(%)

Large and Medium Size Firms

Small Firms


U.S. Lending and Banking Activity Demand for commercial and industrial loans increased in the last quarter of 2012, as banks have been easing credit standards. While monetary stimulus continues, banks’ excess reserves have been trending slightly higher, which limit a portion of funds from flowing into the economy. Credit standards continue to be favorable for borrowers.

U.S. Commercial Banks Assets

0

2,000

4,000

6,000

8,000

10,000

12,000

Dec 0

3

Dec 0

4

Dec 0

5

Dec 0

6

Dec 0

7

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Dec 1

2

($ billions)

-15%

-10%

-5%

0%

5%

10%

15%

Gro

wth

Loans & Leases

Total Assets

Loans & Leases Grow th (YoY)


Monetary Base, Excess Reserves and Monetary Growth

0

1,000

2,000

3,000

4,000

Jan 0

8

Jul 0

8

Jan 0

9

Jul 0

9

Jan 1

0

Jul 1

0

Jan 1

1

Jul 1

1

Jan 1

2

Jul 1

2

Jan 1

3

$Bil.

0

2

4

6

8

10

12

M2 G

row

th (

%)

Monetary Base ($Bil)

Excess Reserves

M2 YoY % Grow th

Sources: Bloomberg, Federal Reserve, BMO Global Asset Management

Economy


Developed Countries CPI (YoY %)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

World Europe G10 Countries

U.S. Japan


Emerging Markets CPI (YoY %)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

World BRIC U.S. China


World Economic Growth and Inflation Eurozone economies slipped into recession in the first quarter of 2012, Germany being the last one to show a contraction in the first quarter of 2013. China posted 4.1% GDP growth in the first quarter of 2013, the slowest YoY growth since third quarter 2011. World inflation has been declining slightly since the end of third quarter 2011, but CPI in the BRIC economies inched up recently.

Real GDP Growth for Developed Countries

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

2006

2007

2008

2009

2010

2011

2012

YoY

GD

P G

row

th (

%)

Eurozone Germany France Japan


Real GDP Growth for BRIC Countries

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2006

2007

2008

2009

2010

2011

2012

YoY

GD

P G

row

th (

%)

Brazil Russia India China


Economy


Eurozone

Percentage Debt to GDP by Country on 12/31/2012

73.6

18.4

38.6

45.3

52.4

53.5

53.8

68.7

74.6

81.7

85.3

88.7

89.9

99.6

118.0

118.9

126.1

161.3

UNITED STATES

LUXEMBOURG

SWEDEN

DENMARK

SWITZERLAND

FINLAND

POLAND

NETHERLANDS

AUSTRIA

GERMANY

SPAIN

BRITAIN

FRANCE

BELGIUM

IRELAND

ICELAND

ITALY

GREECE


European Economies Many European economies are struggling, hampered by recession, high debt-to-GDP ratios and high sovereign yields compared to the rest of the developed world. Recent government yields have started to show more concern about the European governments’ ability to restrain spending.

European Governments

10-yr Bond Yields

0

1

2

3

4

5

6

7

8

Dec 0

7

Apr

08

Aug 0

8

Dec 0

8

Apr

09

Aug 0

9

Dec 0

9

Apr

10

Aug 1

0

Dec 1

0

Apr

11

Aug 1

1

Dec 1

1

Apr

12

Aug 1

2

Dec 1

2

Apr

13

(%) Germany

Italy

Spain


European Governments

10-yr Bond Yields

0

5

10

15

20

25

30

35

Dec 0

7

Apr

08

Aug 0

8

Dec 0

8

Apr

09

Aug 0

9

Dec 0

9

Apr

10

Aug 1

0

Dec 1

0

Apr

11

Aug 1

1

Dec 1

1

Apr

12

Aug 1

2

Dec 1

2

Apr

13

(%)

Germany

Greece

Ireland

Portugal

Greek debt restructured


Economy


European Economic Sentiment Indicators

60

70

80

90

100

110

120

Dec 0

4

Mar

05

Jun 0

5

Sep 0

5

Dec 0

5

Mar

06

Jun 0

6

Sep 0

6

Dec 0

6

Mar

07

Jun 0

7

Sep 0

7

Dec 0

7

Mar

08

Jun 0

8

Sep 0

8

Dec 0

8

Mar

09

Jun 0

9

Sep 0

9

Dec 0

9

Mar

10

Jun 1

0

Sep 1

0

Dec 1

0

Mar

11

Jun 1

1

Sep 1

1

Dec 1

1

Mar

12

Jun 1

2

Sep 1

2

Dec 1

2

Mar

13

Jun 1

3

Index L

evel

Eurozone Economic Sentiment

PortugalItaly

Greece

SpainGermany

France


European Countries Purchasing Managers Index (PMI)

30

35

40

45

50

55

60

65

Dec 0

4

Jun 0

5

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Index L

evel

European Countries PMI Output Index


European Economies Sentiment indicators from several European countries improved in May, following a couple of months of decline across several countries. The European Central Bank indicates there has been a nominal improvement in demand for commercial loans.

Economy

European Central Bank Survey

Change in Demand for Loans to Enterprises

-50

-40

-30

-20

-10

0

10

20

30

Dec 0

3

Dec 0

4

Dec 0

5

Dec 0

6

Dec 0

7

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Dec 1

2

Index L

evel

ECB Survey - Loan Demand



BRIC Economies Over the past 10 years, emerging market economies boomed. China grew by approximately 50%, while other Asian and BRIC economies doubled in size. As the world economies slow, near-term growth prospects are clearly much lower.

BRIC Countries

Percentage Debt to GDP by Country on 12/31/2012

54.9

12.2

51.9

31.7

64.2

73.6

BRAZIL

RUSSIA

INDIA

CHINA

ENTIRE WORLD

UNITED STATES


BRIC Governments

10-yr Bond Yields

0

2

4

6

8

10

12

14

Apr

10

Jul 1

0

Oct 10

Jan 1

1

Apr

11

Jul 1

1

Oct 11

Jan 1

2

Apr

12

Jul 1

2

Oct 12

Jan 1

3

Apr

13

(%)

Brazil Russia India China


Real GDP

100

120

140

160

180

200

220

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

GD

P (

4Q

02 =

100)

.

US

World

BRICS

China


Economy


U.S. Dollar Strength Relative to a Basket of Currencies

60

70

80

90

100

110

120

130

Dec

90

Dec

92

Dec

94

Dec

96

Dec

98

Dec

00

Dec

02

Dec

04

Dec

06

Dec

08

Dec

10

Dec

12

Index L

evel


U.S. Dollar Strength Relative to Euro

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

US

D/E

uro


Stronger Dollar

Stronger Euro

U.S. Dollar Strength Relative to Chinese Yuan

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

Yuan/U

SD


Stronger Yuan

Stronger Dollar

U.S. Dollar Strength Relative to Japanese Yen

60

70

80

90

100

110

120

130

140

150

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

Yen/U

SD


Stronger Yen

Stronger Dollar

Currencies Announcements regarding more aggressive monetary and fiscal stimuli from both the Japanese government and the Japanese Central Bank have pushed the Japanese yen down over 14% this year and down 29% since the end of 2011.

Economy


Total returns are based on Russell-style indices

performance and include dividends. Graphs depict price

levels only. Sources: Bloomberg L.P., BMO Global

Asset Management.

Investment Style Performance Despite June’s correction, the U.S., equity markets’ performance remains strong year-to-date. Small cap growth stocks have outperformed all other U.S. stock market segments through June, posting a 17.4% total return YTD. Value has outperformed growth year-to-date in the large and mid cap spaces.

Large Cap Stocks

550

600

650

700

750

800

850

900

950

Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13

Index L

evel

Russell 1000® Index2011: 1.5% TR

2012 : 16.4% TR


YTD 2013 : 13.9% TR

Small Cap Stocks

600

650

700

750

800

850

900

950

1,000

1,050

1,100

Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13

Index L

evel

Russell 2000® Index


2011: -4.1% TR 2012 : 16.3% TR

YTD 2013 : 15.9% TR

YTD6/30/2013

Value Blend Growth

Larg

e

15.9 13.9 11.8

Mid 16.1 15.5 14.7

Sm

all

14.4 15.9 17.4

Total Returns (%)

2012

Value Blend Growth

Larg

e

17.5 16.4 15.3

Mid 18.5 17.3 15.8

Sm

all

18.1 16.3 14.6

Stocks


Total returns are based on Russell-style indices

performance and include dividends. Total returns are

cumulative returns for the period, not annualized. Peak

market date is 10/09/2007. Low market date is

03/09/2009. Graphs depict price levels only. Sources:

Bloomberg L.P., BMO Global Asset Management.

Investment Style Performance All equity indices across styles and market caps have more than doubled their levels since their post-crisis lows. The annualized total returns since prior peaks are positive across market caps and styles, as the S&P 500® and the Dow Jones Industrial Average indices had reached record-high levels before the June swoon.

Total Returns (%)

As of 06/30/2013

Small Cap Stocks

300

400

500

600

700

800

900

1,000

1,100

Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Index L

evel



Since 10/09/2007

Peak: 25.4% TR

Since 03/09/2009

Low: 202.3% TR

Large Cap Stocks

350

450

550

650

750

850

950

Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Index L

evel


Since 10/09/2007

Peak: 18.1% TR

Since 03/09/2009

Low: 164.8% TR


10/9/2007

Value Blend Growth

Larg

e

9.6 18.1 26.0

Mid 27.7 28.7 28.0

Sm

all

20.8 25.4 29.3

Since Peak

3/9/2009

Value Blend Growth

Larg

e

173.2 164.8 157.0

Mid 226.1 210.5 196.0

Sm

all

198.8 202.3 205.2

Since Low

Stocks


Investment Style Valuations Current multiples of U.S. large cap companies remain below their historical norms and appear attractive relative to mid and small cap companies’ P/Es. Growth stocks are cheaper than value stocks, but they appear to be losing momentum.

*Data begins in June 1988. Data based on Russell-

style indices. Earnings are estimated earnings for the

next 12 months (NTM). Sources: FactSet, BMO

Global Asset Management.

Value vs. Growth Price to NTM Earnings

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

1.1x

Jun 88 Jun 90 Jun 92 Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12

Valu

e P

E /

Gro

wth

PE

Russell 1000® Value PE / Russell 1000® Growth PE

Value / Growth Avg. since Jun '88Growth Cheaper

Value Cheaper

Sources: FactSet, BMO Global Asset Management

Small vs. Large Price to NTM Earnings

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

1.1x

1.2x

1.3x

1.4x


Sm

all

Cap P

E /

Larg

e C

ap P

E .

Russell 2000® PE / Russell 1000® PE

Small / Large Avg. since Jun '88


Large Cap Cheaper

Small Cap Cheaper

C u rren t P /E

(A v g . P /E )Value Blend Growth

Larg

e 12.8

(13.4)

14.0

(15.9)

15.6

(19.6)

Mid 14.0

(13.7)

15.4

(15.5)

17.4

(19.4)

Sm

all

15.0

(13.6)

16.1

(15.4)

17.5

(17.9)

C u rren t P E as

% of A v g P EValue Blend Growth

Larg

e

95.0% 88.1% 79.5%

Mid 102.8% 99.3% 89.3%

Sm

all

109.9% 104.5% 97.8%

0.3x

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

1.1x


P/E vs. Long Term Average*

As of 06/30/2013

Stocks


As of

06/30/2013Russell Index

Materials and

ProcessingUtilities

Consumer

StaplesEnergy

Producer

DurablesHealth Care

Consumer

DiscretionaryFinancials Technology

MTD -1.4% -4.2% 1.4% -0.2% -2.1% -1.7% -0.8% 0.4% -1.3% -3.8%

YTD 2013 13.9% 3.7% 11.5% 15.9% 9.5% 14.5% 20.6% 18.8% 18.5% 4.7%

2012 16.4% 18.0% 7.8% 10.0% 4.2% 16.3% 19.6% 25.8% 27.4% 12.5%

MTD -0.5% -4.7% 0.4% 2.3% -3.7% -0.7% 0.1% -0.2% -0.1% 0.7%

YTD 2013 15.9% 3.4% 11.5% 22.8% 10.9% 16.3% 21.5% 23.3% 13.6% 15.7%

2012 16.3% 28.2% 6.1% 10.9% -3.6% 16.6% 17.7% 24.1% 21.8% 10.3%

LA

RG

E C

AP

EQ

UIT

IES

SM

AL

L C

AP

EQ

UIT

IES

Russell 1000® Index Composition

4.2%5.7%

11.1%

11.9%15.4%

18.6%

15.0%

9.6%

8.4%

Russell 2000® Index Composition

6.9%3.5%

13.4%

12.7%16.2%

23.4%

13.5%

3.9%

6.4%

Sources: Bloomberg L.P., BMO Global Asset Management . Sector break-down based on Russell categories.

Sector Performance Following a weak performance in May, the large-cap Utilities sector regained its position as the top performer in June. Health Care and Consumer Discretionary took the lead on a year-to-date basis in June in the large cap space with Financials close behind. Small cap stocks outperformed large cap stocks in June and year-to-date.

Materials and Processing

Utilities

Consumer Staples

Energy

Producer Durables

Health Care

Consumer Discretionary

Financials

Technology

Stocks


Dividend Yield

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Dec 8

2

Dec 8

4

Dec 8

6

Dec 8

8

Dec 9

0

Dec 9

2

Dec 9

4

Dec 9

6

Dec 9

8

Dec 0

0

Dec 0

2

Dec 0

4

Dec 0

6

Dec 0

8

Dec 1

0

Dec 1

2

(%)

Russell 1000® Div Yld

Average Div Yld

Avg +/- Std Dev Div Yld

5-Yr Tsy Bond

Sources: FactSet, Bloomberg L.P., BMO Global Asset Management

Year-End Consensus EPS Estimate for the S&P 500® Index

97.02011 YE

2012 YE

102.2

110.1

2013 YE122.4

2014 YE

90

95

100

105

110

115

120

125

130

Dec 0

9

Mar

10

Jun 1

0

Sep 1

0

Dec 1

0

Mar

11

Jun 1

1

Sep 1

1

Dec 1

1

Mar

12

Jun 1

2

Sep 1

2

Dec 1

2

Mar

13

($)/

Share


Implied Stock Market Volatility and the S&P 500® Index

600

800

1,000

1,200

1,400

1,600

1,800

Dec 0

7

Mar

08

Jun 0

8

Sep 0

8

Dec 0

8

Mar

09

Jun 0

9

Sep 0

9

Dec 0

9

Mar

10

Jun 1

0

Sep 1

0

Dec 1

0

Mar

11

Jun 1

1

Sep 1

1

Dec 1

1

Mar

12

Jun 1

2

Sep 1

2

Dec 1

2

Mar

13

S&

P 5

00®

Index

0

10

20

30

40

50

60

70

80

90

VIX

Index

S&P 500® Index

VIX Index


Other Stock Valuations and Metrics Stocks still offer an attractive dividend yield when compared to U.S. Treasury bonds. The estimated EPS for 2013 translates into earnings growth of 9% versus year-end 2012. In 2012, earnings were up 5%.

U.S. Large Cap Stocks Price to NTM Earnings

8

10

12

14

16

18

20

22

24

26

Jun 8

8

Jun 9

0

Jun 9

2

Jun 9

4

Jun 9

6

Jun 9

8

Jun 0

0

Jun 0

2

Jun 0

4

Jun 0

6

Jun 0

8

Jun 1

0

Jun 1

2

Larg

e C

ap P

E

Russell 1000® PE

Avg. Large Cap PE since Jun '88


Stocks


2.0

4.2

2.23.7

9.7

2.6

9.8

7.7

15.8

-1.0 -0.6-1.4 -1.0

-2.6-1.5

-4.3

1.4

-3.2-2.8-1.5-1.1

-0.8-2.1 -2.0

-3.4-2.4-1.3

-6.0

-3.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

U.S. Treasury U.S. Agg. Agencies ABS CMBS MBS Corporates Non-Corp HY

Bo

nd

s T

ota

l R

etu

rns (

%)

12/31/2012 1-Mo YTD (06/30/2013)

Sources: Barclays Capital, BMO Global Asset Management

U.S. Bond Market Performance With the exception of High Yield’s 1.4% return year-to-date, the uptick in yields has caused all bond sectors to post negative returns for June and year-to-date. June’s volatility has caused Corporates to underperform the U.S. Treasury index month-to-date and year-to-date.

Bonds

22797

246

841

91

734

547

1,394

-175 -165-33 -27-90 -118

-12-34

13

-36

NA

-35-155

-53-8

291

-51

-300

0

300

600

900

1,200

1,500

U.S. Treasury U.S. Agg. Agencies ABS CMBS MBS Corporates Non-Corp HY

Bo

nd

s E

xcess R

etu

rns v

s.

Tre

asu

ry B

on

ds

Wit

h S

imil

ar

Du

rati

on

(b

ps)

12/31/2012 1-Mo YTD (06/30/2013)



Fed Funds Futures

- Market Expectations for the Fed Funds Rate -

0.0

0.2

0.4

0.6

0.8

Jun 1

2

Aug 1

2

Oct

12

Dec 1

2

Feb 1

3

Apr

13

Jun 1

3

Aug 1

3

Oct

13

Dec 1

3

Feb 1

4

Apr

14

Jun 1

4

Aug 1

4

Oct

14

Dec 1

4

Feb 1

5

Apr

15

Jun 1

5

Futures Expiration Date

(%)

6/28/2012

3/28/2013

6/28/2013

Target


Treasury Yield Curve

0.0

1.0

2.0

3.0

4.0

3 m

o

6 m

o

2 y

r

5 y

r

10 y

r

20 y

r

30 y

r

(%)

12/31/2011

12/31/2012

06/30/2013


U.S. Treasury Yields

0.0

1.5

3.0

4.5

6.0

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

(%) 3-Mo T-Bill

2-Yr Tsy Note

10-Yr Tsy Note


U.S. Treasury Yields U.S. Treasury yields jumped again in June by 36 bps for the 10-yr maturity, which posted -2.6% return for the month. The 30-yr Treasury bond’s yield rose 22 bps and posted a total return of -3.4% for June.

Bonds

Implied Forecast of Treasury Yields from Futures Market

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

3 m

o

6 m

o

2 y

r

5 y

r

10 y

r

20 y

r

30 y

r

Yie

ld (

%)

Implied Yields from Futures Curve

for 03/31/2014

Yield Curve on 06/30/2013



U.S. Investment Grade Corporates OAS

0

100

200

300

400

500

600

700

Ja

n 9

7

Ja

n 9

8

Ja

n 9

9

Ja

n 0

0

Ja

n 0

1

Ja

n 0

2

Ja

n 0

3

Ja

n 0

4

Ja

n 0

5

Ja

n 0

6

Ja

n 0

7

Ja

n 0

8

Ja

n 0

9

Ja

n 1

0

Ja

n 1

1

Ja

n 1

2

Ja

n 1

3

Avg (157 bps)

Avg - 1 Stdev (63 bps)

Avg + 1 Stdev (251 bps)



The average and standard deviation are calculated using monthly data starting January 1997.

Bond Spreads Corporate spreads had been on a declining path since the uptick in May 2012, but spreads increased in June 2013. Spreads fell below the long-term average in September 2012 and remain there. High Yield spreads widened in June, as well.

Corporate Bonds OAS Level

(daily)

100

150

200

250

300

350

400

Ja

n 1

0

Ma

r 1

0

Ma

y 1

0

Ju

l 1

0

Se

p 1

0

No

v 1

0

Ja

n 1

1

Ma

r 1

1

Ma

y 1

1

Ju

l 1

1

Se

p 1

1

No

v 1

1

Ja

n 1

2

Ma

r 1

2

Ma

y 1

2

Ju

l 1

2

Se

p 1

2

No

v 1

2

Ja

n 1

3

Ma

r 1

3

Ma

y 1

3

Inve

stm

en

t G

rad

e O

AS

(b

ps)

400

450

500

550

600

650

700

750

800

850

900

Hig

h Y

ield

OA

S (

bp

s)

Corporates

Financials

HY


Bonds

U.S. Credit OAS

0

100

200

300

400

500

600

Ja

n 9

7

Ja

n 9

8

Ja

n 9

9

Ja

n 0

0

Ja

n 0

1

Ja

n 0

2

Ja

n 0

3

Ja

n 0

4

Ja

n 0

5

Ja

n 0

6

Ja

n 0

7

Ja

n 0

8

Ja

n 0

9

Ja

n 1

0

Ja

n 1

1

Ja

n 1

2

Ja

n 1

3

Avg (146 bps)






BBB rated U.S. Corporates OAS

0

100

200

300

400

500

600

700

800

Ja

n 9

7

Ja

n 9

8

Ja

n 9

9

Ja

n 0

0

Ja

n 0

1

Ja

n 0

2

Ja

n 0

3

Ja

n 0

4

Ja

n 0

5

Ja

n 0

6

Ja

n 0

7

Ja

n 0

8

Ja

n 0

9

Ja

n 1

0

Ja

n 1

1

Ja

n 1

2

Ja

n 1

3

Avg (202 bps)





Emerging Markets OAS

0

100

200

300

400

500

600

700

800

900

1,000

Au

g 0

0

Au

g 0

1

Au

g 0

2

Au

g 0

3

Au

g 0

4

Au

g 0

5

Au

g 0

6

Au

g 0

7

Au

g 0

8

Au

g 0

9

Au

g 1

0

Au

g 1

1

Au

g 1

2

Avg (415 bps)Avg - 1 Stdev (215 bps)Avg + 1 Stdev (614 bps)Avg + 2 Stdev (814 bps)


Emerging Markets Corporates OAS

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Au

g 0

0

Au

g 0

1

Au

g 0

2

Au

g 0

3

Au

g 0

4

Au

g 0

5

Au

g 0

6

Au

g 0

7

Au

g 0

8

Au

g 0

9

Au

g 1

0

Au

g 1

1

Au

g 1

2

Avg (519 bps)Avg - 1 Stdev (206 bps)

Avg + 1 Stdev (831 bps)Avg + 2 Stdev (1144 bps)


The average and standard deviation are calculated using monthly data starting in January 1997 for the U.S. series, and starting in August 2000 for the Emerging Markets series.

Bond Spreads The trend of spreads tightening ended with June’s uptick across the market, although levels remain below long-term averages. Emerging market spreads on corporate debt also landed below their long-term average, where they remain despite the recent uptick.

U.S. High Yield Corporates OAS

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Ja

n 9

7

Ja

n 9

8

Ja

n 9

9

Ja

n 0

0

Ja

n 0

1

Ja

n 0

2

Ja

n 0

3

Ja

n 0

4

Ja

n 0

5

Ja

n 0

6

Ja

n 0

7

Ja

n 0

8

Ja

n 0

9

Ja

n 1

0

Ja

n 1

1

Ja

n 1

2

Ja

n 1

3

Avg (564 bps)





Bonds


AAA Municipals and Treasury Yield Curves

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

3 m

o

6 m

o

2 y

r

5 y

r

10

yr

20

yr

30

yr

Yie

ld (

%)

Municipals Curve on 06/30/2013

Treasury Curve on 06/30/2013


AAA Municipals vs. Treasury Yields

0.0

0.5

1.0

1.5

2.0

2.5

De

c 0

5

Ju

n 0

6

De

c 0

6

Ju

n 0

7

De

c 0

7

Ju

n 0

8

De

c 0

8

Ju

n 0

9

De

c 0

9

Ju

n 1

0

De

c 1

0

Ju

n 1

1

De

c 1

1

Ju

n 1

2

De

c 1

2

Ju

n 1

3

Ratio of 10-Yr AAA Muni Yield to 10-Yr Treasury Yield

Ratio of 30-Yr AAA Muni Yield to 30-Yr Treasury Yield

Ratio of 1

Sources: Bloomberg, L.P., BMO Global Asset Management

Yield Spread vs. 10-year AAA Municipal Bond

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

De

c 0

0

De

c 0

1

De

c 0

2

De

c 0

3

De

c 0

4

De

c 0

5

De

c 0

6

De

c 0

7

De

c 0

8

De

c 0

9

De

c 1

0

De

c 1

1

De

c 1

2

A Spread

BBB Spread


AAA Municipals Bond Yields

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

De

c 0

0

De

c 0

1

De

c 0

2

De

c 0

3

De

c 0

4

De

c 0

5

De

c 0

6

De

c 0

7

De

c 0

8

De

c 0

9

De

c 1

0

De

c 1

1

De

c 1

2

10-Yr AAA Muni

30-Yr AAA Muni


Municipal Bonds Reflecting the retail nature of the municipal bond market, tax-exempt yields moved slightly higher relative to Treasury yields. Bonds


* The average OAS and standard deviation of OAS for the Emerging Market indices are based on monthly data starting in August 2000.


Bond Market Snapshot Bonds

6/30/2013U.S.

AggregateU.S. Treasury

1-10 yr

Municipals

Inv. Grade

CorporatesFinance Industrial MBS

High

Yield

Emerging

Markets

(EM)

EM

Corporates

Global IG

Bonds ex-US

MTD Total Return -1.55 -1.10 -1.61 -2.76 -2.45 -2.88 -0.96 -2.62 -4.47 -4.26 -0.85

3-Month Total Return -2.32 -1.92 -1.83 -3.31 -2.78 -3.48 -1.96 -1.44 -5.14 -4.96 -3.08

YTD Total Return -2.44 -2.11 -1.34 -3.41 -1.93 -4.14 -2.01 1.42 -6.52 -4.84 -6.48

12-Month Total Return -0.69 -1.64 0.34 1.36 4.98 -0.34 -1.10 9.49 3.09 4.09 -3.40

MTD Excess Return -0.36 NA NA -1.18 -1.21 -1.18 0.13 -1.65 -2.89 -2.89 -0.28

3-Month Excess Return -0.34 NA NA -0.54 -0.63 -0.48 -0.38 0.14 -2.34 -2.58 0.38

YTD Excess Return -0.33 NA NA -0.27 0.35 -0.70 -0.51 2.91 -3.55 -2.40 0.60

12-Month Excess Return 0.98 NA NA 4.06 6.74 2.69 -0.05 10.41 5.47 5.88 2.03

Yield to Maturity 2.36 1.23 1.87 3.36 3.08 3.44 3.12 7.02 5.43 5.96 1.85

OAS 61 NA NA 152 158 149 60 492 358 431 60

Average* OAS (since Jan 1997) 66 NA NA 157 166 152 61 564 415 519 37

Std Dev* of OAS (since Jan 1997) 36 NA NA 94 130 75 30 268 200 313 30

Effective Duration (years) 5.49 5.15 4.30 6.87 5.42 7.35 5.22 4.41 5.86 5.11 6.69

Effective Maturity (years) 7.45 6.25 5.92 10.22 7.47 11.13 7.12 6.73 9.28 7.21 8.27

Coupon 3.40 2.09 4.82 4.74 4.70 4.64 4.04 7.53 6.03 5.92 3.13

Price 104.56 103.34 110.00 106.69 106.54 106.27 104.15 101.57 101.65 98.03 106.83

Market Value ($ millions) 16,585,274 6,057,723 646,371 3,560,728 1,161,307 2,007,384 4,868,582 1,156,969 1,224,810 348,118 23,952,959

Quality AA1/AA2 AAA/AAA AA2/AA3 A3/BAA1 A2/A3 A3/BAA1 AAA/AAA B1/B2 BAA2/BAA3 BAA3/BA1 n/a


Commodities Commodities had experienced an increase in their correlation to equity prices with the onset of the last credit crisis. However, a decoupling trend began in 2011, and commodities have significantly underperformed equities since. The year-to-date return of -40% for precious metals stands out among commodity groups.

Alternative

Assets

Commodities and Stocks

0

50

100

150

200

250

Dec 9

1

Dec 9

2

Dec 9

3

Dec 9

4

Dec 9

5

Dec 9

6

Dec 9

7

Dec 9

8

Dec 9

9

Dec 0

0

Dec 0

1

Dec 0

2

Dec 0

3

Dec 0

4

Dec 0

5

Dec 0

6

Dec 0

7

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Dec 1

2

Com

moditie

s I

ndex L

evell

0

500

1,000

1,500

2,000

Sto

ck I

ndex L

evel

DJ UBS Commodity Index

S&P 500® Index


As of 06/30/2013

DJ UBS

Agriculture

Subindex

DJ UBS

Livestock

Subindex

DJ UBS Grains

Subindex

DJ UBS Energy

Subindex

DJ UBS Precious

Metals Subindex

DJ UBS

Industrial Metals

Subindex

DJ UBS

Commodity

Index

S&P 500® Index

MTD -4.2 3.1 -6.1 -2.6 -15.2 -7.1 -4.7 -1.3

YTD 2013 -7.5 -4.4 -7.4 -2.0 -39.7 -17.4 -10.5 13.8

2012 3.9 -3.6 18.1 -9.4 -14.5 0.6 -1.1 16.0



Crude Oil and Natural Gas Prices

0

20

40

60

80

100

120

140

160

De

c 9

0

De

c 9

2

De

c 9

4

De

c 9

6

De

c 9

8

De

c 0

0

De

c 0

2

De

c 0

4

De

c 0

6

De

c 0

8

De

c 1

0

De

c 1

2

Cru

de

Oil

($/b

arb

ell

0

2

4

6

8

10

12

14

16

Na

tura

l G

as (

$/B

tu)

Crude Oil

Natural Gas


Commodities Natural gas, the star performer in 2012, has posted a relatively strong year-to-date performance, despite a significant decline in June. DJ UBS Commodity Index declined year-to-date, led by gold’s decline, which dropped 26% through the end of June.

Price of Gold

0

250

500

750

1,000

1,250

1,500

1,750

2,000

De

c 9

0

De

c 9

2

De

c 9

4

De

c 9

6

De

c 9

8

De

c 0

0

De

c 0

2

De

c 0

4

De

c 0

6

De

c 0

8

De

c 1

0

De

c 1

2

Go

ld (

$/t

roy o

z)

Gold


Commodities Total Return

6.08.0 7.1 5.8

-4.3

12.1

-1.1

-16.5

-2.7

-26.3

4.1

-10.5-8.1 -7.6

4.7

-10.5

-4.7

6.4

-16.5

-11.0

2.6

-30.0

-20.0

-10.0

0.0

10.0

20.0

Wheat Corn Gold Copper West Texas Oil Natural Gas DJ UBS Commodity

Index

(%) 2012 YTD (06/30/13) MTD


Alternative

Assets


REITS and Stocks

0

50

100

150

200

250

300

De

c 9

9

De

c 0

0

De

c 0

1

De

c 0

2

De

c 0

3

De

c 0

4

De

c 0

5

De

c 0

6

De

c 0

7

De

c 0

8

De

c 0

9

De

c 1

0

De

c 1

1

De

c 1

2

RE

IT I

nd

ex L

eve

l .

0

500

1,000

1,500

2,000

Sto

ck I

nd

ex L

eve

l

Wilshire U.S. REIT Index

S&P 500® Index


Global Infrastructure and Stocks

0

500

1,000

1,500

2,000

2,500

3,000

3,500

De

c 9

9

De

c 0

0

De

c 0

1

De

c 0

2

De

c 0

3

De

c 0

4

De

c 0

5

De

c 0

6

De

c 0

7

De

c 0

8

De

c 0

9

De

c 1

0

De

c 1

1

De

c 1

2

Infr

astr

uctu

re I

nd

ex L

eve

l

0

500

1,000

1,500

2,000

Sto

ck I

nd

ex L

eve

l

S&P Global Infrastructure Index

S&P 500® Index


Other Alternative Assets June continued the tough performance from May for alternatives (Hedge Funds, REITs, and Infrastructure), as they have significantly underperformed U.S. stocks year-to-date.

Total returns for periods of one year or more are annualized.

Alternative

Assets

Alternatives Total Return

3.75.0

7.4

0.5

7.1

4.83.6

2.4

13.8

0.7

-2.7-1.3

9.5

1.3

-0.3

-2.1-4.0

0.0

4.0

8.0

12.0

16.0

HFRI FOF Diversif ied Index S&P Global REIT Index S&P Global Infrastructure Index S&P 500® Index

(%)

10-Yr (05/31/13)

5-Yr (05/31/13)

YTD (05/31/13)

MTD



Sandy Lincoln Chief Market Strategist

Bob Decker, CFA Director, Quantitative Strategies

Irina Pacheco, CFA Vice President, Quantitative Strategies

Investment Strategy Group


Index Definitions

Equity Indices

S&P 500® Index

The S&P 500® Index is an unmanaged index of large-cap common stocks.

Dow Jones Industrial Average

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on

the New York Stock Exchange and the Nasdaq.


Russell 1000® Index consists of approximately 1,000 of the largest companies in the U.S. equity

markets.

Russell 1000® Growth Index

Russell 1000® Growth Index measures the performance of those Russell 1000 Companies with

higher price-to-book ratios and higher forecasted growth values.

Russell 1000® Value Index

Russell 1000® Value Index measures the performance of those Russell 1000 Companies with

lower price-to-book ratios and lower forecasted growth values.

Russell Midcap® Index

Russell Midcap® Index measures the performance of the smallest 800 U.S. companies in the

Russell 1000 Index.

Russell Midcap® Growth Index

Russell Midcap® Growth Index measures the performance of those Russell Midcap companies

with higher price-to-book ratios and higher forecasted growth values.

Russell Midcap® Value Index

Russell Midcap® Value Index measures the performance of those Russell Midcap companies with


Russell 2500TM Index

The Russell 2500TM Index measures the performance of the small to mid-cap segment of the U.S.

equity universe. It is a subset of the Russell 3000® Index.


Russell 2000® Index is an unmanaged index that measures the performance of the smallest 2000

U.S. companies in the Russell 3000® Index.

Russell 2000® Growth Index

Russell 2000® Growth Index measures the performance of those Russell 2000 Companies with

higher price-to-book ratios and higher forecasted growth values.

Russell 2000® Value Index

Russell 2000® Value Index measures the performance of those Russell 2000 Companies with


Investments cannot be made in an index.

MSCI ACWI ex USA Index

The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is

designed to measure the equity market performance of developed and emerging markets.

MSCI EAFE Index (Developed Markets)

The MSCI EAFE Index Europe, Australasia, and Far East Index (EAFE) is a standard unmanaged

foreign securities index representing major non-U.S. stock markets, as monitored by Morgan

Stanley Capital International.

MSCI European Monetary Union Index

The MSCI EMU (European Economic and Monetary Union) Index is a free float-adjusted market

capitalization weighted index that is designed to measure the equity market performance of

countries within EMU.

MSCI AC Asia Pacific Index

The MSCI AC Asia Pacific Index is a free float-adjusted market capitalization weighted index that

is designed to measure the equity market performance of Asia and Pacific region.

MSCI Emerging Markets Index

The MSCI Emerging Markets Index is a market capitalization weighted index comprised of over

800 companies representative of the market structure of the emerging countries in Europe, Latin

America, Africa, Middle East and Asia. Prior to January 1, 2002, the returns of the MSCI Emerging

Markets Index were presented before application of withholding taxes.

NASDAQ Composite Index

The NASDAQ Composite Index is a market-cap weighted index of the more than 3,000 common

equities listed on the Nasdaq stock exchange.

STOXX Europe 600 Index

The STOXX Europe Index represents 600 large, mid, and small capitalization companies across

18 countries of the European Region.

Duetsche Borse AG German Stock Index

The Duetsche Borse AG German Stock Index (DAX) is a total return index of 30 selected German

blue chip stocks traded on the Frankfurt Stock Exchange. The equities use free float shares in the

index calculation.

CAC 40 Index

CAC 40 Index is a modified cap-weighted index of 40 companies on the Paris Bourse.

Shanghai Stock Index

Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks

the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

NIKKEI 225 Index

The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies

listed in the First Section of the Tokyo Stock Exchange.


Fixed Income Indices

Barclays U.S. Aggregate Index

The Barclays U.S. Aggregate Bond Index is an unmanaged index that covers the U.S.

investment-grade fixed-rate bond market, including government and credit securities,

agency mortgage pass-through securities, asset-backed securities and commercial

mortgage-based securities.

Barclays U.S. Interm. Gov/Crd Index

The Barclays Intermediate U.S. Government/Credit Index (Barclays Int Gov’t/Credit) is

an unmanaged index comprised of government and corporate bonds rated BBB or

higher with maturities between 1-10 years.

Barclays U.S. Corporate Index

The Barclays U.S. Corporate Bond Index is designed to measure the performance of

the U.S. corporate bond market.

Barclays U.S. Treasury Index

The Barclays U.S. Treasury Index is an unmanaged index that includes a broad range

of U.S. Treasury obligations and is considered representative of U.S. Treasury bond

performance overall.

Barclays Securitized Index

The Barclays U.S. Securitized Bond Index is an unmanaged index of asset-backed

securities, collateralized mortgage-backed securities (ERISA-eligible), and fixed-rate

mortgage-backed securities.

Barclays High Yield Index

The Barclays U.S. Corporate High-Yield Bond Index is an unmanaged index that covers

the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond

market.

B of A Merrill Lynch High Yield BB/B Constr. Index

The Bank of America Merrill Lynch BB-B Global High Yield Index is a subset of The

Bank of America Merrill Lynch Global High Yield Index including all securities rated BB1

through B3, inclusive.

Barclays 1-10 yr Municipals Index

The Barclays 1-10 Year Municipal Blend Index is a market value-weighted index which

covers the short and intermediate components of the Barclays Municipal Bond Index—

an unmanaged, market value-weighted index which covers the U.S. investment-grade

tax-exempt bond market.


Barclays Global Aggregate Bond Index

The Barclays Global Aggregate Bond Index is an index of global government,

government-related agencies, corporate and securitized fixed-income investments.

Barclays Global Credit Index

The Barclays Global Credit Index is the credit component of the Barclays Global

Aggregate Index, an index of global government, government-related agencies,

corporate and securitized fixed-income investments.

Barclays Emerging Markets Bond Index

The Barclays Emerging Markets Index includes fixed and floating-rate USD-

denominated debt from emerging markets in the following regions: Americas, Europe,

Middle East, Africa, and Asia. For the index, an emerging market is defined as any

country that has a long-term foreign currency debt sovereign rating of

Baa1/BBB+/BBB+ or below, using the middle rating of Moody's, S&P and Fitch. The

index was launched on January 1, 1997 with index history backfilled to January 1, 1993.

The Barclays Emerging Markets Corporate Index is a component of the Barclays US

Emerging Markets Index which is made up of debt issued by corporations.

Index Definitions


Index Definitions

Alternative Investments Indices

DJ UBS Commodity Index

The Dow Jones-UBS Commodity Total Return Index is composed of commodities

traded on U.S. exchanges and it reflects the returns that are potentially available

through an unleveraged investment in the futures contracts on physical commodities

comprising the index plus the rate of interest that could be earned on cash collateral

invested in specified Treasury Bills.

DJ UBS Agriculture Subindex Index

The Dow Jones-UBS Agriculture Subindex is a sub-index of the Dow Jones UBS

Commodity Index and is currently composed of seven futures contracts on agricultural

commodities traded on U.S. exchanges.

DJ UBS Livestock Subindex Index

The Dow Jones-UBS Livestock Subindex is a sub-index of the Dow Jones UBS

Commodity Index and it is currently composed of two livestock commodities contracts

(lean hogs and live cattle) traded on U.S. exchanges.

DJ UBS Grains Subindex Index

The Dow Jones-UBS Grains Subindex is a sub-index of the Dow Jones UBS

Commodity Index and it is currently composed of three futures contracts on grains

traded on U.S. exchanges.

DJ UBS Energy Subindex Index

The Dow Jones-UBS Energy Subindex is a sub-index of the Dow Jones UBS

Commodity Index and it is currently composed of four energy-related commodities

contracts (crude oil, heating oil, natural gas and unleaded gasoline) traded on U.S.

exchanges.

DJ UBS Precious Metals Subindex Index

The Dow Jones-UBS Precious Metals Subindex is a sub-index of the Dow Jones UBS

Commodity Index and it is currently composed of two precious metals commodities

contracts (gold and silver).

DJ UBS Industrial Metals Subindex Index

The Dow Jones-UBS Industrial Metals Subindex is a sub-index of the Dow Jones UBS

Commodity Index and it is currently composed of four futures contracts on industrial

metals, three of which (aluminum, nickel and zinc) are traded on the London Metal

Exchange and the other of which (copper) is traded on the COMEX division of the New

York Mercantile Exchange.


MSCI ACWI Commodity Producers Index

The MSCI ACWI Commodity Producers Index is a component of the broader MSCI

Commodity Producers Indices and covers large, mid and small cap companies across

45 Developed and Emerging Markets.

Wilshire US REIT Index

The Wilshire US REIT Index measures U.S. publicly traded Real Estate Investment

Trusts. It is a subset of the Wilshire US Real Estate Securities Index.

S&P Global REIT Index

The S&P Global REIT Index measures the performance of real estate investment trusts

in both developed and emerging markets.

S&P Global Infrastructure Index

The S&P Global Infrastructure Index provides liquid and tradable exposure to 75

companies from around the world that represent the listed infrastructure universe

including utilities, transportation and energy.


Index Definitions

Other Indices

S&P/Case-Shiller 20-City Index

The S&P/Case-Shiller 20-City Home Price Index is a composite index of the home price

index for 20 major metropolitan statistical areas in the U.S.

VIX Index

The Chicago Board Options Exchange Market Volatility Index is a measure of implied

volatility of S&P 500 index options, often referred to as the “fear” index.

CPI Index

The Consumer Price Index is a measure that examines the weighted average of prices

of a basket of consumer goods and services, such as transportation, food and medical

care.

Economic Cycle Research Institute (ECRI) Weekly Leading Index

ECRI Index is released each Friday by the Economic Cycle Research Institute, and

identifies turning points in the economic cycle that are indicated by pronounced

changes in the index. The index contains money supply data, stock prices, an industrial

markets price index developed by the organization, mortgage applications, bond quality

spread, bond yields, and initial jobless claims. An advantage of the index is that it is

very timely. ECRI is a New York-based independent forecasting group.

Conference Board Leading Economic Index® (LEI) for the U.S.

The leading economic index is composite average of several individual leading

indicators. It is constructed to summarize and reveal common turning point patterns in

economic data in a clearer and more convincing manner than any individual component

– primarily because it smoothes out some of the volatility of individual components.

Chicago Fed National Activity Index (CFNAI)

The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge

overall economic activity and related inflationary pressure and it is a weighted average

of 85 existing monthly indicators. A zero value indicates that the economy is expanding

at its historical trend rate of growth; negative values indicate below-average growth; and

positive values indicate above-average growth. When the 3-month moving average

moves below -0.7 following a period of economic expansion, there is an increased

likelihood that a recession has begun. When the 3-month moving average moves above

+0.7 more than two years into an economic expansion, there is an increased likelihood

that a period of sustained increasing inflation has begun (source: www.chicagofed.org).


European Countries Purchasing Manager Index

The PMIs are designed to provide a single figure snapshot for the Eurozone. It is based

on a survey of over 3,000 business executives in the Euro area and it is designed to

provide the most up-to-date picture of business conditions. Anything above 50 indicates

expansion; below 50, a contraction. The greater the divergence from 50, the greater the

rate of change. The index in released by Markit Economics.

Univ. Of Michigan Survey of Consumer Confidence Sentiment is a survey of

consumer attitudes concerning both the present situation as well as expectations

regarding economic conditions conducted by the University of Michigan. It has a base

year 1966=100.

ISM Purchasing Managers Indices compare changes in various market areas on a

month to month basis and include prices paid for all purchases.

HFRI FOF Diversified Index

The Hedge Fund Research Diversified Index invests in a variety of strategies among

multiple hedge funds managers. A fund in the HFRI FOF Diversified Index tends to

show minimal loss in down markets while achieving superior returns in up markets.

http://www.chicagofed.org/






Disclosures

For further information, please visit our websites at

BMO Funds www.bmofundsus.com

BMO Asset Management Corp. www.bmogamus.com

This is not intended to serve as a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our

judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.

This publication is prepared for general information only. This material does not constitute investment advice and is not intended as an endorsement of any specific

investment. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this

report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report

and should understand that statements regarding future prospects may not be realized. Investment involves risk. Market conditions and trends will fluctuate. The

value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested.

Investments cannot be made in an index. Past performance is not necessarily a guide to future performance.

BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide trust, custody, securities lending, investment

management, and retirement plan services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed

specifically for various categories of investors in a number of different countries and regions. Products and services are only offered to such investors in those

countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).

Investment products are: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

©2013 BMO Financial Corp.

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