MLWM Core Deck Presentation - Merrill Lynch...Strategies Performance & Earnings Estimate Revision...
Transcript of MLWM Core Deck Presentation - Merrill Lynch...Strategies Performance & Earnings Estimate Revision...
Q1 2013
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2
Executive Summary
Market Outlook
Market Review
Macroeconomic Update
Economic Conditions
Unemployment
Fed and Inflation
Fiscal Challenges
Policy Uncertainty, Consumer Spending & Sentiment
Consumer Credit Growth
Trade Balance
Housing Recovery
Pend Up Demand
Equities
US Equity Market Performance
Equity Fundamentals
Strategies Performance & Earnings Estimate Revision
Great Rotation
Active Managers
Sector Performance
Fixed Income
A Low Yield Environment
Credit Risk over Duration Risk
Fixed Income Market Update
Alternative Investments
Hedge Funds
Private Equity
Commodities
Currencies
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Table of Contents
Portfolio Management
Potential Risks to Capital Markets
Merrill Lynch Strategic Asset Allocation (Tier 0)
Merrill Lynch Dynamic Asset Allocation (Tier 0)
Merrill Lynch Strategic Asset Allocation (Tier 3)
Merrill Lynch Current Capital Market Return Assumptions
Historical Asset Class Performance
In Focus
Chinese Rebound
Reflating Japan’s Economy
US Energy Independence
Appendix
28
29
30
31
32
33
34
35
36
37
3
600
800
1,000
1,200
1,400
1,600
1997 1999 2001 2003 2005 2007 2009 2011 2013
70
80
90
100
110
120
130
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US
D/J
PY
USDJPY 200-day MA
In Focus Appendix Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Risk assets continue to rally in Q1 of 2013 as global
economic recovery displays regional divergences.
• US economy continues to show resilience despite fiscal
headwinds (higher taxes and spending cuts).
• Europe continues to muddle through its debt crisis
dealing with flare ups along the way. Cyprus was the
latest country to receive a bailout.
• Japan’s central bank took cues from the Fed by
implementing an aggressive monetary stimulus to
reflate its economy currently mired by low growth and
deflation.
• Emerging markets activity was affected by China
weakness and higher inflation expectations compared
to 2012.
S&P 500 Index sets new record high as Developed
Markets outperform Emerging Markets.
• The S&P 500 Index closed at 1,569 for the quarter, up
10.6% on a total return basis exceeding other major
markets. MSCI Pacific Index, which was up 9.8%,
benefited from the rally in the Japanese equity markets.
• The US Large Cap Russell 1000 Index and Russell
Midcap Index rose 11% and 13%, respectively. Large
Cap Value stocks outperformed Large Cap Growth. The
Russell 1000 Value Index was up 12.3%, compared to a
9.5% gain in the Russell 1000 Growth Index.
• Emerging Markets (EM) lagged Developed Markets, with
the MSCI Emerging Markets Index down 1.6% for the
quarter compared to the MSCI EAFE Index, which was
up 5.2%.
Investors continue to favor riskier, lower quality bonds led
by high yield bonds.
• ML US Broad Market Index posted a -0.11% return for
the quarter - the first negative quarter since 4Q 2010.
The 10-year US Treasury yield averaged 1.91% and rose
to a high of 2.06% during the quarter before dropping to
1.86% at the end of Q1.
• The best-performing sectors in Q1 2013 were HY Corps
(+2.9%), Preferreds (+2.8%), Municipals (+0.5%). The
worst performing sectors were Non-US IG Sovereigns
and Emerging Market debt posting returns of -4.0% and
-2.2%.
US Economy continues to heal with Fed support
• With unemployment slowly declining and inflation
under control, the FED reiterated support for
continuation of its bond buying program.
• Consumer confidence bounced back to 78.6 in March
from 72.9 in December given improving economic
outlook and rallying equity and housing markets.
• Housing recovery shows continued momentum with
various housing fundamentals such as household
formation, home prices, housing starts, housing
inventory, etc point to an improvement in the sector.
BofA ML expects home prices (as measured by Case
Shiller home price index) to rise by 8.0% (Q4/Q4) in
2013.
YEN’S WEAKNESS INCREASES JAPANESE
COMPETITIVENESS
QUARTERLY RECAP S&P 500 INDEX AT RECORD HIGH
BofA ML RESEARCH KEY FORECASTS
Executive Summary
HOUSING RECOVERY
Gross Domestic Product (%)
2013E 2014 E
Global 3.1 3.9
US 1.8 2.6
Euro Area -0.5 0.8
Emerging Markets 5.2 5.7
US Interest Rates (%)
Jun 2013 E Sept 2013 E
Fed Funds 0-0.25 0-0.25
10-Yr T-Note 1.75 2.00
Currencies
Jun 2013E Sept 2013 E
EUR/USD 1.28 1.26
USD/JPY 93 94
USD/CAD 1.02 1.01
E = Estimate
Source: National Association of Realtors, Haver Analytics, IMG.
Source: Bloomberg, IMG.
Source: Bloomberg, IMG.
4
Market Outlook
• We believe we may be entering the early innings
of a “Great Rotation” to equities.
• We anticipate global growth to re-accelerate
modestly this year and in 2014. Major sources of
strength and stability remain a robust US housing
recovery, continued quantitative easing around
the world and increasing stability in Europe and
Asia.
• Global equity valuations remain attractive, while
strong corporate earnings and balance sheets
should support increased capital spending,
dividends and share buybacks.
• We encourage investors to “globalize” portfolios
and think beyond traditional US-centric
allocations. Other developed equity markets
outside the US are poised to continue their recent
strong performance, while emerging markets
offer superior secular growth despite recent Q1
underperformance.
• While equity valuations remain attractive today,
bonds are expensive – most rates are at
extremely low levels following a 30-year bull
market in credit. We only expect a modest rise in
rates this year, but think risks skew to the upside.
• We would reduce duration risk (or exposure to
rising rates) in fixed income portfolios by
diversifying to shorter-term instruments, despite
the limited yields.
• Other considerations: For income – high yield
bonds, convertible and emerging market bonds
as well as dividend-paying equities. For portfolio
diversification – absolute return strategies and
private equity, and real assets.
• We continue to like municipal bonds for yield and
tax advantages.
BENCHMARK
STRATEGIC
ASSET
ALLOCATION1
Alternatives2
20%
Cash 2%
Global Equities
45%
Global Fixed Income
33%
Global Equities: Overweight
In developed markets,
valuations are fair and they
are becoming attractive in
Emerging Markets. Focus on
growth, yield and quality.
Preferred sectors include
tech, energy, and
industrials.
Real Assets: Overweight
Recently upgraded on improved
global growth outlook. Prefer direct
real estate and REITs.
US Treasuries: Underweight
Negative real returns and Fed
intervention have created
highly overvalued and
unattractive conditions.
US Municipals: Overweight
Valuations relative to
Treasuries remain attractive,
and tax-exempt status recently
re-affirmed.
Emerging Markets: Overweight
Focus on regional opportunities in
Asia and LATAM
US Large Cap
US Mid & Small
Cap
US Treasuries
US Munis
US Invest. Grade
US HY & Collateralized
Non-US Corp. Non-US
Sovereigns EM
Debt
Emerging Markets
Int’l Developed
Commod./
Private Equity Real
Assets
Hedged Strategies3
Currencies
ML CIO OFFICE TACTICAL POSITIONING RELATIVE TO STRATEGIC ASSET ALLOCATION
(MODERATE GLOBAL ALLOCATION TIER 2 LIQUIDITY) LOOKING AHEAD
1Moderate Global Allocation Tier 2 Liquidity (up to 20% of the portfolio may be unavailable for 3-5 years). 2Certain alternative investments are available only to pre-qualified clients. 3Hedged strategies include non-traditional mutual funds.
The Strategic Profile Asset Allocation Models with Alternative Assets were developed by Merrill Lynch Global Wealth Management for private clients. The Strategic allocations are identified by Merrill Lynch Global
Wealth Management and are designed to serve as guidelines for a 20-30 year investment horizon. The Merrill Lynch Global Wealth Management models allocate assets among specified asset classes and, within
each class, reflect broad investment diversification. The models offer benchmarks for traditional asset class allocation (stocks, bonds and cash), as well as models for allocations among traditional and alternative
asset classes reflecting portfolios targeting varying liquidity levels. The models are designed to provide allocation benchmarks based on risk/return profiles. Merrill Lynch Global Wealth Management defines liquidity
as the percentage of assets, by invested value, within a portfolio that can be reasonably expected to be liquidated within a given time duration under typical market conditions. Given the less-liquid nature of certain
alternative assets, IMG does not include alternative investments in all SAA model portfolios. Clients should consult with their financial advisor about these allocations.
In Focus Appendix Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
5
DJ-UBS TR
Global NAREIT Gold
HFRX Global
HF
Russell 1000
Growth
Russell 1000 Value
Russell 2000
Growth
Russell 2000 Value
Russell Midcap Growth
Russell Midcap Value
S&P 500
US Broad Market Treasury TIPS Municipal Corp.
High Yield
Non-US IG
Emerging Markets Mortgage
Asset-Backed
IG Preferred
–Fixed
IG Preferred–Floating
As of 3.29.13 Quarterly % Chg 2012 % Chg
DJIA 14,578.5 11.9% 10.2%
NASDAQ 3,267.5 8.5% 17.5%
S&P 500 1,569.2 10.6% 16.0%
S&P 400 Mid Cap 1,153.7 13.5% 17.9%
Russell 2000 951.5 12.4% 16.3%
MSCI World 1,434.5 7.9% 16.5%
MSCI EAFE 1,674.3 5.2% 17.9%
MSCI Emerging Mkts 1,034.9 -1.6% 18.6%
S&P 500 SECTOR RETURNS
BOND MARKET RETURNS
As of 3.29.13 Quarterly % Chg 2012 % Chg
ML US Broad Market Master 261.6 -0.1% 4.5%
ML US Treasury Master 1487.0 -0.3% 2.2%
ML Agency Master 179.5 0.1% 2.5%
ML Muni Master 477.5 0.5% 7.3%
ML US Corp Master 2450.8 0.1% 10.4%
ML High Yield 979.5 2.9% 15.6%
As of 3.29.13 Quarterly % Chg 2012 % Chg
DJ-UBS Total Return 276.7 -1.1% -1.1%
Gold Spot* 1598.8 -4.6% 7.1%
Silver Spot* 28.3 -6.1% 8.2%
Copper Spot* 340.2 -6.9% 6.3%
WTI Crude $/Barrel* 97.2 5.9% -7.1%
As of 3.29.13 Quarterly % Chg 2012 % Chg
Global NAREIT 2117.0 6.3% 28.7%
US NAREIT 2,525.4 7.1% 18.2%
Alerian MLP 454.5 19.7% 4.8%
HFRX Global Hedge Fund 1184.3 3.1% 3.5%
As of 3.29.13 Quarterly % Chg 2012 % Chg
EUR/USD 1.2819 -2.8% 1.8%
USD/JPY 94.22 8.6% 12.8%
GBP/USD 1.5198 -6.5% 4.6%
USD/CHF 0.9492 3.7% -2.4%
BONDS
COMMODITIES
CURRENCIES*
ALTERNATIVES
Markets Review
CROSS ASSET RETURNS
Returns calculated are total returns unless otherwise stated (*indicates spot returns). All bond indexes represented by BofA Merrill Lynch Global Bond Indexes.
STOCKS WORLD BY REGION
-5%
0%
5%
10%
15%
20%
25%
S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPE
MSCI EMERGING
MARKETS MSCI PACIFIC
0%
10%
20%
30%
Healthcare Cons Staples Utilities Cons Disc Financials Industrials Energy Telecom Materials Info Tech
-5%
0%
5%
10%
15%
20%
25%
-10%
0%
10%
20%
30%
-5%
0%
5%
10%
15%
20%
S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPEMSCI EMERGING
MARKETS MSCI PACIFIC
Q1 2013
2012
-5%
0%
5%
10%
15%
20%
S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPEMSCI EMERGING
MARKETS MSCI PACIFIC
Q1 2013
2012
-5%
0%
5%
10%
15%
20%
S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPEMSCI EMERGING
MARKETS MSCI PACIFIC
Q1 2013
2012
In Focus Appendix Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
-5%
0%
5%
10%
15%
20%
S&P 500 MSCI WORLD MSCI EAFE MSCI EUROPEMSCI EMERGING
MARKETS MSCI PACIFIC
Q1 2013
2012
6
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2011 2012 2013 2014
Global xU.S. Euro Area Japan Emerging Markets
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Economic conditions around the world are improving
US REAL GDP GROWTH, QoQ ANNUALIZED
BofA ML Forecasts:
1Q 2013: 3.0%
2Q 2013: 1.3%
3Q 2013: 1.5%
4Q 2013: 2.5%
2013: 1.8%
6 Source: (Top left) BEA, BofA ML Global Research. (Top right and bottom left) IMF, IMG. (Bottom right) BofA ML Global Research, IMG.
EMERGING MARKET GROWTH TO RISE IN 2013 AND 2014
INFLATION IS UNDER CONTROL GLOBALLY
BofA ML GLOBAL FINANCIAL STRESS INDEX AT LOWEST
SINCE 2007
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
World Advanced economies EM and Developing Countries
Forecasts
0
50
100
150
200
250
300
350
400
450
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2006 2007 2008 2009 2010 2011 2012
MS
CI A
C W
orld
Ind
ex
GFS
In
de
x
GFSI Index (LHS) MSCI AC World Index (RHS)
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
7
7.6%
13.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1970 1976 1982 1988 1994 2000 2006 2012
Recession Unemployment Rate
Historical Average Broader Unemployment Rate (U-6)
Historical U-6 Average FED Target Unemployment
US unemployment rate remains elevated, but improving
PARTICIPATION RATE LOWEST SINCE MAY 1979
Average: 10.5%
Average: 5.8%
Source: (Left) Bureau of Labor Statistics, Haver Analytics, IMG. Unemployment rate is seasonally adjusted. (Top Right) Bureau of Labor Statistics, Haver Analytics, IMG. (Bottom Right) US Department of Labor, Haver Analytics, IMG.
UNEMPLOYMENT RATE TOTAL PRIVATE PAYROLL
-1000k
-800k
-600k
-400k
-200k
0k
200k
400k
600k
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Over 6 million
jobs created
Over 8 million
jobs lost
56%
58%
60%
62%
64%
66%
68%
1948 1952 1957 1962 1966 1971 1976 1980 1985 1990 1994 1999 2004 2008
Recession Labor Participation Rate Average
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
8
INFLATION RATE VS FED BALANCE SHEET
Expansion of the Fed’s balance sheet has had a muted effect on inflation so far…
Source: Federal Reserve Board, Bureau of Labor Statistics, Haver Analytics, IMG. CPI figures reflect year-over-year % change.
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1990 1992 1995 1997 2000 2002 2005 2007 2010 2012
Infla
tion
Ra
te
Fe
d B
ala
nce
Sh
ee
t, in
Billio
ns
Fed Assets (LHS) Headline CPI (RHS) Core CPI (RHS)
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
9 9
But US fiscal challenges remain absent a comprehensive plan to increase revenue and rein in spending
PUBLIC DEBT AS % OF GDP FEDERAL SPENDING AND REVENUE AS % of GDP
Source: (Top Left) CBO, IMG (Bottom Left) Age Wave, Inc, IMG. (Top Right/Bottom Right) CBO, IMG.
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
POPULATION GROWTH THE NEXT 10-20 YEARS
10%
15%
20%
25%
30%
1989 1993 1997 2001 2005 2009 2013 2017 2021
% o
f G
DP
Recession Revenue as % of GDP (LHS) Spending as % of GDP (LHS)
DRIVERS OF SPENDING
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2005 2010 2015 2020
% o
f G
DP
CBO's Baseline Alternative
FORECAST FORECAST
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
% o
f G
DP
Social Security Major Health Programs Other Mandatory
Defense Discretionary Nondefense Discretionary Net Interest
6%
-3%
11% 9%
-10%
8%
42%
10%
2%
10%
20%
-1% 0%
75%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
<15 15-24 25-34 35-44 45-54 55-64 65+
Ch
an
ge
in
Ag
e G
rou
ps
Age Groups
2013-2023
2013-2033
10
8
10
12
14
16
18
20
22
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
In M
illio
ns,
SA
AR
0
50
100
150
200
250
300
50
60
70
80
90
100
110
120
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Univ of Mich Consumer Sentiment (LHS)
Univ of Mich Consumer Sentiment Average
Policy Uncertainty Index (RHS)
10
Despite political gridlock in Washington, consumers show resilience
RETAIL SALES CONTINUE TO STABILIZE (YoY %)
CONSUMER SENTIMENT INDEX VS. POLICY
UNCERTAINTY INDEX
MOTOR VEHICLE SALES IMPROVING
Average: 14.9
Correlation: -0.70
Source: (Top Right) Census Bureau, Haver Analytics, IMG. (Bottom Right) Autodata, Haver Analytics, IMG.. (Left) University of Michigan, www.policyuncertainty.com, Haver Analytics, IMG. Policy Uncertainty Index measures policy-related economic
uncertainty constructed from three types of underlying components: newspaper coverage of policy-related economic uncertainty, number of federal tax code provisions set to expire in future years, and disagreement among economic forecasters as a
proxy for uncertainty using the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters. For more information on the index methodology, please visit www.policyuncertainty.com.
-15%
-10%
-5%
0%
5%
10%
15%
20%
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
11
-10%
-5%
0%
5%
10%
15%
20%
25%
8%
9%
10%
11%
12%
13%
14%
15%
1980 1984 1988 1992 1996 2000 2004 2008 2012
Household Debt Service Ratio (LHS) Consumer Credit Growth (RHS)
As households continue to delever, consumer credit growth is driven primarily by non-revolving debt (i.e. installment loans)
CONSUMER CREDIT VS. HOUSEHOLD DEBT SERVICE RATIO
Source: (Left) Federal Reserve Board, Haver Analytics, IMG. Household debt service ratio is an estimate of debt payments to disposable income. Consumer credit is an annualized quarter-over-quarter calculation. (Top Right) Federal Reserve, Haver
Analytics, IMG. (Bottom Right) FRBNY Consumer Credit Panel/Equifax, IMG. Non-revolving debt includes auto loans, student loans, mortages, etc. These loans can be both secured or unsecured.
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
6.4
8.0
0.5
0.6
0.7
0.8
0.7
0.7
0.3
1.0 Total: $9.0 T
Total: $11.3T
$0
$2
$4
$6
$8
$10
$12
2004 2012
To
tal C
on
su
me
r D
eb
t (i
n $
Tillio
ns)
Mortgage HE Revolving Auto Loan Credit Card Student Loan Other
+180%
+26%
GROWTH OF REVOLVING DEBT VS. NON-REVOLVING DEBT
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012
Ro
llin
g 3
M G
row
th A
ve
rag
e
Recession Revolving Credit Non-revolving Credit
STUDENT LOANS DRIVE NON-REVOLVING DEBT
12
PETROLEUM ACCOUNTS FOR 35% OF TRADE BALANCE TRADE BALANCE CONTINUES TO IMPROVE
Source: (Left) BEA, Federal Reserve, Haver Analytics, IMG. (Right) US Census Bureau, Haver Analytics, IMG
US trade balance narrows due to export strength and decrease in petroleum imports
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
-$100
-$50
$0
$50
$100
$150
$200
$250
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
In B
illio
ns
Trade Balance Exports Imports
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Petroleum as % of Trade Balance
13
Housing recovery in progress
Source: (Top Left) Federal Housing Finance Agency, S&P, Haver Analytics, IMG. (Top Right) Census Bureau, Haver Analytics, IMG. (Bottom Left) FRBNY Consumer Credit Panel/Equifax, IMG. (Bottom Right) National Association of Realtors, Haver Analytics,
IMG.
HOME PRICES TRENDING UPWARD
100
110
120
130
140
150
160
170
180
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ind
exe
d t
o 2
00
2=
10
0
Case-Shiller 20 City,
+6.9% in 2012
Case-Shiller National,
+7.3% in 2012
FHFA House Price Index,
+5.6% in 2012
0
2
4
6
8
10
12
14
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,000K
2,000K
3,000K
4,000K
5,000K
6,000K
7,000K
8,000K
Supply in Months Total Existing Home Sales Housing Inventory
EXISTING HOME SALES AND INVENTORY
Market Peak: 3.6
months of supply
Months of supply of
existing homes
Existing Homes Sales
Existing Home Inventory
CONSTRUCTION JOBS LAG HOUSING STARTS
3.2%
3.4%
3.6%
3.8%
4.0%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
400K
600K
800K
1,000K
1,200K
1,400K
1,600K
1,800K
2,000K
2,200K
2,400K
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Housing Starts, Lagged 5Qs (LHS) Construction jobs as % of Labor Force (RHS)
MORTGAGE DELINQUENCIES IMPROVING
0
2
4
6
8
10
12
14
03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1
% o
f B
ala
nce
90
+ D
ays D
elin
qu
en
t b
y
Lo
an
Typ
e
MORTAGE HELOC AUTO CC STUDENT LOAN
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
14
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Recession New Orders: Nondefense Capital Goods ex Aircraft (YoY%)
Average
3%
4%
5%
6%
7%
8%
9%
10%
11%
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Recession Corporate Profits as % of GDP
Corporations, with large cash balances and healthy balance sheets are beginning to spend
Source: (Top Left) Bureau of Economic Analysis, Haver Analytics, IMG. (Top Right) Census Bureau, Haver Analytics, IMG. (Bottom Left) BofA ML Global Research. (Bottom Right) S&P, Haver Analytics, IMG.
$15
$17
$19
$21
$23
$25
$27
$29
$31
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2011 2012
Share Buybacks (in $billions, LHS) Dividends per Share (12 Months, RHS)
USE OF CASH: SHARE BUYBACKS AND DIVIDENDS AMONG
S&P 500 COMPANIES
CORPORATE PROFITS SOAR CAPEX SPENDING HAS NOT KEPT PACE
UPTICK IN M&A ACTIVITY
$0
$100
$200
$300
$400
$500
$600
$700
20
01
Q1
20
01
Q3
20
02
Q1
20
02
Q3
20
03
Q1
20
03
Q3
20
04
Q1
20
04
Q3
20
05
Q1
20
05
Q3
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
Vo
lum
e (
US
D, in
Billio
ns)
US Volume Recession Average
In Focus Appendix Equities Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
15
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US Equity Market Performance: S&P 500 Index closes out 1Q at an all-time high of 1,569
1,,569.19 as
of 3/28/13
132% -58% 102%
-49%
Tech Bubble
9/11
Market Peak,
October 2007
Financial
Crisis
S&P
Downgrades
US Debt
Source: Bloomberg, IMG
S&P 500 INDEX(Jan 1997 – Mar 2013)
In Focus Appendix Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities
16
13%
6%
7%
8%
9%
10%
11%
12%
13%
14%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
As earnings surge and fundamentals remain strong, the S&P 500 is still relatively undervalued
S&P 500 INDEX: FORWARD PRICE TO EARNINGS RATIO 1
CASH HOARDING: CASH AS A % OF TOTAL ASSETS AMONG
S&P 500 COMPANIES
Source: (Top Left and Right) BofA ML Global Research, IMG. (Bottom Left) S&P, Haver Analytics, IMG. (Bottom Right) Factset, IMG. 1. S&P 500 Forward PE is based on the bottom-up consensus for the next twelve months EPS.
S&P 500 EARNINGS PER SHARE FORECAST TO GROW
$0
$20
$40
$60
$80
$100
$120
2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Q1 2013: 13.2X
Average: 15.1X
5X
10X
15X
20X
25X
30X
1988 1992 1996 2000 2004 2008 2012
Forward P/E
In Focus Appendix Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities
% Weight ROE LTM (%) Average Net Margin (%) Average Financial
Leverage Average
S&P 500 100.00 14.87 14.79 9.06 7.15 4.64 5.19
Consumer
Disc 11.62 21.46 13.29 7.86 4.17 3.14 3.68
Consumer
Staples 10.96 24.32 27.15 6.13 6.36 2.73 3.01
Energy 10.92 15.62 16.86 8.24 7.10 2.09 2.31
Financials 15.93 7.93 12.21 13.30 10.28 8.5 12.51
Health Care 12.53 18.03 21.97 8.56 10.26 2.39 2.49
Industrials 10.11 18.33 16.73 8.48 6.95 3.87 4.01
Information
Technology 18.02 22.17 16.55 16.26 9.63 1.95 2.04
Materials 3.43 15.49 13.62 6.65 6.04 2.8 2.89
Telecom 2.97 7.58 13.04 3.76 8.29 3.79 3.15
Utilities 3.51 9.02 11.06 8.28 7.60 3.72 3.74
IMPROVING FUNDAMENTALS (DEC 1994 – MAR 2013)
17
% EPS beat % Sales beat Both EPS & Sales beat
Cons. Disc 60% 53% 39%
Staples 62% 50% 33%
Energy 53% 65% 40%
Financials 56% 64% 43%
Health Care 62% 69% 42%
Industrials 57% 65% 38%
Technology 70% 59% 51%
Materials 47% 63% 30%
Telecom 13% 50% 13%
Utilities 52% 29% 23%
S&P 500 58% 59% 39%
1.04
0.96 0.91
0.86 0.84 0.81 0.74
0.66
0.54
0.28 0.20
0.40
0.60
0.80
1.00
1.20
1.40
Strategies performance & earnings estimate revisions
S&P 500 3 MONTH EARNINGS ESTIMATE REVISION RATIO
(MAR 2013)
HISTORICAL S&P 500 3-MONTH EARNINGS ESTIMATE
REVISION RATIO
Source: BofA ML Global Research, IMG. Earnings Revision Ratio measures the total number of earnings estimate increases divided by total number of earnings-estimate decreases during the past three months.
4Q12 EPS AND SALES BEATS BY SECTOR
0.0
0.5
1.0
1.5
2.0
2.5
1989 1992 1995 1998 2001 2004 2007 2010 2013
3m ERR
Average
In Focus Appendix Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities
VALUATION BASED STRATEGIES PERFORMED BEST IN 1Q13
6.7% 5.8%
5.0% 6.3% 6.5%
18.1% 17.8% 17.6% 17.5% 16.9% 16.7%
27.4%
18.5%
22.0% 22.0%
0%
5%
10%
15%
20%
25%
30%
Forward Earnings
Yield
Low Price to Sales Alpha Surprise
Model1
Share Repurchase Price Returns (3
M)
1M 3M 12M
18
With the “Great Rotation” setting in, equity inflows are set to rise
Source: (Left) Investment Company Institute, IMG. (Right) S&P, Haver Analytics, IMG. Equity risk premium is defined as the difference between the earnings yield and the 10 Yr US Treasury yield.
STOCKS ATTRACTIVELY PRICED RELATIVE TO BONDS
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Equity Risk Premium
+1 Standard Deviation
RECORD INVESTOR FLOWS INTO BOND FUNDS SINCE 2007
In Focus Appendix Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities
-600
-400
-200
0
200
400
600
800
1,000
1,200
1,400
2007 2008 2009 2010 2011 2012 2013
Cu
mu
lati
ve
Ne
t C
ash
Flo
w (
$b
il)
Total Equity Flows Total Bond Flows
-1 Standard Deviation
19
Active managers continue to struggle despite decreasing correlations
Source: BofA ML Global Research, IMG. Cross-asset represented by S&P 500 Index, Russell 2000 Index, MSCI EAFE Index, MSCI Emerging Markets Index, HFRI FoF Composite, LPX50, FTSE NAREIT Composite Index, Dow Jones-UBS Commodity Index ,
and US 30 Day Tbill TR Index.
CROSS-ASSET CORRELATION BEGINS TO NORMALIZE S&P 500 PAIRWISE CORRELATION (Q1 2000 – Q1 2013)
In Focus Appendix Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sp
rea
d b
etw
ee
n t
op
an
d b
ott
om
de
cile
s
Abundant alpha
Scarce alpha
S&P 500 PERFORMANCE DISPERSION (Q1 2000 – Q1 2013)
0%
10%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Avg
pa
ir-w
ise
S&
P 5
00
Co
rre
lati
on
Clustered / macro market
Differentiated / stock picker's
market
0%
10%
20%
30%
40%
50%
60%
70%
1994 1996 1997 1998 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012
12M Rolling Correlation 10Yr Rolling Correlation
20
Equity sector performance: Defensive sectors lead the way in Q1 2013
S&P 500 INDEX MSCI ALL-COUNTRY WORLD INDEX Ex US
Source: Bloomberg, IMG. Returns calculated are total returns.
14.8%
15.0%
18.3%
4.6%
15.3%
28.8%
23.9%
1.3%
10.8%
17.9%
4.6%
4.8%
9.5%
10.2%
10.7%
11.4%
12.2%
13.0%
14.6%
15.8%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Info Tech
Materials
Telecom
Energy
Industrials
Financials
Cons Disc
Utilities
Cons Staples
Healthcare
Q1 2013 2012
10.6%
2.4%
4.7%
5.2%
18.1%
30.1%
17.1%
23.2%
19.5%
18.8%
-7.2%
-2.2%
-0.2%
2.6%
3.1%
4.2%
5.0%
5.6%
9.1%
12.3%
-10% -5% 0% 5% 10% 15% 20% 25% 30% 35%
Materials
Energy
Utilities
Telecom
Info Tech
Financials
Industrials
Cons Disc
Cons Staples
Health Care
Q1 2013 2012
In Focus Appendix Fixed Income Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities
21
-2%
0%
2%
4%
6%
8%
10%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Fixed Income: Despite a modest rise in rates, a low yield environment is likely to persist as the Fed remains a major buyer
NOMINAL VS. REAL YIELDS (JAN 1990 - MAR 2013) S&P 500 DIVIDEND YIELD MINUS 10YR YIELD
Negative Real Yields
10-Yr Nominal Yield
10-Yr Real Yield
Source: (Top) BofA ML Global Research, IMG. (Bottom Left) Bloomberg, BofA ML Global Research, IMG. (Bottom Right) Bloomberg, BofA ML Global Research, IMG. Real yields are calculated using monthly nominal 10-year US Treasury yield minus core
inflation.
2-YR, 10-YR YIELDS ON US TREASURIES
0%
1%
2%
3%
4%
5%
6%
2007 2008 2009 2010 2011 2012 2013
2 YR Yields
10 YR Yields
QE 1: $1.72T QE 2: $600B Operation Twist:
$667B
QE 3:
$40B/Month
In Focus Appendix Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Instances where S&P 500 dividend
yield was higher than the 10-YR Yield
22
Taking on credit risk over duration risk
Source: Bloomberg, IMG. * Par weighted coupon = The average of the index constituent security coupons, weighted by face value. Effective Duration is a metric that accounts for the sensitivity of a bond’s price to changes in interest rate after adjusting for the possibility that
bonds can be called before maturity. The longer the duration of a bond, the more sensitive the price will be to changes in interest rates.
Returns Volatility Sharpe Ratio Max Drawdown
(DD)
EM Sovereign Debt (USD) 9.7% 10.3% 0.79 -22.9%
U.S. High Yield Debt 9.1% 12.0% 0.65 -33.2%
EM Sovereign Debt (LCL) 8.5% 10.5% 0.67 -20.0%
EM Corporates (USD) 8.1% 10.2% 0.66 -25.6%
US IG Debt 6.8% 6.4% 0.80 -16.1%
EM Equities 5.9% 26.5% 0.29 -62.7%
US Treasuries 5.5% 4.2% 0.92 -3.5%
US Equities 4.1% 16.6% 0.23 -50.9%
Developed Non-US
Sovereign Debt 3.6% 2.7% 0.70 -3.3%
EM & HY DEBT OUTPEFORM OTHER ASSET CLASSES (2006 - 2012)
0.76 0.73
0.64 0.61
0.41
-0.27 -0.29 -40%
-20%
0%
20%
40%
60%
80%
100%
U.S. HY EM Svgn (Lcl
FX)
EM Svgn
(USD)
EM Corp
(USD)
U.S. IG Corp DM Non-US
Svgn
U.S. Tsys
EM & HY DEBT PROVIDE HIGH CORRELATION TO S&P 500 (2006 - 2012)
Moderate Recommended
Allocation Par Weighted Coupon* Effective Duration* 25 BPS Change 50 BPS Change 75 BPS Change 100 BPS Change
U.S. Treasuries
Treasuries 11% 2.5% 6.0 -1.5% -3.0% -4.5% -6.0%
TIPS 2% 1.4% 6.2 -1.5% -3.1% -4.6% -6.2%
U.S. Municipals 58% 4.7% 7.5 -1.9% -3.8% -5.6% -7.5%
U.S. Investment Grade 11% 4.9% 6.8 -1.7% -3.4% -5.1% -6.8%
U.S. High Yield & Collateralized
High Yield 3% 7.7% 4.2 -1.1% -2.1% -3.2% -4.2%
Mortgage Backed Sec's 10% 4.2% 3.2 -0.8% -1.6% -2.4% -3.2%
Preferreds 1% 6.8% 6.4 -1.6% -3.2% -4.8% -6.4%
Non-U.S. Sovereigns 1% 2.8% 7.5 -1.9% -3.8% -5.7% -7.5%
Emerging Market Debt
Emerging Market: USD 1% 6.9% 7.3 -1.8% -3.7% -5.5% -7.3%
Emerging Markets: Local 2% 6.4% 5.2 -1.3% -2.6% -3.9% -5.2%
Price Return -1.7% -3.3% -5.0% -6.6%
Total Return 4.5% 2.9% 1.2% -0.5% -2.1% *As of 3/31/2013; BofA ML Bond Indexes used to represent the various
sectors of the Bond Market
BENEFITS OF DIVERSIFICATION IN A RISING RATE ENVIRONMENT
In Focus Appendix Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income
23 H
igh
Yie
ld M
aste
r II
B-r
ate
d
Em
erg
ing
Ma
rke
t (L
CL)
BB
-ra
ted
Em
erg
ing
Ma
rke
t (U
SD
)
Flo
ati
ng
IG
Pre
ferr
ed
s
Fix
ed
IG
Pre
ferr
ed
s
BB
B-r
ate
d
30
Ye
ar
Tre
asu
ry
Co
rpo
rate
IG
Ma
ste
r
Mu
nic
ipa
l M
aste
r
A-r
ate
d
AA
-ra
ted
AA
A-r
ate
d
Mo
rtg
ag
e M
aste
r
10
Ye
ar
Tre
asu
ry
Int'
l D
eve
lop
ed
Tre
asu
ry M
aste
r
AB
S
Ag
en
cy
Ma
ste
r
2 Y
ea
r Tre
asu
ry
3 M
on
th T
rea
su
ry B
ills
0%
2%
4%
6%
8%
10%
12%
14%
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2000 2002 2004 2006 2008 2010 2012
Average: 0.94
0
200
400
600
800
1000
1200
1400
1600
1800
2000
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012
Fixed income market update
2-YR/10-YR TREASURY SPREAD
LOW DEFAULT RATES IN HIGH YIELD
SECTOR
CORPORATE SPREADS (OAS)
MUNI/TREASURY RATIO1
CREDIT SPREADS TIGHTEN
High Yield Investment Grade
Spread in basis points
Source: Bloomberg, BofA ML Global Research, IMG; Yields represented by BofA Merrill Lynch Global Bond Indexes. Default rates based on BofA ML High Yield Index. 1Ratio of Moody’s AAA Municipal Bond yield to 10-Year Treasury
YIELDS
CCC and lower rated
847
471
352
201
119
88
63
0 200 400 600 800 1000 1200
CCC
B
BB
BBB
A
AA
AAA
Spread in basis points
0%
2%
4%
6%
8%
10%
12%
14%
16%
2000 2002 2004 2006 2008 2010 2012
US HY Global HY
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Current as of 3/31/2013:
US HY: 2.0%
Global HY: 1.4%
In Focus Appendix Alternative Investments
Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income
24
Hedge Funds Strategies Underperform the S&P 500 Index
RELATIVE VALUE AND GLOBAL MACRO STRATEGY ATTRACTS
NET INFLOWS1
CORRELATION TO S&P 500 (OCT 2004 – FEB 2013)
Source: Hedge fund indexes represented by Dow Jones Credit Suisse AllHedge Indexes as of 12/31/2012. Net inflows based on HFR Global Hedge Fund Industry Report as of 12/31/2012. 3Cross asset volatility represented by BofA Merrill Lynch
IMktRisk Index. 1. Macro category includes Global Macro and Managed Futures. Emerging Markets strategy involves equity and fixed income investing and is included in equity hedge and relative value categories.
HEDGE FUND STRATEGIES PERFORMANCE IN 2012
-7.6%
29.0%
71.0% 71.4% 71.8% 77.3%
83.8%
-20%
0%
20%
40%
60%
80%
100%
Managed
Futures
Global
Macro
Relative
Value
Event
Driven
Emerging
Markets
DJ CS
AllHedge
Index
Equity
Long/Short
-$10 $0 $10 $20 $30 $40 $50
Equity Hedge
Event-Driven
Macro
Relative Value
Q4 2012
2012
-1
0
1
2
3
4
Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13
Global QE &
China fiscal
stimulus
Coordinated CB
USD liquidity
swap facilities
QE2
Operation
Twist
3y LTRO
Draghi
CROSS ASSET CLASS VOLATILITY REMAINS LOW 1
4.8% 3.8%
2.3% 1.1% 1.0%
-0.4% -1.5%
-3.4%
11.5% 12.2%
5.5% 6.3% 5.7%
16.0%
-0.1%
-3.3% -5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Emerging
Markets
Equity
Long/Short
Event
Driven
Relative
Value
DJ CS
AllHedge
Index
S&P 500 Global
Macro
Managed
Futures
Q4 2012 2012
In Focus Appendix Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
25
Private equity deal volume down compared to peak years
GLOBAL DEAL VOLUME DOWN 58% FROM 2006 PEAK
Source: (Top Left) Cambridge Assoicates, data as of 6/30/12. (Top Right) Thomson Reuters. (Bottom) Preqin.
PRIVATE EQUITY HAS OUTPERFORMED PUBLIC EQUITIES 1
$0
$100
$200
$300
$400
$500
$600
$700
$800
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Down 58% from 2006
$403 $406
$560
$801
$1,005 $1,071 $1,064
$989 $927 $922
$0
$200
$400
$600
$800
$1,000
$1,200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
GLOBAL PE FIRMS HAVE CLOSE TO $1 TRILLION OF UNDEPLOYED CASH
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
5 Yr 10 Yr 20 Yr
Top Quartile All Buyouts S&P 500
In Focus Appendix Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
26
$35
$55
$75
$95
$115
$135
$155
2008 2009 2010 2011 2012 2013
WTI Brent
0
50
100
150
200
250
Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12
Ind
exe
d t
o D
ec 2
00
8 =
10
0
GSCI GOLD TR S&P 500 TR S&P GSCI TR Index
Commodities continue to struggle in 2013 as the global economic recovery remains tepid
ENERGY SECTOR POSTS POSTIVE RETURNS PRICE OF OIL: BRENT VS WEST TEXAS INTERMEDIATE (WTI)
AFTER MULTI-YEAR RALLY, GOLD PRICES REMAIN RANGE BOUND
Source: Commodity indexes represented by DJ-UBS Commodity Indexes.
QE 1 QE 2 Operation Twist/QE3
-1.1%
-3.2%
7.1%
-7.8%
-6.4% -5.5%
-1.1%
4.0%
-9.4%
0.7%
-3.5%
6.3%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
DJUBS TR
Index Agriculture Energy Industrials Livestock
Precious
Metals
Q1 2013 2012
In Focus Appendix Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
27
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
US Dollar continues to strengthen
PERFORMANCE AGAINST US DOLLAR
70.00
75.00
80.00
85.00
90.00
75
85
95
105
115
1.15
1.35
1.55
1.75
1.30
1.50
1.70
1.90
2.10
US Dollar Index:
Up 4% YTD
Yen: Down 9% YTD
Euro: Down 3% YTD
British Pound:
Down 7% YTD
Australian Dollar:
Up 1% YTD
CORRELATIONS OF MAJOR CURRENCY PAIRS WITH WORLD
EQUITY MARKETS (JAN 2000 – MAR 2013)
Dollar Index Euro Japanese
Yen
British
Pound
Australian
Dollar Swiss Franc
Canadian
Dollar
S&P 500 -0.36 0.34 0.04 0.27 0.59 -0.17 -0.60
Euro Stoxx 500 -0.21 0.20 0.19 0.15 0.43 -0.04 -0.49
Nikkei 225 -0.18 0.18 0.30 0.18 0.45 -0.07 -0.44
FTSE 100 -0.28 0.27 0.08 0.09 0.53 -0.13 -0.52
Swiss Market
Index -0.06 0.05 0.16 0.05 0.31 0.11 -0.31
S&P/TSX
Composite -0.32 0.29 0.07 0.27 0.57 -0.16 -0.57
S&P/ASX 200 -0.28 0.27 0.19 0.21 0.51 -0.12 -0.50
MSCI ACWI -0.51 0.48 0.02 0.39 0.72 -0.32 -0.68
IMPACT OF CURRENCIES ON RETURNS: JAPANESE EQUITIES
In Focus Appendix Portfolio Management
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Source: Bloomberg, IMG..
90
95
100
105
110
115
120
125
130
Oct-12 Nov-12 Nov-12 Dec-12 Dec-12 Jan-13 Jan-13 Feb-13 Feb-13 Mar-13 Mar-13
Ind
exe
d,
No
v 1
, 2
01
2 =
10
0
MSCI Daily TR Net Japan Index WisdomTree Japan Hedged Equity TR Index
28
Potential Risks to Capital Markets
EUROPEAN CONTAGION RISKS REMAIN DESPITE CALM
GETTING U.S. FISCAL HOUSE IN ORDER
Source: (Top ) Haver Analytics, CBO, IMG
In Focus Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
•Political gridlock in the U.S. leading to fiscal drag
• Slow job growth and budget cutbacks at the federal,
state and local levels
• Slowdown in consumer spending
• Inflation (or deflation) dynamics
• Declining corporate margins
• Europe:
• Sovereign debt contagion in periphery
• Recession at the core
• Weak growth in Emerging Markets
• Geopolitical tensions: Iran, Syria, North Korea
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
10%
15%
20%
25%
30%
1989 1993 1997 2001 2005 2009 2013 2017 2021
$, in
Billio
ns
% o
f G
DP
Debt Held by the Public (RHS) Revenue as % of GDP (LHS)
Spending as % of GDP (LHS)
Forecasts
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
10
20
30
40
50
60
2009 2010 2011 2012 2013
10
Yr
Bo
nd
Yie
lds
Eu
ro S
toxx 5
0 V
ola
tility
In
de
x
Euro Stoxx 50 Volatility Index (LHS) Greek 10 Yr Bond Yields (RHS)
29
Merrill Lynch Strategic Asset Allocation (Tier 0 - High Liquidity, Jan 1994- Feb 2013)
STATISTICS RISK & RETURN
ROLLING 12 MONTH RETURNS
Conservative Mod
Conservative Moderate
Mod
Aggressive Aggressive S&P 500
Annualized Returns 7.2% 8.1% 8.5% 8.5% 8.4% 8.4%
Annualized Volatility 6.0% 7.6% 9.5% 10.8% 12.2% 15.4%
Sharpe Ratio 0.69 0.69 0.60 0.54 0.48 0.41
Max Drawdown -10.2% -19.0% -30.5% -36.1% -41.4% -50.9%
Num of Pos Months 150 154 150 148 147 148
Num of Neg Months 80 76 80 82 83 82
Avg Pos Months 1.5% 1.8% 2.3% 2.5% 2.8% 3.4%
Avg Neg Months -1.1% -1.7% -2.2% -2.5% -2.9% -3.9%
-60%
-40%
-20%
0%
20%
40%
60%
2008 2009 2010 2011 2012
Ro
llin
g 1
2m
Re
turn
s
Conserative Moderately Conservative Moderate Moderately Aggressive Aggressive S&P 500
In Focus Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
Conservative
Mod Conser
Moderate
Mod Agg
Aggressive
S&P 500
Tbills
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%
An
nu
alize
d R
etu
rn
Annualized Standard Deviation
Source: Bloomberg, IMG. Past performance is no guarantee of future results. Risk profiles based on Tier 0 (highest liquidity). Conservative (Stocks = 20%, Bonds = 55%, Cash=25%), Moderately Conservative (Stocks = 40%, Bonds = 50%, Cash = 10%),
Moderate (Stocks = 60%, Bonds = 35%, Cash = 5%), Moderately Aggressive (Stocks = 70%, Bonds = 25%, Cash = 5%), Aggressive (Stocks = 80%, Bonds = 15%, Cash = 5%) Stocks represented by S&P 500 TR Index. Bonds represented by a composite of
US Long Term Government Bond TR Index (60%) and US Long Term Corporate Bond TR Index (40%). Cash represented by 30 Day Tbills TR Index. The market indexes presented are unmanaged and considered representative of specific segments of the
markets. Indexes are not available for direct investment. All historical model performance is hypothetical and based on index returns. It excludes the impact of transaction costs, taxes and fees. Hypothetical performance results have certain inherent
limitations. Unlike an actual performance record, simulated results do not represent actual trading and therefore the results may have under-or over-compensated for the impact, if any, of certain market factors. Hypothetical performance is designed
with the benefit of hindsight. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to the results shown. The model portfolios are not an investment product and cannot be purchased through one investment
vehicle.
30
Merrill Lynch Dynamic Asset Allocation (3-Month, Tier 0 - High Liquidity, Jan 1994- Feb 2013)1
STATISTICS RISK & RETURN
ROLLING 12 MONTH RETURNS
Conservative Mod
Conservative Moderate
Mod
Aggressive Aggressive S&P 500
Annualized Returns 7.5% 9.0% 10.1% 10.4% 10.8% 8.4%
Annualized Volatility 4.8% 7.4% 10.5% 11.9% 13.4% 15.4%
Sharpe Ratio 0.93 0.81 0.69 0.65 0.62 0.41
Max Drawdown -8.2% -17.8% -28.7% -32.2% -36.5% -50.9%
Num of Pos Months 163 157 151 150 146 148
Num of Neg Months 67 73 79 80 84 82
Avg Pos Months 1.3% 1.9% 2.6% 2.8% 3.2% 3.4%
Avg Neg Months -1.0% -1.7% -2.4% -2.8% -3.0% -3.9%
In Focus Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
Conservative
Mod Conser
Moderate
Mod Agg
Aggressive
S&P 500
Tbills
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%
An
nu
alize
d R
etu
rn
Annualized Standard Deviation
-60%
-40%
-20%
0%
20%
40%
60%
2008 2009 2010 2011 2012 2013
Ro
llin
g 1
2m
Re
turn
s
Conserative Moderately Conservative Moderate Moderately Aggressive Aggressive S&P 500
Source: Bloomberg, IMG. Past performance is no guarantee of future results. 1Dynamic asset allocation (DAA) is a systematic process for navigating shorter-term investment opportunities while maintaining a view toward longer-term financial goals.
Unlike Strategic Asset Allocation which develops assumptions based on a 20-30 year investment horizon, DAA models operate based on two investment horizons: 3 months and 5 years. Risk profiles based on Tier 0 (highest liquidity). Data reflects
performance and risk characteristics of the Dynamic Asset Allocation model portfolios (3-month) for US-oriented, U.S. Dollar investors (Tier 0 liquidity preference). Please refer to the Dynamic Asset Allocation whitepaper and the latest Dynamic Asset
Allocation Update publication for further information on the model portfolios. All historical model performance is hypothetical and based on index returns. It excludes the impact of transaction costs, taxes and fees. Hypothetical performance results have
certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading and therefore the results may have under-or over-compensated for the impact, if any, of certain market factors. Hypothetical
performance is designed with the benefit of hindsight. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to the results shown. The model portfolios are not an investment product and cannot be
purchased through one investment vehicle.
31
Merrill Lynch Strategic Asset Allocation (Tier 3 - Low Liquidity, Jan 1994- Feb 2013)
STATISTICS RISK & RETURN
ASSET ALLOCATION FOR TIER 3 (LOW LIQUIDITY)
Conservative Moderate Aggressive S&P 500 Fixed Income
Composite
Annualized Returns 7.3% 8.7% 8.9% 8.4% 7.9%
Annualized Volatility 5.5% 9.2% 12.1% 15.4% 9.7%
Sharpe Ratio 0.8 0.6 0.5 0.4 0.5
Max Drawdown -11.6% -34.7% -48.1% -50.9% -12.3%
Num of Pos Months 157 155 153 148 138
Num of Neg Months 73 75 77 82 92
Avg Pos Months 1.4% 2.2% 2.7% 3.4% 2.4%
Avg Neg Months -1.1% -2.2% -3.0% -3.9% -1.9%
In Focus Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
15%
45%
25%
10%
2% 3%
Tier 3 - Conservative
40%
25%
5%
14%
7%
9%
Tier 3 - Moderate
40%
10% 5%
14%
20%
11%
Tier 3 - Aggressive
Equity
Fixed Income
Cash
Hedge Funds
Private Equity
Real Assets
Conservative
Aggressive Moderate
S&P 500 Fixed Income
Comp
T-Bills
2%
3%
4%
5%
6%
7%
8%
9%
10%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
An
nu
alize
d R
etu
rn
Annualized Standard Deviation
Source: Bloomberg, IMG. Past performance is not indicative of future results. Risk profiles based on Tier 3 (lowest liquidity, up to 30% of the portfolio may not be available for 3-5 years). Equity represented by S&P 500 TR Index. Fixed Income represented
by a composite of US Long Term Government Bond TR Index (60%) and US Long Term Corporate Bond TR Index (40%). Cash represented by 30 Day Tbills TR Index. Hedge funds represented by Dow Jones Credit Suisse Hedge Fund Index. Real Assets
represented by a composite of 46% NAREIT Global Total Return, 36% DJ-UBS Commodity TR Index, and 18% ML U.S. Treasury Inflation-Linked Securities. Private Equity represented by LPX50 Total Return Index. The market indexes presented are
unmanaged and considered representative of specific segments of the markets. Indexes are not available for direct investment. All historical model performance is hypothetical and based on index returns. It excludes the impact of transaction costs,
taxes and fees. Hypothetical performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading and therefore the results may have under-or over-compensated for the impact, if
any, of certain market factors. Hypothetical performance is designed with the benefit of hindsight. No representation is being made that any portfolio will or is likely to achieve profits or losses similar to the results shown. The model portfolios are not an
investment product and cannot be purchased through one investment vehicle.
32
Merrill Lynch Current Capital Market Return Assumptions
Source: IMG Investment Analytics
In Focus Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
Asset Class Index Proxies
Annualized
Expected
Return
Annualized .
Expected
Volatility
US
La
rge
Ca
p G
row
th
US
La
rge
Ca
p V
alu
e
US
Sm
all C
ap
Gro
wth
US
Sm
all C
ap
Va
lue
Inte
rna
tio
na
l E
qu
ity
Em
erg
ing
Ma
rke
ts
Ta
xa
ble
FI
Sh
ort
Te
rm (
1-3
Ye
ar)
Ta
xa
ble
FI
Int.
Te
rm (
3-1
0 Y
ea
r)
Ta
xa
ble
FI
Lo
ng
Te
rm (
10
+)
Hig
h Y
ield
Inte
rna
tio
na
l F
ixe
d I
nco
me
Ca
sh
/N
ea
r C
ash
He
dg
e F
un
ds
Pri
va
te E
qu
ity
Re
al A
sse
ts
US Large Cap Growth Russell 1000 Growth TR 9.9% 20.5% 1.00 0.84 0.83 0.71 0.58 0.59 0.10 0.10 0.15 0.51 0.14 -0.01 0.41 0.48 0.45
US Large Cap Value Russell 1000 Value TR 9.2% 16.5% 0.84 1.00 0.70 0.81 0.59 0.60 0.14 0.15 0.19 0.55 0.16 0.00 0.41 0.44 0.56
US Small Cap Growth Russell 2000 Growth TR 11.5% 28.8% 0.83 0.70 1.00 0.87 0.52 0.62 0.00 -0.01 0.04 0.49 0.06 -0.04 0.46 0.55 0.48
US Small Cap Value Russell 2000 Value TR 9.8% 20.4% 0.71 0.81 0.87 1.00 0.51 0.61 0.06 0.05 0.09 0.56 0.06 -0.03 0.44 0.51 0.57
International Equity MSCI Daily TR Net EAFE USD* 10.0% 21.2% 0.58 0.59 0.52 0.51 1.00 0.59 0.07 0.06 0.09 0.45 0.45 -0.03 0.46 0.60 0.66
Emerging Markets MSCI Daily TR Net EM USD* 12.2% 31.5% 0.59 0.60 0.62 0.61 0.59 1.00 -0.01 -0.04 0.01 0.48 0.10 -0.03 0.58 0.43 0.62
Taxable FI Short Term (1-3 Year) ML US Treasuries TR 1-3yr 4.2% 3.6%
0.10 0.14 0.00 0.06 0.07 -0.01 1.00 0.91 0.76 0.35 0.50 0.33 0.19 -0.25 0.20
Taxable FI Int. Term (3-10 Year) ML US Treasuries TR 3-10yr 5.3% 6.1% 0.10 0.15 -0.01 0.05 0.06 -0.04 0.91 1.00 0.92 0.33 0.55 0.14 0.18 -0.26 0.21
Taxable FI Long Term (10+) ML US Treasuries TR 10yr+ 5.6% 12.2% 0.15 0.19 0.04 0.09 0.09 0.01 0.76 0.92 1.00 0.36 0.50 0.06 0.19 -0.22 0.20
High Yield ML High Yield Master (Cash Pay) TR 6.9% 10.4% 0.51 0.55 0.49 0.56 0.45 0.48 0.35 0.33 0.36 1.00 0.29 -0.06 0.41 0.28 0.56
International Fixed Income ML Global Broad Market TR ex USD 5.0% 11.3% 0.14 0.16 0.06 0.06 0.45 0.10 0.50 0.55 0.50 0.29 1.00 -0.10 0.06 0.05 0.42
Cash/Near Cash Ibbotson’s 30–Day T-Bill TR Index 3.0% 0.9% -0.01 0.00 -0.04 -0.03 -0.03 -0.03 0.33 0.14 0.06 -0.06 -0.10 1.00 0.13 -0.06 -0.09
Hedge Funds CS-Tremont Hedge Funds 7.2% 9.7% 0.41 0.41 0.46 0.44 0.46 0.58 0.19 0.18 0.19 0.41 0.06 0.13 1.00 0.38 0.51
Private Equity LPX 50 (USD) TR 11.0% 23.0% 0.48 0.44 0.55 0.51 0.60 0.43 -0.25 -0.26 -0.22 0.28 0.05 -0.06 0.38 1.00 0.56
Real Assets Real Assets Composite (i) 6.2% 14.1% 0.45 0.56 0.48 0.57 0.66 0.62 0.20 0.21 0.20 0.56 0.42 -0.09 0.51 0.56 1.00
33
Historical Asset Class Performance
Source: Bloomberg, IMG. Cash, Commodities, Gold, Hedge Funds, Reits, US Fixed Income, and US Treasuries represented by the BofA ML 3-Month Treasury Bills Index, DJUBS Commodity Total Return Index, GOLDS Index, HFRX Global Hedge Fund Index,
UNGL Index, BofA ML Broad Market Bond Index, and BofaML Treasury Master Index, respectively. Returns calculated are total returns with exception of Gold returns (spot returns).
In Focus Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Commodities
31.8%
Hedge funds
8.7%
Commodities
25.9%
MSCI EM
56.3%
REITS
32.0%
MSCI EM
34.5%
REITS
37.5%
MSCI EM
39.8%
US Treasuries
14.0%
MSCI EM
79.0%
Gold
29.5%
Gold
10.1%
REITS
28.3%
Hedge funds
14.3%
US Fixed Inc
8.3%
Gold
24.8%
MSCI EAFE
39.2%
MSCI EM
26.0%
Commodities
21.4%
MSCI EM
32.6%
Gold
31.0%
Gold
5.8%
MSCI EAFE
32.5%
REITS
19.5%
US Treasuries
9.8%
MSCI EM
18.6%
US Treasuries
13.4%
US Treasuries
6.7%
US Treasuries
11.6%
MSCI World
33.8%
MSCI EAFE
20.7%
Gold
17.9%
MSCI EAFE
26.9%
Commodities
16.2%
US Fixed Inc
4.5%
REITS
31.7%
MSCI EM
19.2%
US Fixed Inc
7.8%
MSCI EAFE
17.9%
US Fixed Inc
11.7%
Cash
4.4%
US Fixed Inc
10.3%
REITS
33.5%
MSCI World
15.2%
MSCI EAFE
14.0%
Gold
23.2%
MSCI EAFE
11.6%
Cash
2.1%
MSCI World
-30.8%
Commodities
16.8%
S&P 500
2.1%
MSCI World
16.5%
REITS
8.5%
Gold
2.5%
Hedge funds
4.7%
S&P 500
28.7%
S&P 500
10.9%
REITS
10.7%
MSCI World
20.7%
MSCI World
9.6%
Hedge funds
-23.3%
S&P 500
26.5%
S&P 500
15.1%
Cash
0.1%
S&P 500
16.0%
Cash
6.2%
MSCI EM
-2.4%
Cash
1.8%
Commodities
23.9%
Commodities
9.1%
MSCI World
10.0%
S&P 500
15.8%
US Treasuries
9.1%
Commodities
-35.6%
Gold
24.4%
MSCI World
12.3%
MSCI World
-5.0%
Gold
7.1%
Gold
-5.9%
REITS
-7.8%
REITS
-2.4%
Gold
19.4%
Gold
5.5%
S&P 500
4.9%
Hedge funds
9.3%
US Fixed Inc
7.0%
S&P 500
-37.0%
Commodities
18.9%
MSCI EAFE
8.2%
REITS
-5.7%
US Fixed Inc
4.5%
S&P 500
-9.1%
S&P 500
-11.9%
MSCI EM
-6.0%
Hedge funds
13.4%
US Fixed Inc
4.3%
Cash
3.1%
Cash
4.9%
S&P 500
5.5%
MSCI World
-40.3%
Hedge funds
13.4%
US Fixed Inc
6.8%
Hedge funds
-8.9%
Hedge funds
3.5%
MSCI World
-12.9%
MSCI World
-16.5%
MSCI EAFE
-15.7%
US Fixed Inc
4.1%
US Treasuries
3.5%
US Treasuries
2.8%
US Fixed Inc
4.4%
Cash
5.0%
MSCI EAFE
-43.1%
US Fixed Inc
6.1%
US Treasuries
5.9%
MSCI EAFE
-11.7%
US Treasuries
2.2%
MSCI EAFE
-14.0%
Commodities
19.5%
MSCI World
-19.5%
US Treasuries
2.3%
Hedge funds
2.7%
Hedge funds
2.7%
US Treasuries
3.1%
Hedge funds
4.2%
REITS
-50.2%
Cash
0.2%
Hedge funds
5.2%
Commodities
-13.3%
Cash
0.1%
MSCI EM
-30.9%
MSCI EAFE
-21.2%
S&P 500
-22.1%
Cash
1.1%
Cash
1.3%
US Fixed Inc
2.6%
Commodities
2.1%
REITS
-10.0%
MSCI EM
-53.2%
US Treasuries
-3.7%
Cash
0.1%
MSCI EM
-18.2%
Commodities
-1.1%
34
In Focus: Chinese Rebound
Source: BofA-ML Research, Bloomberg, Haver Analytics, IMG. *For 2012
ESTIMATED CONTRIBUTION TO GLOBAL GROWTH BY REGION*
0%
2%
4%
6%
8%
10%
12%
14%
2007 2008 2009 2010 2011 2012 2013
BofA ML Forecasts:
1Q 2012: 7.9%
2Q 2013: 8.1%
3Q 2013: 8.0%
4Q 2013: 8.0%
CHINA REAL GDP FORECASTS (%, YoY)
EXPORTS EXPECTED TO INCREASE 12.1 % YoY IN 2013
US, 12%
EU, -1%
UK, 0%
Japan, 4%
DM Others, 9%
China, 40%
India, 12% Brazil, 3%
Russia, 3%
EM Other, 18%
EM, 76%
CONSUMPTION EXPECTED TO LEAD CHINESE GROWTH
5.4%
4.8%
-0.4%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2006 2007 2008 2009 2010 2011
Net Exports
Investments
Consumption
Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus
-$20
-$10
$0
$10
$20
$30
$40
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008 2009 2010 2011 2012
Trade Surplus (in $billions), RHS Export Growth (YoY%), LHS
35
In Focus: Reflating Japan’s Economy
Source: (Top Left) Bloomberg, BofA ML Global Research,. (Top Right) Bloomberg, IMG. (Bottom Left) Bloomberg, IMG. (Bottom Right) BofA ML Global Research, IMG.
JAPANESE EQUITIES SURGE: UP 20% IN 1Q 2013 YEN’S WEAKNESS INCREASES JAPANESE COMPETITIVENESS
JAPAN LAST 15 YEARS: LOW GROWTH AND DEFLATION
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
1998 2000 2002 2004 2006 2008 2010 2012
Real GDP Growth Real GDP Average CPI
BANK OF JAPAN PLANS TO ADOPT STIMULUS POLICIES
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
¥40,000
¥60,000
¥80,000
¥100,000
¥120,000
¥140,000
¥160,000
¥180,000
1998 2000 2002 2004 2006 2008 2010 2012
BOJ Balance Sheet (LHS) Policy Rate
600
650
700
750
800
850
900
950
1,000
1,050
1,100
8,000
8,500
9,000
9,500
10,000
10,500
11,000
11,500
12,000
12,500
13,000
Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13
Nikkei Index (LHS) Topix Index (RHS)
Nikkei and Topix up
approximately 39%
since November 2012.
Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus
70
80
90
100
110
120
130
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US
D/JP
Y
USDJPY 200-day MA
36
FLAT DEMAND COUPLED WITH RISING
SUPPLY
9.4%
13.5%
21.4%
30.7%
0%
5%
10%
15%
20%
25%
30%
35%
2007 2008 2009 2010
0
3
5
8
10
13
15
18
20
23
2005 2007 2009 2011 2013 2015
US Demand US Supply
BofA ML Forecasts Oil (millions of barrels/day)
40
80
120
1980 1990 2000 2010 2020 2030
Consumption
22%
13%
Production Forecast
Total Energy (quadrillion BTU)
Net Imports
-1,000 0 1,000 2,000
Mexico
Norway
UK
Russia
India
Columbia
Biofuels
Canada
Brazil
United States
Thousands of
barrels/day
0
100
200
300
400
500
600
700
800
900
2002 2004 2006 2008 2010 2012
US Rest of World Index
In Focus: US Energy Independence
US TO SUPPLY A LARGE PORTION OF NON-
OPEC SUPPLY GROWTH BETWEEN 2011-2016
NET ENERGY IMPORTS FORECAST TO
DECLINE
SHALE AS A % OF NATURAL GAS
RESERVES
ENERGY COST ADVANTAGE
100
150
200
250
300
350
15
17
19
21
23
25
27
29
31
33
1980 1986 1992 1998 2004 2010
Oil (billion barrels) Natural gas (trillion cubic feet)
ADVANCEMENT IN TECHNOLOGY BOOSTS US
OIL AND NATURAL GAS PROVED RESERVES
Source: US Energy Information Administration, BofA ML Global Research, IMG.
Appendix Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus
37
Appendix
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
38
US Equity Sector Performance (S&P 500)
2012 2013
Q4 2012 Q1 2013
Source: Bloomberg, IMG. US Equities represented by the S&P 500 Index. Returns calculated are total returns.
1.3%
4.6%
10.8%
14.8%
15.0%
15.3%
17.9%
18.3%
23.9%
28.8%
0% 5% 10% 15% 20% 25% 30%
Utilities
Energy
Cons Staples
Info Tech
Materials
Industrials
Healthcare
Telecom
Cons Disc
Financials
-6.0%
-5.7%
-2.9%
-2.7%
-1.7%
0.1%
2.1%
2.7%
3.7%
5.9%
-8% -6% -4% -2% 0% 2% 4% 6% 8%
Telecom
Info Tech
Utilities
Energy
Cons Staples
Healthcare
Cons Disc
Materials
Industrials
Financials
4.6%
4.8%
9.5%
10.2%
10.7%
11.4%
12.2%
13.0%
14.6%
15.8%
0% 5% 10% 15% 20%
Info Tech
Materials
Telecom
Energy
Industrials
Financials
Cons Disc
Utilities
Cons Staples
Healthcare
4.6%
4.8%
9.5%
10.2%
10.7%
11.4%
12.2%
13.0%
14.6%
15.8%
0% 5% 10% 15% 20%
Info Tech
Materials
Telecom
Energy
Industrials
Financials
Cons Disc
Utilities
Cons Staples
Healthcare
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
39
US Equities: Historical Sector Performance
Source: Bloomberg, IMG. US Equities represented by the S&P 500 Index. Returns calculated are total returns.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Utilities
57.2%
Materials
3.5%
Cons Staples
-4.3%
Info Tech
47.2%
Energy
31.5%
Energy
31.4%
Telecom
36.8%
Energy
34.4%
Cons Staples
-15.4%
Info Tech
61.7%
Cons Disc
27.7%
Utilities
19.9%
Financials
28.8%
Healthcare
37.1%
Cons Disc
2.8%
Materials
-5.5%
Materials
38.2%
Utilities
24.3%
Utilities
16.8%
Energy
24.2%
Materials
22.5%
Healthcare
-22.8%
Materials
48.6%
Industrials
26.7%
Cons Staples
14.0%
Cons Disc
23.9%
Financials
25.7%
Industrials
-5.7%
Energy
-11.1%
Cons Disc
37.4%
Telecom
19.9%
Financials
6.5%
Utilities
21.0%
Utilities
19.4%
Utilities
-29.0%
Cons Disc
41.3%
Materials
22.2%
Healthcare
12.7%
Telecom
18.3%
Cons Staples
16.8%
Cons Staples
-6.4%
Financials
-14.6%
Industrials
32.2%
Industrials
18.0%
Healthcare
6.5%
Financials
19.2%
Info Tech
16.3%
Telecom
-30.5%
Industrials
20.9%
Energy
20.5%
Telecom
6.3%
Healthcare
17.9%
Energy
15.7%
Financials
-9.0%
Healthcare
-18.8%
Financials
31.0%
Cons Disc
13.2%
Materials
4.4%
Cons Disc
18.6%
Cons Staples
14.2%
Cons Disc
-33.5%
Healthcare
19.7%
Telecom
19.0%
Cons Disc
6.1%
Industrials
15.3%
Industrials
5.9%
Energy
-10.4%
Cons Disc
-23.8%
Utilities
26.3%
Materials
13.2%
Cons Staples
3.6%
Materials
18.6%
Industrials
12.0%
Energy
-34.9%
Financials
17.2%
Cons Staples
14.1%
Energy
4.7%
Materials
15.0%
Materials
-15.7%
Healthcare
-11.9%
Industrials
-26.3%
Energy
25.6%
Financials
10.9%
Industrials
2.3%
Cons Staples
14.4%
Telecom
11.9%
Industrials
-39.9%
Cons Staples
14.9%
Financials
12.1%
Info Tech
2.4%
Info Tech
14.8%
Cons Disc
-20.0%
Telecom
-12.2%
Utilities
-30.0
Healthcare
15.1%
Cons Staples
8.2%
Info Tech
1.0%
Industrials
13.3%
Healthcare
7.2%
Info Tech
-43.1%
Energy
13.8%
Info Tech
10.2%
Industrials
-0.6%
Cons Staples
10.8%
Telecom
-38.8%
Info Tech
-25.9%
Telecom
-34.1%
Cons Staples
11.6%
Info Tech
2.6%
Telecom
-5.6%
Info Tech
8.4%
Cons Disc
-13.2%
Materials
-45.7%
Utilities
11.9%
Utilities
5.5%
Materials
-9.8%
Energy
4.6%
Info Tech
-40.9%
Utilities
-30.4%
Info Tech
-37.4%
Telecom
7.1%
Healthcare
1.7%
Cons Disc
-6.4%
Healthcare
7.5%
Financials
-18.6%
Financials
-55.3%
Telecom
8.9%
Healthcare
2.9%
Financials
-17.1%
Utilities
1.3%
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
40
International Equities: Sector Performance (MSCI ACWI ex US)
2012
Q4 2012
Source: Bloomberg, IMG. Global equities represented by MSCI ACWI ex US. Returns calculated are total returns.
2013
Q1 2013
2.4%
4.7%
5.2%
10.6%
17.1%
18.1%
18.8%
19.5%
23.2%
30.1%
0% 5% 10% 15% 20% 25% 30% 35%
Energy
Utilities
Telecom
Materials
Industrials
Info Tech
Health Care
Cons Staples
Cons Disc
Financials
-2.4%
-0.6%
1.6%
2.2%
4.1%
5.9%
7.5%
7.9%
10.3%
10.4%
-4% -2% 0% 2% 4% 6% 8% 10% 12%
Telecom
Energy
Utilities
Health Care
Cons Staples
Materials
Info Tech
Industrials
Cons Disc
Financials
-7.2%
-2.2%
-0.2%
2.6%
3.1%
4.2%
5.0%
5.6%
9.1%
12.3%
-10% -5% 0% 5% 10% 15%
Materials
Energy
Utilities
Telecom
Info Tech
Financials
Industrials
Cons Disc
Cons Staples
Health Care
-7.2%
-2.2%
-0.2%
2.6%
3.1%
4.2%
5.0%
5.6%
9.1%
12.3%
-10% -5% 0% 5% 10% 15%
Materials
Energy
Utilities
Telecom
Info Tech
Financials
Industrials
Cons Disc
Cons Staples
Health Care
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
41
International Equities: Historical Sector Performance
Source: Bloomberg, IMG. Global equities represented by MSCI ACWI ex US. Returns calculated are total returns.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Healthcare
14.8%
Energy
-4.9%
Materials
3.5%
Materials
52.7%
Utilities
32.0%
Energy
31.5%
Utilities
49.5%
Materials
40.9%
Healthcare
-18.6%
Materials
76.3%
Cons Disc
22.1%
Healthcare
5.7%
Financials
30.1%
Cons Staples
3.8%
Materials
-7.5%
Energy
0.8%
Industrials
50.0%
Energy
26.5%
Materials
27.4%
Materials
35.1%
Telecom
41.0%
Utilities
-29.7%
Info Tech
51.4%
Industrials
22.0%
Cons Staples
4.1%
Cons Disc
23.2%
Financials
-1.5%
Cons Staples
-10.0%
Utilities
-0.2%
Info Tech
49.5%
Financials
25.8%
Industrials
25.3%
Telecom
33.0%
Energy
32.3%
Cons Staples
-31.2%
Energy
51.2%
Materials
21.9%
Telecom
-0.9%
Cons Staples
19.5%
Utilities
-1.6%
Utilities
-12.8%
Cons Staples
-0.8%
Financials
48.9%
Industrials
22.9%
Financials
18.3%
Cons Staples
30.2%
Utilities
25.6%
Telecom
-35.7%
Financials
48.6%
Cons Staples
16.0%
Energy
-7.7%
Healthcare
18.8%
Energy
-4.7%
Healthcare
-15.1%
Financials
-12.6%
Telecom
40.4%
Materials
20.8%
Info Tech
13.9%
Financials
29.8%
Cons Staples
24.4%
Cons Disc
-46.0%
Cons Disc
45.4%
Info Tech
14.7%
Cons Disc
-13.5%
Info Tech
18.1%
Industrials
-11.3%
Cons Disc
-17.2%
Healthcare
-14.4%
Cons Disc
39.1%
Telecom
20.6%
Healthcare
13.8%
Industrials
26.5%
Industrials
23.7%
Industrials
-46.9%
Cons Staples
36.4%
Telecom
10.4%
Industrials
-16.3%
Industrials
17.1%
Materials
-16.5%
Financials
-21.9%
Cons Disc
-14.8%
Utilities
35.4%
Cons Staples
19.3%
Utilities
13.7%
Cons Disc
23.9%
Info Tech
8.3%
Energy
-46.9%
Industrials
35.6%
Energy
6.7%
Utilities
-16.5%
Materials
10.6%
Cons Disc
-23.7%
Industrials
-24.0%
Industrials
-17.8%
Energy
34.0%
Cons Disc
18.9%
Cons Disc
12.5%
Energy
20.3%
Cons Disc
6.2%
Info Tech
-47.9%
Healthcare
19.9%
Financials
4.5%
Info Tech
-17.8%
Telecom
5.2%
Info Tech
-37.6%
Telecom
-30.1%
Telecom
-21.1%
Healthcare
28.9%
Healthcare
14.0%
Cons Staples
11.4%
Healthcare
17.0%
Financials
3.8%
Materials
-52.6%
Telecom
19.4%
Healthcare
3.8%
Financials
-19.4%
Utilities
4.7%
Telecom
-41.3%
Info Tech
-38.9%
Info Tech
-22.5%
Cons Staples
24.7%
Info Tech
6.8%
Telecom
-5.0%
Info Tech
13.0%
Healthcare
2.6%
Financials
-54.0%
Utilities
10.9%
Utilities
-1.4%
Materials
-23.9%
Energy
2.4%
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
42
Fixed Income Returns
Source: Bloomberg, BofA ML Global Research, IMG; All indexes represented by BofA Merrill Lynch Global Bond Indexes and calculated using total returns.
2012
Q4 2012
2013
Q1 2013
1.5%
2.2%
2.6%
3.2%
4.5%
7.3%
7.3%
10.4%
13.6%
15.6%
18.3%
24.3%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Non-US IG
Treasury
Mortgage
Asset-Backed
US Broad Market
Municipal
TIPS
Corporates
IG Preferreds - Fixed
High Yield
Emerging Markets
IG Preferreds - Floating
-2.5%
-0.3%
-0.1%
0.3%
0.4%
0.5%
0.7%
0.8%
1.2%
1.9%
3.2%
3.2%
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%
Non-US IG
Mortgage
Treasury
US Broad Market
Asset-Backed
Municipal
IG Preferreds - Fixed
TIPS
Corporates
IG Preferreds - Floating
High Yield
Emerging Markets
-4.0%
-2.2%
-0.6%
-0.3%
-0.1%
-0.1%
0.1%
0.3%
0.5%
2.3%
2.8%
2.9%
-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%
Non-US IG
Emerging Markets
TIPS
Treasury
US Broad Market
Mortgage
Corporates
Asset-Backed
Municipal
IG Preferreds - Floating
IG Preferreds - Fixed
High Yield
-4.0%
-2.2%
-0.6%
-0.3%
-0.1%
-0.1%
0.1%
0.3%
0.5%
2.3%
2.8%
2.9%
-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%
Non-US IG
Emerging Markets
TIPS
Treasury
US Broad Market
Mortgage
Corporates
Asset-Backed
Municipal
IG Preferreds - Floating
IG Preferreds - Fixed
High Yield
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
43
Glossary
Consumer Price Index (CPI) Level: Base Year 1982-84: 100. The CPI represents changes in prices of all good and services purchased for consumption by urban households. User fees and sales
and excised taxes paid by the consumer are also included. Income taxes and investment items are not included.
CPI Core Index Level: Base year 1982-84; it excludes food and energy items from the Consumer Price Index Level.
Current Account Deficit: Occurs when a country's total import of goods, services and transfers is greater than the country's total export of goods, services and transfers; this situation makes a
country a net debtor to the rest of the world.
GDP Nominal: Gross Domestic Product (GDP) equals the total income of everyone in the economy or the total expenditure on the economy’s good and services. GDP includes only the value of
final goods and services. Nominal GDP measures the value of goods and services at current dollar prices.
GDP Real: The chain weighted GDP measure of good and services at constant dollar prices. The base year changes continuously over time (e.g., 1995, process measures real growth from 1995-
1996). The figures are then linked to a chain that can compare goods and services in any two years. Chain weighted figures never let prices get too far out of date.
Jobless Claims: Average weekly initial claims for unemployment insurance: measures the average number of new claims for unemployment compensation per week.
US Employees Non-Farm Private Payrolls: A statistic that represents the total number of paid US workers except for farm workers, general government employees, employees of nonprofit
organizations that provide assistance to individuals, and private household employees. The Non-Farm Private Payroll represents about 80% of the workers who produce the US Gross Domestic
Product.
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
44
Index Definitions
Alerian MLP Index is a composite of the 50 most prominent energy master limited partnerships and will be calculated by Standard & Poor’s using a float-adjusted, market capitalization-
weighted methodology. The total return index is calculated on an end-of-day basis and will be disseminated daily through its ticker symbol, “AMZX” on the New York Stock Exchange.
Barclays Capital US Aggregate Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market, including Treasuries,
government-related and corporate securities, MBS (agency fixed rated and hybrid ARM passthroughs), ABS, and CMBS.
Barclays Capital US Treasury Index includes public obligations of the US Treasury. Treasury bills are excluded by the maturity constraint.
Barclays Capital US Agency Index includes native currency agency debentures from issuers such as Fannie Mae, Freddie Mac, and Federal Home Loan Bank.
Copper reflects the copper spot price and is quoted in USD per pound.
Corn reflects the USDA Grain Export-Chicago No. 2 Yellow Corn Spot Price. The price is quoted in USD per bushel and is traded intraday.
Dow Jones/Credit Suisse Hedge Fund Indexes:
Aggregate Index®: The methodology utilized in the Dow Jones / Credit Suisse Hedge Fund Index starts by defining the universe it is measuring. The Index Universe is defined as funds with: a
minimum of US $50 million assets under management, a minimum one-year track record, and, current audited financial statements. Funds are separated into ten primary subcategories
based on their investment style. The Index in all cases represents at least 85% of the AUM in each respective category of the Index Universe.
Global Macro Index®: Global macro managers carry long and short positions in any of the world’s major capital or derivative markets.
Distressed Index®: Fund managers in this non-traditional strategy invest in the debt, equity or trade claims of companies in financial distress or already in default.
Long-Short Equity Index®: The directional strategy involves equity-oriented investing on both the long and short sides of the market. The objective is not to be market neutral. Managers
have the ability to shift form Value to Growth, from Small to Mid to Large Cap stocks, and form a net long position to a net short position. Mangers may use futures and options to hedge.
The manager’s focus may be regional or sector specific.
Dedicated Short Bias Index®: The strategy is to maintain net short, as opposed to pure short, exposure. Short-biased managers take short positions mostly in equities and derivatives. The
short bias of a manger’s portfolio must be greater than zero to be classified in this category.
Convertible Arbitrage Index®: The strategy is identified in the convertible securities of a company. Positions are designed to generate profits from the fixed income security as well as the
short sale of stock, while protecting principle from market moves.
Dow Jones Industrial Average (DJIA) measures the performance of 30 leading US blue-chip companies.
Dow Jones – UBS Commodity Indexes:
DJ Agriculture is the Dow Jones - UBS Agriculture Total Return Sub-Index reflects exposure to coffee, corn, cotton, soybeans, soybean oil, sugar, and wheat. The total return index is
calculated on an end-of-day basis and is quoted in USD.
DJ Energy is the Dow Jones - UBS Energy Total Return Index reflects exposure to crude oil, heating oil, natural gas and unleaded gas. The total return index is calculated on an end-of-day
basis and is quoted in USD.
DJ Grain Index is the Dow Jones - UBS Grains Total Return Index reflects exposure to corn, soybeans and wheat. The total return index is calculated on an end-of-day basis and is quoted in
USD.
DJ Industrial Metals is the Dow Jones - UBS Industrial Metals Total Return Index reflects exposure to aluminum, copper, nickel and zinc. The total return index is calculated on an end-of-day
basis and is quoted in USD.
DJ Livestock is the Dow Jones - UBS Livestock Sub-Index Total Return Index reflects exposure to lean hogs and live cattle. The total return index is calculated on an end-of-day basis and is
quoted in USD.
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
45
Index Definitions
DJ Petroleum Index is the Dow Jones - UBS Commodity Index Petroleum Sector Sub-Index Total Return Index reflects exposure to crude oil, heating oil and unleaded gasoline commodities
traded on US exchange. The total return index is calculated on an end-of-day basis and is quoted in USD.
DJ Precious Metals is the Dow Jones - UBS Precious Metal Sub-Index Total Return reflects exposure to gold and silver. The total return index is calculated on an end-of-day basis and is
quoted in USD.
DJ Softs Index is the Dow Jones - UBS Softs Sub-Index Total Return Index reflects exposure to coffee, cotton, and sugar. The total return index is calculated on an end-of-day basis and is
quoted in USD.
Dow Jones - UBS Commodity Total Return Index is a broadly diversified index that allows investors to track a diversified set of commodity futures through a single, simple measure. The total
return index reflects the return on fully collateralized positions in the underlying commodity futures.
FTSE NAREIT US Real Estate Index is a performance index based on publicly traded real estate investment trusts (REITs), that span commercial real estate space across the US economy. The
index series provides investors with exposure to all investment and property sectors. A REIT is a company that owns, and in most cases, operates income-producing real estate such as
apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. To qualify as a REIT, a company must distribute at least 90 percent of its
taxable income to its shareholders annually. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. As a result, most
REITs remit at least 100 percent of their taxable income to their shareholders and therefore owe no corporate tax.
FTSE®EPRA®/NAREIT® Global Index is a free float, market capitalization-weighted real estate index designed to represent publicly traded equity REITs and listed property companies globally.
Gold reflects the gold spot price and is quoted in USD per Troy Ounce.
HFRX Global Hedge Fund Index is an asset-weighted index that includes over 55 constituent funds. All funds must be open to new investments, have at least $50 Million under management
and have a 24-month track record. The index is rebalanced quarterly. The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe.
ML US Broad Market Index tracks the performance of US dollar denominated investment grade Government and Corporate public debt issued in the US Domestic bond market, including
collateralized products such as Mortgage Pass-Through and Asset Backed securities.
ML US Corporate Master Index tracks the performance of US dollar-denominated investment grade corporate public debt issued in the US domestic bond market. Qualifying bonds must have at
least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $150 million. Bonds must be rated investment grade based on a composite of
Moody’s and S&P.
ML Municipal Masters Index tracks the performance of the investment grade US tax-exempt bond market.
ML Global Sovereign Broad Market Index tracks the performance of local currency denominated debt of investment grade rated Sovereign issuers.
ML Global Emerging Markets Sovereign and Corporate Index tracks the performance of US dollar denominated debt of sovereign and corporate issuers domiciled in countries with a BB or lower
foreign currency long-term sovereign debt rating.
ML High Yield Master Index tracks the performance of below investment grade US dollar-denominated corporate bonds publicly issued in the US domestic market. “Yankee” bonds (debt of
foreign issuers issued in the US domestic market) are included in the Index provided the issuer is domiciled in a country having an investment grade foreign currency long-term debt rating
(based on a composite of Moody’s and S&P).
ML Mortgage Master Index tracks the performance of US dollar denominated 30-year, 15-year and balloon pass-through mortgage securities having at least $150 million outstanding per
generic production year.
ML 91 Day T-Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month, that issue is sold and rolled into a newly
selected issue.
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
46
Index Definitions
MSCI® World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. As of July 2009 the MSCI World Index
consisted of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.
MSCI® EAFE (Europe, Australasia, and Far East) Index comprises 21 MSCI country indexes, representing the developed markets outside of North America.
MSCI® Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of July 2009,
the MSCI Emerging Markets Index consisted of the following 25 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea,
Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
MSCI® Europe non-UK Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of July 2009, the MSCI Europe
Index consisted of the following 15 developed market country indexes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain,
Sweden, and Switzerland.
MSCI® Pacific non Japan Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of July 2009, the MSCI
Pacific Index consisted of the following 4 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore.
Muni Yields uses the Moody’s Municipal Bond Yield Average AAA 10 Year. Derived from pricing data on unenhanced newly issued general obligation bonds each observation is an unweighted
average.
NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired
in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being
pension funds. As such, all properties are held in a fiduciary environment.
Oil reflects the Bloomberg West Texas Intermediate Crushing Crude Oil Spot Price. The price is derived by adding spot market spreads to the NYMEX contract. Units are in USD per barrel and is
traded intraday.
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® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
Russell 2000 Growth Index. The index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values
Russell 2000 Value Index. The index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
Silver reflects the silver spot price and is quoted in USD per Troy Ounce.
S&P 500 Index is widely regarded as the best single gauge of the US equities market, this world-renowned index includes a representative sample of 500 leading companies in leading
industries of the US economy. Although the S&P 500 focuses on the large-cap segment of the market, with approximately 75% coverage of US equities, it is also an ideal proxy for the total
market. An investor cannot invest directly in an index.
S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries
Ten-Year Treasury relates the yield on a security to its time to maturity and is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
VIX Index is the Chicago Board Options Exchange Standard and Poor’s Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for
a wide range of strikes.
Executive Summary
Macroeconomic Update
Equities Fixed Income Alternative Investments
Portfolio Management
In Focus Appendix
47
The opinions expressed herein are those of the Merrill Lynch GWM Investment Management & Guidance as of December 31, 2012 and are subject to change. It is provided as general market
commentary only, and it does not consider the specific investment objectives, financial situation or particular needs of any one client. It should not be considered a recommendation or solicitation to
purchase or sell any security. There is no guarantee that any future event discussed herein will come to pass. When reading this commentary, you should consider that investments in securities
involve risk and you could lose some or all of the amounts you have invested. The information herein was obtained from various sources, which we believe to be reliable, but we do not guarantee its
accuracy or completeness. The indexes referenced herein are unmanaged and are not available for direct investment; returns assume no management, transaction or other expenses and also
assume reinvestment of dividends, interest and/or capital gains. Past performance does not guarantee or indicate future results.
MERRILL LYNCH ASSUMES NO RESPONSIBILITY FOR ANY OF THE FOREGOING PERFORMANCE INFORMATION, WHICH HAS BEEN PROVIDED BY THE INDEX SPONSOR. NEITHER MERRILL LYNCH NOR
THE INDEX SPONSOR CAN VERIFY THE VALIDITY OR ACCURACY OF THE SELF-REPORTED RETURNS OF THE MANAGERS USED TO CALCULATE THE INDEX RETURNS. MERRILL LYNCH DOES NOT
GUARANTEE THE ACCURACY OF THE INDEX RETURNS AND DOES NOT RECOMMEND ANY INVESTMENT OR OTHER DECISION BASED ON THE RESULTS PRESENTED.
The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the
companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high-yield bonds may be subject
to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments in foreign securities involve special risks, including foreign currency risk
and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain
industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying
properties, the effect of economic conditions on real estate values, changes in interest rates, and risk related to renting properties, such as rental defaults. There are special risks associated with an
investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.
Alternative Investments are speculative and subject to a high degree of risk. Although risk management policies and procedures can be effective in reducing or mitigating the effects of certain risks,
no risk management policy can completely eliminate the possibility of sudden and severe losses, illiquidity and the occurrence of other material adverse effects. Some or all alternative investment
programs may not be suitable for certain investors. Many alternative investment products, specifically private equity and most hedge funds, require purchasers to be “qualified purchasers” within the
meaning of the federal securities laws (generally, individuals who own at least $5 million in “investments” and institutional investors who own at least $25 million in “investments,” as such term is
defined in the federal securities laws). No assurance can be given that any alternative investment’s investment objectives will be achieved. In addition to certain general risks, each product will be
subject to its own specific risks, including strategy and market risk.
AR8F6021