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Q1 2016 Market ChartBookBaird Private Wealth Management
Wealth Management | Capital Markets – Investment Banking | Private Equity | Asset Management
Charlotte Chicago Frankfurt London Milwaukee Shanghai
www.rwbaird.com
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About Baird
A Great Place to WorkSince 2004, Baird has been recognized annually as one of the FORTUNE 100 Best Companies to Work For®. We ranked No. 6 for 2016.
Global Reach Baird has more than 2,900 employees and over 100 offices in the United States, Europe and Asia.
Robert W. Baird & Co.
OwnershipFounded in 1919 and headquartered in Milwaukee, WI, Baird is employee-owned and fully independent.
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Table of Contents
1 | Economy & Market
Market HighlightsThe Markets at a GlanceS&P 500 IndexEconomic GrowthInflation WatchJobs MarketHousing MarketConsumer HealthCorporate ProfitabilityMarket VolatilityCommodity PricesMutual Fund and ETF Flows
2 | Domestic Equity
US Equity SnapshotAsset Class PerformanceUS Economic Sector PerformanceInvestment Style LeadershipHistorical Market Cap ValuationsHistorical Sector Valuation & Growth RangesMutual Fund Over/Under Performance
3 | International Equity
Global Market PerformanceInternational Equity SnapshotInternational Country PerformanceEconomic Sector ReturnsInternational Style LeadershipGlobal Stock Market ValuationsCountry Valuation Ranges
4 | Fixed Income
Bond Market SnapshotPerformance by Maturity/Credit QualityYield and Volatility Characteristics U.S. Treasury BondsMunicipal BondsCorporate Bond YieldsBond SpreadsMutual Fund Over/Under Performance
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Economy and Market
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Fixed Income• At a Glance: With volatility and uncertainty
spreading through equity markets, investors sought shelter in safe-haven assets, notably government and high quality corporate bonds. The increased demand helped push interest rates down across the yield curve. The yield on the 10-year Treasury fell from 2.3% to start the quarter to 1.8% to finish. In all, the Barclays Aggregate Bond Index moved higher by 3.0%.
• Sector: In the taxable bond market, investors preferred high quality bonds over high yield. Government-backed and investment grade sectors were among the strongest areas of the market. Credit-sensitive sectors like high yield and bank loans needed a strong rally in the back-half of the quarter to finish in positive territory.
• Maturity and Credit Quality: Longer maturity bonds finished higher on lower interest rates while shorter maturity bonds were largely flat. Among credit, high quality bonds outpaced high yield.
• Yield Curve: Long-term Treasury yields posted their steepest quarterly decline in more than three years, leading to a flattening yield curve. This flattening resulted in the narrowest yield spread between 2-year and 10-year Treasuries since 2009.
• Municipal Bonds: Insulated from the volatility of global markets, municipal bonds posted another strong quarter with returns of 1.7%.
Q1 2016 Market Highlights
Economy and Market• Economic Growth: Data showed the pace
of U.S. economic growth slowing to 1.4% in Q4 of 2015, down from 2% in Q3 of 2015. Weakness abroad appeared to be weighing on U.S. economic growth, but a pickup in consumer spending helped offset some of the slowdown. The solid pace in consumer spending underscores the economy’s underlying strength and should ease fears of an impending recession in the U.S.
• Economic Health: The labor market continued to tighten in Q1, adding an average of 228,000 jobs for the previous three months through February. The gains helped push the national unemployment rate to 4.9%, a post-recession low.
• Inflation. After years of stubbornly low inflation, price indicators are starting to show inflationary pressures are taking hold. Core consumer prices, which exclude the effects of food and energy, climbed 2.3% y/o/y through February, its highest reading in nearly three years. When including the effects of food and energy, headline inflation weakened slightly during the quarter to 1%, primarily due to weaker fuel and energy prices.
• Fed Speak. The Federal Reserve elected to pass on further interest rate hikes during the quarter, citing the need to see further improvements in economic and financial market conditions before choosing to move again.
Domestic Equity• At a Glance: The S&P 500 eked out a small
gain of 1.4% during a turbulent quarter for stock investors. Stocks fell sharply during the first six weeks of the year before recovering all losses to finish the quarter in positive territory.
• Market Cap and Style: Mid-cap stocks led all market segments higher, finishing with a return of 2.2% for the quarter. After lagging by more than 10% in 2015, value stocks rebounded strongly and modestly outperformed their growth counterparts.
• Sector: The best performing sectors through the first quarter of the year are consistent with a risk-off, defensive play. Utilities, telecom, and consumer staples led all sectors on the upside as investors preferred the relative safety and additional yield these sectors provide. 2015’s star sector performer, healthcare was noticeably weak after being weighed down by a flagging biotech sector.
International Equity• At a Glance: International markets fared
worse than the U.S., in general. Japanese equities posted declines of 6.4% amid doubts over the success of “Abenomics.” In Europe, tepid inflation and weaker economic data pushed equity prices down 2.4%. Emerging markets were one of the few bright spots. After three years of flagging returns, emerging markets advanced 5.8% on higher commodity prices and easing central bank policy.
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The Markets at a Glance (as of 3/31/16)
Source: Morningstar Direct; Russell, MSCI, Barclays, Citigroup, and Dow Jones benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication. Robert W. Baird & Co.
Asset Class Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark
U.S. Stocks
Large Cap Value 1.6 1.6 (1.5) 9.4 10.2 5.7 (3.8) 13.5 32.5 Russell 1000® Value
Large Cap Growth 0.7 0.7 2.5 13.6 12.4 8.3 5.7 13.0 33.5 Russell 1000® Growth
Mid Cap 2.2 2.2 (4.0) 10.4 10.3 7.4 (2.4) 13.2 34.8 Russell Midcap®
Small Cap (1.5) (1.5) (9.8) 6.8 7.2 5.3 (4.4) 4.9 38.8 Russell 2000®
International Stocks
Developed Markets (3.0) (3.0) (8.3) 2.2 2.3 1.8 (0.8) (4.9) 22.8 MSCI EAFE (Net)
Bonds
Short-Term Taxable 1.0 1.0 1.0 0.9 1.1 2.8 0.7 0.8 0.6 Barclays 1-3 Yr Govt/Credit
Intermediate-Term Taxable 2.4 2.4 2.1 1.8 3.0 4.3 1.1 3.1 (0.9) Barclays Intermed. Govt/Credit
Short-Term Municipal 0.5 0.5 1.0 0.9 1.1 2.4 0.8 0.7 1.0 Barclays 1-3 Yr Municipal
Intermediate-Term Municipal 1.5 1.5 3.7 3.1 4.7 5.0 3.3 6.1 (1.0) Barclays 7 Yr Municipal
Cash
Cash/Cash Equivalents 0.1 0.0 0.1 0.1 0.1 1.0 0.1 0.0 0.1 Citi 3 Month T-bills
Satellite
High Yield 3.2 3.2 (4.0) 1.8 4.7 6.8 (4.6) 2.5 7.4 BofA/ML High Yield Master II
Real Estate 5.2 5.2 3.0 8.7 10.3 5.3 2.1 27.2 1.8 DJ US REIT
Commodities 0.4 0.4 (19.6) (16.9) (14.1) (6.2) (24.7) (17.0) (9.5) Bloomberg Commodity
Emerging Markets 5.7 5.7 (12.0) (4.5) (4.1) 3.0 (14.9) (2.2) (2.6) MSCI Emerging Mkts (Net)
Trailing Returns (%) Annual Returns (%)
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1750
1800
1850
1900
1950
2000
2050
2100
Jan-16 Feb-16 Mar-16
Ad
just
ed
Clo
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ev
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S&P 500 Index
Source: Standard and Poor’s. The S&P 500 Index, computed by the Standard & Poor's Corporation, is a well known gauge of stock market movements determined by the weighted capitalization of the 500 leading U.S. common stocks. Indices are unmanaged and it is not possible to invest directly in an index.
Year-to-Date Performance of the S&P 500 Index
Jan-5.0%
Feb-0.1%
Mar6.8%
Q1: +1.4%
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-8
-6
-4
-2
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8
GD
P G
row
th (
%)
Economic Growth
Source: US Department of Commerce: Bureau of Economic Analysis (GDP Growth)
US GDP Growth (Last 20 Years)
Contribution to U.S GDP Growth (Last 10 Years)
Gross Domestic Product (GDP)
GDP is a basic measure of U.S. economic output. Alternatively, it can be thought of as the final value of all goods and services produced within the U.S. Positive GDP growth signals an expanding economy. GDP is comprised of four major categories: personal consumption, private investment, government spending and net exports.
Robert W. Baird & Co.
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Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Co
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o G
DP
Gro
wth
(%
)
Personal Consumption Private Investment
Govt. Spending Next Exports
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0
2
4
6
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16
Year
-Ove
r-Ye
ar C
hang
e in
CPI
(%
)
Headline CPI
Core CPI
Inflation Watch
Source: Bureau of Labor Statistics; Baird Analysis. CPI figures lag one month.
Historic CPI Level (Last 10 Years)
CPI Breakdown
Consumer Price Index (CPI)
A common measure of inflation, Headline CPI tracks a broad basket of goods and services relatable to most consumers. Core CPI excludes Food and Energy due to the volatile nature of those categories and the distortive effect it can have on the broader inflation measure.
Robert W. Baird & Co.
Components Weight (%) 12-mo Change (%) Components Weight (%) 12-mo Change
(%)
Headline CPI 100 1.0 Core CPI 79 2.3
Housing 42 2.1 Food 15 1.3
Energy/Transportation 15 (3.4) Energy 7 (12.5)
Food & Beverage 15 0.9
Education 7 1.2
Medical Care 8 3.5
Recreation 6 0.9
Apparel/Clothing 3 0.9
Other 3 1.9
Headline CPI Core CPI: Headline less Food and Energy
10
0
1
2
3
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Wag
e G
rrow
th (%
)
60
63
66
69
Part
icip
atio
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3
6
9
12
15
18
Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16
Une
mpl
oym
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ate
(%)
U-3 Unemployment RateU-6 Underemployment Rate
-1,000
-800
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-400
-200
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200
400
600
Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16
Ch
an
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in P
ay
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0s)
Jobs Market
Source: US Department of Labor: Bureau of Labor Statistics. Data will lag one month and is subject to revision. Wage growth is calculated quarterly and will lag one quarter.
Unemployment and Underemployment Rates
Labor Participation Rate
Jobs Gained/Lost
Wage Growth (Last 10 Years)
Unemployment Rate
The U-3 Unemployment Rate is the standard measure of the % of the labor force that is without a job. The U-6 Underemployment Rate includes those in the U-3 measure as well as those employed on a part-time status that would prefer full-time status.
Change in Non-Farm Payroll
This is a key economic indicator that measures changes in the size of the labor force (excluding farm, government and not for-profit workers).
Labor Participation Rate
The % of working age persons that are employed or seeking employment relative to the size of the entire population. Discouraged workers and retirees cause a decline in this rate.
Change in Employment Cost Index
Measures the year-over-year growth of wages and salaries within the private sector, and is based on the Employment Cost Index.
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3000
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7000
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10000
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16
Uni
ts (0
00s)
New Housing Starts
Existing Home Sales
80
100
120
140
160
180
200
220
240
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16
Ind
ex
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ve
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100
120
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240
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16
Inde
x Le
vel
Housing Market
Source: Standard & Poor’s, US Department of Commerce: Bureau of Economic Analysis.
Housing Market Trend Housing Affordability
Average Selling Price of New and Existing Homes Housing Market Activity
Housing Affordability Index
A value of 100 means that a family with a median income can qualify for a median-priced home. A higher value means housing is generally more affordable.
Home Starts/Sales
These are indicators of housing market activity that track new home construction as well as the sales of existing homes.
S&P/Case Shiller Home Price Index
This is a well-known housing market index that measures home prices among the 20 largest metropolitan areas.
Robert W. Baird & Co.
$125,000
$175,000
$225,000
$275,000
$325,000
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16
Median Price (Existing)
Median Price (New Homes)
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$32,000
$34,000
$36,000
$38,000
$40,000
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Pers
onal
Sa
ving
s Rat
e (%
)
-4
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Cons
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Spe
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row
th (%
)
50
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Inde
x Le
vel
Consumer Health
Source: Thomas Reuters/University of Michigan, US Department of Commerce: Bureau of Economic Analysis.
Consumer Sentiment Consumer Spending Growth
Personal Savings Rate Personal Income per Capita
Univ. of Michigan Consumer Sentiment
A monthly survey of consumers’ feelings toward personal financial health and direction of the economy.
Personal Consumption Expenditures
Measures the rate of change of consumer expenditures. Core Spending excluded food and energy spending.
Personal Savings Rate
An average estimate of how much a consumer is saving as a percentage of total disposable income.
Personal Income per Capita
This measures the average gross annual wage/salary of working US citizens.
Robert W. Baird & Co.
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Corporate Profitability
Source: BEA, Bloomberg, Standard & Poors, Baird analysis. Past performance is not a guarantee of future results.
S&P 500 Earnings per Share (EPS)
Corporate Profits (% of GDP)
S&P 500 EPS:Current: $110Average: $64
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Corporate Profits
This chart illustrates after-tax corporate profits as a percentage of U.S. GDP. The larger the percentage, the more important corporate profits are to overall economic growth.
3%
6%
9%
12%
Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15
Corp
orat
e Pr
ofit
s /G
DP
$0
$20
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$80
$100
$120
$0
$200
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$1,200
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Earn ings Per Sh (right axis)
Revenues Per Sh (left axis)
Earnings/Revenue Per Share
One way to evaluate a company’s profitability is to measure its earnings on a per share basis. The same can be done at a broader market level. The S&P 500 EPS illustrates how profitable companies are, on average.
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Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
VIX
Le
ve
l
0%
20%
40%
60%
80%
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
Q2 2008
Q3 2008
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Q1 2009
Q2 2009
Q3 2009
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Q1 2010
Q2 2010
Q3 2010
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Q1 2012
Q2 2012
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Q1 2013
Q2 2013
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Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Pe
rce
nt
of
Tra
din
g D
ays
% of days up/down 2% or more
% of days up/down 1-2%
Market Volatility (as of 3/31/16)
Source: Standard & Poor’s; CBOE; Baird Analysis.
Historic VIX Level (Last 10 Years)
Quarterly S&P 500 Trading Volatility (Last 10 Years)
VIX (CBOE Volatility Index)
The VIX measures the implied volatility of S&P 500 future options. Simply put, it measures the expected volatility of the S&P 500 Index over the next 30 days. The higher the index, the higher the expected volatility. It is also commonly referred to as the “fear index.”
S&P 500 Trading Volatility
Rather than focus on implied volatility, this measures actual trading volatility. Trading days where the S&P 500 Index closes up/down more than 1% or 2% are reported on a quarterly basis.
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A verage Drawdown-22.3%
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Historical Drawdowns of S&P 500S&P 500 Declines from Recent Peak
Source: Morningstar; Baird Analysis. Shaded regions are represented by recessionary periods. Recessionary periods are defined by NBER business cycle dates.Robert W. Baird & Co.
S&P 500 Composite Index
S&P 500 Historical Drawdown
This chart illustrates the maximum percentage decline and subsequent recovery from a recent high for the S&P 500.
0
500
1,000
1,500
2,000
2,500
1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
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0.4
-9.3-11.5 -11.8
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15.3 16.5
12.0
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1.2
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-5
5
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Commodity Markets (as of 3/31/16)Year-to-Date Returns of Various Commodity Types
Oil Prices (Last 10 Years)
Source: U.S. Dept of Energy; London PM Gold Fix Index; Baird Analysis. “Broad Market” is represented by the Bloomberg Commodity Index, specific commodity types are reported segments of that index. See important disclosures and definitions included with this publication.
Robert W. Baird & Co.
Gold Prices (Last 10 Years)
$1,235
$-
$200
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$800
$1,000
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Lond
on P
M G
old
($/o
z)
$38.34
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I C
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Dem
and
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bb/d
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Supply/Demand Imbalance
Global Oil Supply
Global Oil Demand
Energy Markets (as of 3/31/16)Oil Prices (Last 10 Years)
Source: U.S. Energy Information Administration; Bloomberg; Baird Analysis. Robert W. Baird & Co.
Natural Gas Prices (10 Years)
Total U.S. Oil Production (LH) and Rig Count Index (RH) Global Oil Supply and Demand (LH) and Supply Imbalances (RH)
Un
ders
upp
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vers
upp
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$38 .34
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$1 .71 $0
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as
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mb
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Total Oil Production
Total Act ive Rig Count
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Mutual Fund and ETF Flows (as of 2/29/16)
Source: Morningstar Direct; Baird Analysis. Asset classes with less than $25 billion invested were excluded from the analysis.
Annual Fund FlowsThe examination of annual mutual fund and ETF flows shows the investment pattern of the average investor by broad asset class. For example, in 2008 investors exited stocks when the markets fell. In 2009, large amounts of capital went to fixed income, but little flowed back to stocks.
Gainers/LosersThese tables depict individual asset classes that have exhibited the greatest positive or negative percentage change in assets.
Annual Mutual Fund and ETF Flows ($millions)
Biggest % Gainers/Losers by Asset Class
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YTD 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Money Market 20,443 52,648 24,080 40,622 23,827 (60,745) (431,604) (290,490) 613,001 340,833 223,830
Municipal Bond 10,683 21,822 32,748 (56,361) 54,251 (8,574) 16,043 75,969 12,758 14,353 18,502
Taxable Bond 4,647 29,820 110,193 34,920 329,181 190,178 246,664 333,826 61,001 112,649 55,311
Allocation (12,862) (20,669) 51,267 61,961 29,553 19,307 18,527 6,453 (21,999) 45,974 28,899
US Equity (19,536) (60,053) 127,309 175,444 (41,163) (45,395) (21,054) (33,563) 709 37,163 48,344
International Equity 14,777 209,444 153,487 200,740 61,056 19,051 91,729 63,246 (41,542) 174,946 162,568
Alternative 6,824 20,516 20,076 49,512 17,902 23,172 24,006 28,434 19,820 11,561 10,147
Commodities 9,641 (1,526) (3,317) (32,890) 11,928 8,171 24,972 36,636 12,370 6,542 8,648
Calendar Year Net Flows ($M)
Top 10 In-Flows Trailing 1-Year Top 10 Out-Flows Trailing 1-Year
(as a % of assets) Growth Rate (as a % of assets) Growth Rate
Managed Futures 61.3% China Region -7.9%Multialternative 43.1% Long/Short Equity -8.2%Trading-Inverse Equity 40.3% Long-Term Bond -12.3%Europe Stock 39.2% Nontraditional Bond -14.0%Japan Stock 25.9% Convertibles -14.1%Foreign Small/Mid Blend 21.2% Market Neutral -14.5%Long Government 21.0% Emerging Markets Bond -16.3%Foreign Large Blend 19.9% Bank Loan -17.7%Preferred Stock 17.7% Industrials -19.9%Short Government 16.7% Pacific/Asia ex-Japan Stk -22.2%
1919
Domestic Equity
20Source: Morningstar Direct. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.
U.S. Stock Market Snapshot (as of 3/31/16)
Robert W. Baird & Co.
Representative
Last Qtr YTD 1-Year 3-Year 5-Year 10-Year Std. Dev. Max. Loss P/E EPS Gr. Div. Yld. Benchmark
Bellwethers
S&P 500 1.4 1.4 1.8 11.8 11.6 7.0 12.2 (16.3) 16.8 9.5 2.5 S&P 500
DJIA 2.2 2.2 2.1 9.3 10.3 7.5 11.9 (13.8) 15.5 8.2 3.1 Dow Jones Industrial Avg.
Market Cap
Mega 1.0 1.0 5.9 11.8 11.8 6.8 11.9 (13.2) Russell Top 50
Large 0.7 0.7 2.6 12.0 11.8 6.9 12.1 (15.4) 0.0 0.0 0.0 Russell Top 200
Mid 2.2 2.2 (4.0) 10.5 10.3 7.5 13.8 (20.9) 0.0 0.0 0.0 Russell Midcap
Small (1.5) (1.5) (9.8) 6.8 7.2 5.3 16.7 (25.1) 0.0 0.0 0.0 Russell 2000
Micro (5.4) (5.4) (13.1) 6.3 6.6 3.2 17.5 (26.5) Russell Micro Cap
Style
Value 1.6 1.6 (2.1) 9.1 10.0 5.6 12.8 (19.3) 0.0 0.0 0.0 Russell 3000 Value
Core 1.0 1.0 (0.3) 11.2 11.0 6.9 12.7 (17.8) 0.0 0.0 0.0 Russell 3000
Growth 0.3 0.3 1.3 13.2 12.0 8.1 12.9 (16.2) 0.0 0.0 0.0 Russell 3000 Growth
S&P 500 Sectors
Consumer Discretionary 1.6 1.6 6.8 16.1 17.1 10.7 13.7 (13.4) 17.8 11.8 1.9 S&P 500/Cons. Disc.
Consumer Staples 5.6 5.6 11.4 12.8 15.2 11.5 10.3 (6.5) 21.2 7.9 2.7 S&P 500/Cons. Staples
Energy 4.0 4.0 (15.5) (4.9) (2.4) 3.6 19.0 (38.7) 26.3 8.3 4.4 S&P 500/Energy
Financials (5.1) (5.1) (4.6) 9.5 8.7 (1.5) 16.7 (27.4) 12.6 9.3 2.8 S&P 500/Financials
Health Care (5.5) (5.5) (5.2) 15.6 17.6 9.9 12.2 (13.1) 17.8 8.9 1.9 S&P 500/Health Care
Industrials 5.0 5.0 3.2 12.6 10.8 7.1 14.5 (23.7) 15.5 10.5 2.7 S&P 500/Industrials
Information Technology 2.6 2.6 8.1 17.0 13.8 9.2 14.4 (11.6) 17.8 10.6 1.9 S&P 500/Info. Tech.
Materials 3.6 3.6 (6.0) 6.8 4.8 5.9 19.1 (26.8) 17.0 7.9 2.8 S&P 500/Materials
Telecomm 16.6 16.6 18.7 8.1 10.7 7.7 12.8 (10.6) 13.3 4.4 4.9 S&P 500/Telecomm
Utilities 15.6 15.6 16.0 12.4 13.7 9.1 12.5 (12.8) 16.1 5.0 3.5 S&P 500/Utilities
Trailing Returns (%) 5-Year Risk Stats Other Metrics
21
1.3
2.2
-1.5
1.6
0.7
3.9
0.6
1.7
-4.7
1.3
2.2
‐1.5
1.6
0.7
3.9
0.6
1.7
‐4.7-6
-4
-2
0
2
4
6
Large Cap Mid Cap Small Cap LargeValue
LargeGrowth
MidValue
MidGrowth
SmallValue
SmallGrowth
Ret
urn
(%)
Last Quarter Year-to-Date
Domestic Asset Class Performance (as of 3/31/16)
Performance by Market Cap and Style
Source: Morningstar Direct. Asset classes are represented by the following benchmarks: S&P 500 (Large Cap), Russell Midcap® (Mid Cap), Russell 2000® (Small Cap), Russell 1000 Value® (Large Value), Russell 1000 Growth® (Large Growth), Russell Midcap Value® (Mid Value), Russell Midcap Growth® (Mid Growth), Russell 2000 Value® (Small Value), and Russell 2000 Growth® (Small Growth). See important disclosures and definitions included with this publication.
Market Cap Style
Robert W. Baird & Co.
22
-5.5
-5.1
1.3
1.6
2.6
3.6
4.0
5.0
5.6
15.6
16.6
-10 -5 0 5 10 15 20
Health Care
Financials
S&P 500
Cons. Disc.
Info. Tech.
Materials
Energy
Industrials
Cons. Staples
Utilities
Telecomm
Return (%)
U.S. Economic Sector Performance (as of 3/31/16)
S&P 500 Index: Performance by Sector (Latest Quarter)
Source: Morningstar Direct; Standard & Poor’s; Baird Analysis. P/E ratios are based on trailing 12 month earnings (TTM) and the consensus forecast over the next 12 months (NTM). EPS Growth is a measure of forecasted earnings growth over the next 5 years. Past performance is not a guarantee of future results. Direct investments in sectors is not possible.
S&P 500 Index: Industry Metrics
S&P 500 Index: Performance by Sector (Year to Date)
Robert W. Baird & Co.
-5.5
-5.1
1.3
1.6
2.6
3.6
4.0
5.0
5.6
15.6
16.6
-10 -5 0 5 10 15 20
Health Care
Financials
S&P 500
Cons. Disc.
Info. Tech.
Materials
Energy
Industrials
Cons. Staples
Utilities
Telecomm
Return (%)
P/E Ratio (TTM)
P/E Ratio (NTM)
Dividend Yield (%)
EPS Growth (%)
S&P 500 Index 17.7 16.8 2.5 9.5
Consumer Discretionary 19.9 17.8 1.9 11.8
Consumer Staples 22.5 21.2 2.7 7.9
Energy 20.6 26.3 4.4 8.3
Financials 13.0 12.6 2.8 9.3
Health Care 20.0 17.8 1.9 8.9
Industrials 17.3 15.5 2.7 10.5
Info. Tech. 18.6 17.8 1.9 10.6
Materials 17.2 17.0 2.8 7.9
Telecomm 12.9 13.3 4.9 4.4
Utilities 18.7 16.1 3.5 5.0
23
-20
-15
-10
-5
0
5
10
15
20
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
12
-Mo
Pe
rfo
rman
ce D
iffe
ren
tia
l (%
)
-50
-40
-30
-20
-10
0
10
20
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
12
-Mo
Pe
rfo
rman
ce D
iffe
ren
tia
l (%
)
-40
-30
-20
-10
0
10
20
30
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
12
-Mo
Pe
rfo
rman
ce D
iffe
ren
tia
l (%
)
Investment Style Leadership
Source: Morningstar Direct. Styles represented by S&P 500 (Large Cap), Russell 2000 (Small Cap), Russell 1000 Value (Value), Russell 1000 Growth (Growth), S&P 500 High Quality (High Quality), S&P 500 Low Quality (Low Quality), Russell 1000 Defensive (Defensive), Russell 1000 Dynamic (Cyclical). See important disclosures and definitions included with this publication.
Defensive vs. Cyclical (Rolling 12 month periods)
Large Cap vs. Small Cap (Rolling 12 month periods) Value vs. Growth (Rolling 12 month periods)
Large Cap Outperforms Value Outperforms
Small Cap Outperforms Growth Outperforms
High Quality vs. Low Quality (Rolling 12 month periods)
High Quality Outperforms Defensive Outperforms
Low Quality Outperforms Cyclical Outperforms
Robert W. Baird & Co.
-20
-15
-10
-5
0
5
10
15
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
12-M
o P
erfo
rman
ce D
iffe
rent
ial (
%)
24
Historical Market Cap Valuations
Source: Morningstar Direct, Standard & Poor’s, Russell. P/E (Price/Earnings) is calculated based on the weighted-average price relative to earnings over the trailing 12 months. Mid Cap is measured by the Russell Midcap Index; Small Cap is measured by the Russell 2000 Index. See important disclosures and definitions included with this publication.
S&P 500 Valuation History
Mid Cap Valuation History Small Cap Valuation History
Robert W. Baird & Co.
19.6
5
10
15
20
25
P/E
Rat
io (T
TM)
Small Cap 10-Year Average P/EAverage +1 Std. Dev. Average -1 Std. Dev.
20.1
5
10
15
20
25
P/E
Rat
io (T
TM)
Mid Cap 10-Year Average P/EAverage +1 Std. Dev. Average -1 Std. Dev.
19.1
5
10
15
20
25
P/E
Rat
io (T
TM)
S&P 500 P/E 10-Year Average P/EAverage +1 Std. Dev. Average -1 Std. Dev.
25
Historical Sector Valuation and Growth Ranges
Source: Morningstar Direct; Standard & Poor’s; Baird Analysis. P/E ratios are based on trailing 12 month earnings. EPS Growth is a measure of forecasted earnings growth over the next 5 years. See important disclosures and definitions included with this publication.
S&P 500 Sectors: 10-Year P/E Valuation Range
S&P 500 Sectors: 10-Year Earnings Growth Range
10-Year Low
10-Year High
Current
Average
LEGEND
Robert W. Baird & Co.
17.8
21.2
26.3
12.6
17.815.5
17.8 17.0
13.316.1
0
5
10
15
20
25
30
35
Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities
P/E
Rat
io
11.8
7.9 8.39.3 8.9
10.5 10.6
7.9
4.45.0
0
2
4
6
8
10
12
14
16
18
Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities
LT E
arni
ngs
Gro
wth
26
Mutual Fund Over/Under Performance (Equity Funds)
Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year)
Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)
Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of December 2015: 338 for Large Growth, 259 for Large Value, 177 for Mid Growth, 91 for Mid Value, 182 for Small Growth, 82 for Small Value, and 124 for International. Source: Morningstar Direct; S&P 500 and Russell benchmarks; Baird Analysis. See important disclosures and definitions included with this publication.
Mutual Fund Performance
Active investment managers often have a primary objective of outperforming a relevant market benchmark based on the fund’s investment style. In certain periods, active managers can find it easier or more difficult to outperform.
This chart examines four main assets classes, detailing what percentage of mutual fund managers over- or under-performed in a given period. This provides useful context when assessing mutual funds that you may own.
Robert W. Baird & Co.
7%
34% 30% 34%
55% 61% 59%
0%
25%
50%
75%
100%
Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l
Perc
ent
of T
otal
% Underperform
% Outperform
8%21% 15% 8%
34%
58%40%
0%
25%
50%
75%
100%
Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l
Perc
ent o
f Tot
al
% Underperform
% Outperform
2727
International Equity
28
Global Market Performance (as of 3/31/16)
Source: Standards & Poor’s (S&P 500); MSCI benchmarks (country returns). All performance is measured in USD. See important disclosures and definitions included with this publication.
Year-to-Date Performance of Selected Stock Markets
S&P 5001.4%
Canada11.5%
Mexico8.5%
UK-2.3%
France0.2%
Spain-4.0%
Germany-2.4%
Brazil28.6%
Japan-6.4%
Hong Kong-0.5%
China-4.8%
India-2.5%
Australia2.1%
South Africa13.9%
Europe-1.7%
Russia15.8%
Robert W. Baird & Co.
29
International Equity Snapshot (as of 3/31/16)
Source: Morningstar Direct; MSCI benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the “representative benchmark” column. See important disclosures and definitions included with this publication.
Robert W. Baird & Co.
Asset Class/Region Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark
Broad Developed Markets
Developed Markets (USD) (3.0) (3.0) (8.3) 2.2 2.3 1.8 (0.8) (4.9) 22.8 MSCI EAFE (Net) USD
Developed Markets (Local Currency) (6.5) (6.5) (11.2) 6.5 6.2 1.7 5.3 5.9 26.9 MSCI EAFE (Net) Local
Currency Effect (USD - Local Returns) 3.5 3.5 2.9 (4.2) (3.9) 0.1 (6.1) (10.8) (4.1)
Broad Emerging Markets
Emerging Markets 5.7 5.7 (12.0) (4.5) (4.1) 3.0 (14.9) (2.2) (2.6) MSCI Emerging Markets (Net)
BRIC 1.4 1.4 (15.1) (5.1) (6.5) 2.6 (13.3) (2.6) (3.3) MSCI BRIC
Returns by Style
Value (4.0) (4.0) (12.8) 0.6 0.8 0.6 (5.7) (5.4) 23.0 MSCI EAFE Value
Growth (2.1) (2.1) (3.7) 3.8 3.7 2.9 4.1 (4.4) 22.5 MSCI EAFE Growth
Large Cap (3.6) (3.6) (9.8) 1.3 1.8 1.5 (2.1) (5.5) 22.4 MSCI EAFE Large Cap
Mid Cap (0.7) (0.7) (1.9) 6.0 4.3 2.8 4.4 (2.1) 24.4 MSCI EAFE Mid Cap
Small Cap (0.6) (0.6) 3.2 7.3 5.6 3.4 9.6 (4.9) 29.3 MSCI EAFE Small Cap
Returns by Region
Europe (2.4) (2.4) (8.0) 3.3 2.7 2.7 (2.3) (5.7) 26.0 MSCI Europe
Japan (6.4) (6.4) (6.8) 4.1 4.3 (0.2) 9.9 (3.7) 27.3 MSCI Japan
Pacific (ex Japan) 1.8 1.8 (9.5) (2.8) 0.8 5.9 (8.4) (0.3) 5.6 MSCI Pacific ex Japan
Trailing Returns (%) Annual Returns (%)
30
-4.8
-2.5
5.2
5.7
7.7
8.5
11.3
13.2
13.9
15.8
28.6
-11.7
-6.4
-5.1
-4.0
-3.0
-2.4
-2.3
0.2
0.2
2.1
3.4
-20 -10 0 10 20 30 40
China
India
South Korea
MSCI Em. Mkts
Taiwan
Mexico
Indonesia
Malaysia
South Africa
Russia
Brazil
Italy
Japan
Switzerland
Spain
MSCI EAFE
Germany
U.K.
Sweden
France
Australia
Netherlands
Return (%)
-4.8
-2.5
5.2
5.7
7.7
8.5
11.3
13.2
13.9
15.8
28.6
-11.7
-6.4
-5.1
-4.0
-3.0
-2.4
-2.3
0.2
0.2
2.1
3.4
-20 -10 0 10 20 30 40
China
India
South Korea
MSCI Em. Mkts
Taiwan
Mexico
Indonesia
Malaysia
South Africa
Russia
Brazil
Italy
Japan
Switzerland
Spain
MSCI EAFE
Germany
U.K.
Sweden
France
Australia
Netherlands
Return (%)
International Country Performance (as of 3/31/16)
Source: Morningstar Direct.; MSCI Indices; Baird Analysis. All returns are reported in USD. MSCI EAFE (Developed markets) and MSCI EM (Emerging markets) are broad benchmarks representing many countries. Includes the 10 largest countries by weighting in the benchmark. See important disclosures and definitions included with this publication.
Selected Country Performance (Latest Quarter) Selected Country Performance (Year to Date)
Dev
elo
ped
Mar
kets
Emer
gin
g M
arke
ts
Robert W. Baird & Co.
31
International Economic Sector Performance (as of 3/31/16)
MSCI ACWI Ex U.S. Performance by Sector (Latest Quarter)
Sector Weighting (%) in the MSCI ACWI Ex U.S. Index
Source: Morningstar Direct; Baird Analysis. Sectors based on global industry classification standards (GICS). The MSCI ACWI Ex US Index is a benchmark designed to measure developed market and emerging market performance excluding the U.S. See important disclosures in appendix.
MSCI ACWI Ex U.S. Performance by Sector (Year to Date)
Robert W. Baird & Co.
-7.5
-5.0
-2.6
-0.4
0.7
2.3
2.4
2.5
4.1
7.2
9.8
-10 -5 0 5 10 15
Health Care
Financials
Cons. Disc.
MSCI ACWI ex US
Info. Tech.
Industrials
Utilities
Telecomm
Cons. Staples
Materials
Energy
Return (%)
-7.5
-5.0
-2.6
-0.4
0.7
2.3
2.4
2.5
4.1
7.2
9.8
-10 -5 0 5 10 15
Health Care
Financials
Cons. Disc.
MSCI ACWI Ex US
Info. Tech.
Industrials
Utilities
Telecomm
Cons. Staples
Materials
Energy
Return (%)
Financials25.5
Cons. Disc.12.0
Industrials11.5Cons. Staples
11.3
Health Care9.4
Info. Tech.8.3
Materials6.7
Energy6.3
Telecomm5.4
Utilities3.6
32
-60
-50
-40
-30
-20
-10
0
10
20
30
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
12
-Mo
Pe
rfo
rman
ce D
iffe
ren
tia
l (%
)
-15
-10
-5
0
5
10
15
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
12
-Mo
Pe
rfo
rman
ce D
iffe
ren
tia
l (%
)
-30
-20
-10
0
10
20
30
12
-Mo
Pe
rfo
rman
ce D
iffe
ren
tia
l (%
)
International Style Leadership
Source: Morningstar Direct. Returns based on 12-month performance, calculated monthly over the most recent 10-year period. Benchmark proxies are as follows: S&P 500 (U.S.), MSCI EAFE (Int’l), MSCI EAFE Value (Value) and MSCI EAFE Growth (Growth), MSCI EAFE (Developed markets), and MSCI EM (Emerging markets). See important disclosures and definitions included with this publication.
U.S. vs International (Rolling 12 month periods)
U.S. Outperforms
Int’l Outperforms
Developed vs Emerging Markets (Rolling 12 month periods) Value vs Growth (Rolling 12 month periods)
Dev. Markets Outperform
Emg. Markets Outperform
Value Outperforms
Growth Outperforms
Robert W. Baird & Co.
33
16.714.6
18.3
13.1 12.6 12.7
15.313.7
11.5
8.510.4 11.1
14.4
18.4 17.9
6.4
0
2
4
6
8
10
12
14
16
18
20
22
P/E
Ra
tio
(TTM
)
Global Stock Market Valuations (as of 3/31/16)
Source: Standards & Poor’s (S&P 500); MSCI benchmarks (country returns). All performance is measured in USD. US is measured by the S&P 500 Index, Developed International is measured by the MSCI EAFE Index, Emerging International is measured by the MSCI EM Index. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication.
Historical P/E Ratio
Current P/E Ratio of Selected Countries
Europe Asia-Pacific Emerging Markets
Robert W. Baird & Co.
19.1
15.1
11.3
4
6
8
10
12
14
16
18
20
22
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
P/E
Ra
tio
(T
TM
)
S&P 500 MSCI EAFE MSCI EM
34
Country Valuation Ranges (as of 3/31/16)
Source: Morningstar Direct. USA is represented by the S&P 500. All other countries are represented by the respective MSCI country benchmark. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication.
Developed Markets: 7-Year P/E Valuation Range
Emerging Markets: 7-Year P/E Valuation Range
7-Year Low
7-Year High
Current
Average
LEGEND
Robert W. Baird & Co.
18.5
14.3
16.718.3
14.613.1
16.3
12.6
15.013.5
20.018.7
12.7
15.313.7
11.5
0
5
10
15
20
25
P/E
Rat
io
8.510.4
12.1
18.4
6.4
15.9 15.813.6
11.1
17.9
14.511.7
14.4
0
5
10
15
20
25
30
35
P/E
Rat
io
3535
Fixed Income
36
Bond Market Snapshot (as of 3/31/16)
Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Duration, measured in years, is a relative term that expresses the price sensitivity of an investment/benchmark to changes in interest rates. All else equal, the lower the duration, the less price sensitivity to interest rate changes. See important disclosures and definitions included with this publication.
Robert W. Baird & Co.
Bond Types Yield (%) Duration Last Qtr YTD 1-Year 3-Year 5-Year 10-Year 2015 2014 2013 Benchmark
Broad Developed Markets
U.S. Taxable Bonds 2.1 5.5 3.0 3.0 2.0 2.5 3.8 4.9 0.5 6.0 (2.0) Barclays US Aggregate Bond
U.S. Municipal Bonds 2.0 6.1 1.7 1.7 4.0 3.6 5.6 4.9 3.3 9.1 (2.6) Barclays Municipal Bond
International Bonds 1.4 6.6 8.3 8.3 6.7 (0.3) 0.4 3.9 (6.0) (3.1) (3.1) Barclays Glbl Agg. Bond ex US
Broad Emerging Markets
Emerging Market Bonds 5.3 6.0 4.5 4.5 3.5 2.6 5.7 7.0 1.3 4.8 (4.1) Barclays Emerging Markets
Taxable Bond Categories
Treasuries 1.0 7.5 3.2 3.2 2.4 2.1 3.6 4.6 0.8 5.1 (2.7) Barclays US Treasury
Agencies 1.7 4.1 3.1 3.1 2.4 2.1 3.4 4.5 0.9 4.9 (2.6) Barclays US Government
Mortgage-Backed 2.4 3.6 2.0 2.0 2.4 2.7 3.2 4.8 1.5 6.1 (1.4) Barclays US MBS
Inv-Grade Corporate 2.9 7.4 4.0 4.0 0.9 3.0 5.2 5.8 (0.7) 7.5 (1.5) Barclays US Corporate IG
High Yield Corporate 6.2 4.2 3.2 3.2 (4.0) 1.8 4.7 6.8 (4.6) 2.5 7.4 BofA/ML High Yield Master II
Municipal Bond Categories
Insured 1.8 4.3 1.3 1.3 3.2 3.9 6.0 4.9 2.9 10.3 (2.0) Barclays Municipal Insured
State GO 1.7 5.4 1.4 1.4 3.6 3.0 4.7 4.7 3.0 7.3 (2.3) Barclays Municipal State GO
Local GO 1.9 6.2 1.7 1.7 3.9 3.5 5.4 5.1 3.2 8.5 (2.4) Barclays Municipal Local GO
Revenue 2.2 6.5 1.8 1.8 4.4 4.0 6.2 4.9 3.6 10.1 (2.9) Barclays Municipal Revenue
High Yield 6.4 9.6 2.7 2.7 3.5 3.3 7.8 4.8 1.8 13.8 (5.5) Barclays High Yield Muni
Annual Returns (%)Trailing Returns (%)Characteristics
37
0.5
1.5
1.9
1.5 1.5
1.9 1.9
2.7
0.5
1.5
1.9
1.5 1.5
1.9 1.9
2.7
0
2
4
Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)
Ret
urn
(%)
QTR YTD
1.0
2.6
7.3
4.4
3.7 3.6
4.3
3.2
1.0
2.6
7.3
4.4
3.7 3.6
4.3
3.2
0
2
4
6
8
Short-Term Intermediate Long-Term AAA AA A Baa Below Baa(High Yield)
Ret
urn
(%)
QTR YTD
Performance by Maturity and Credit Quality (as of 3/31/16)
Source: Bloomberg; Baird Analysis. Ratings are as defined by Bloomberg and represent bonds in the Barclays Aggregate Bond index (taxable bonds) and Barclays Municipal Index (municipal bonds). Short-term maturity is defined as 1-3 years, intermediate is 5-7 years for taxable and 6-8 for municipal, long-term is 10+ years for taxable and 8-12 years for municipal. See important disclosures and definitions included with this publication.
Taxable Bonds
Municipal Bonds
Robert W. Baird & Co.
38
International
Bank Loans Emerging Mkts
Broad Bond Market
High Yield
Treasury
Mortgage‐Backed
CorporateMunicipal
HY Municipal
0
2
4
6
8
0 2 4 6 8 10 12
Yield (%)
10‐Year Historical Volatility (Standard Deviation)
Yield and Volatility Characteristics of Various Bond Types
Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Bond types are represented by the following indices: Barclays Aggregate Bond (Broad Bond Market), Barclays US MBS (Mortgage-Backed), Merrill Lynch High Yield Master II (High Yield), Barclays IG Corporate (Corporate), Barclays Municipal (Municipal), Barclays US Treasury (U.S. Treasury), Barclays Global Aggregate ex USD (International), and S&P/LSTA Leveraged Loan (Bank Loans). Indices are unmanaged and are used to measure and report performance of various sectors of the market. Past performance is no guarantee of future results and diversification does not ensure against loss. Direct investment in indices is not available. See important disclosures and definitions included with this publication.
The Relationship Between Yield and Volatility
Robert W. Baird & Co.
39
1
2
3
4
5
6
7
8
9
10
Mar
-91
Mar
-92
Mar
-93
Mar
-94
Mar
-95
Mar
-96
Mar
-97
Mar
-98
Mar
-99
Mar
-00
Mar
-01
Mar
-02
Mar
-03
Mar
-04
Mar
-05
Mar
-06
Mar
-07
Mar
-08
Mar
-09
Mar
-10
Mar
-11
Mar
-12
Mar
-13
Mar
-14
Mar
-15
Mar
-16
10-Y
ear
U.S
. Tre
asur
y R
ate
(%)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Yiel
d (%
)
Maturity
03/31/16 Current Qtr
03/31/15 Last Year
20yr
3mo
2yr
3yr
5yr
10yr
30yr
U.S. Treasury Bonds
Source: U.S. Department of Treasury; Baird Analysis. See important disclosures and definitions included with this publication.
U.S. Treasury Yield Curve Historical U.S. 10-Year Treasury Rate (since 1990)
Current U.S. Treasury Yields by Maturity
Robert W. Baird & Co.
0.210.39
0.730.87
1.21
1.78
2.61
0
1
2
3
3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr
Yiel
d (%
)
40
0.2 0.40.6 0.7 0.9
1.21.5
1.82.2
2.6
0.3 0.3 0.50.7
1.01.3
1.62.0
2.72.9
0.5 0.60.8
1.21.6
2.22.7
3.3
4.44.8
0
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2
3
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6
3mo 6mo 1yr 2yr 3yr 5yr 7yr 10yr 20yr 30yr
Yiel
d (%
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Municipal
Tax-Equivalent Yield
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1.5
2.0
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3.0
3.5
Yiel
d (%
)
Maturity
Treasury Municipal
20yr
3mo
6mo
5yr
10yr
30yr
Municipal Bonds
Source: U.S. Department of Treasury; Bloomberg. Municipal yields are based on the Barclays AAA GO Bond Index. The Tax-Equivalent Yields assumes a 39.6% federal tax rate and full exemption of those taxes. See important disclosures and definitions included with this publication.
U.S. Municipal and Treasury Yield Curves
Yield Comparisons of Treasury and Municipal Bonds
Tax Equivalent Yield
The income from many municipal bonds is exempt from federal taxes. The tax equivalent yield is the pre-tax income needed from a taxable bond to possess the same after-tax result. In this chart, a tax rate of 39.6% is assumed.
Robert W. Baird & Co.
41
Corporate Bond Yields
Source: BofA/Merrill Lynch, Standard & Poor’s. Investment Grade Bonds are represented by the BofA/ML US Corporate Bond Index; High Yield Bonds are represented by the BofA/ML High Yield Master II Index. Historic default rates provided by Standard & Poor’s and encompass the period from 1/1/81 to 1/1/14. See important disclosures and definitions included with this publication.
Investment Grade Bonds: Historical Yields
High Yield Bonds: Historical Yields
Investment Grade Bonds: Current Yield & Historic Default Rate
High Yield Bonds: Current Yield & Historic Default Rate
Robert W. Baird & Co.
0
2
4
6
8
10
12
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Effe
ctiv
e Yi
eld
(%)
0
5
10
15
20
25
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Effe
ctiv
e Yi
eld
(%)
2.5 2.42.8
3.9
1.3 1.6 3.17.3
0
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AAA AA A BBB
Av
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e D
efau
lt R
ate
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ctiv
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eld
(%)
5.7
8.2
18.9
19.6
33.1
59.9
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BB B CCC
Ave
rage
Def
ault
Ra
te (
%)
Effe
ctiv
e Yi
eld
(%)
42
Bond Spreads
Source: Barclays, Bloomberg. The length of each bar represents the range of a particular spread relative to an appropriate Treasury benchmark over the past 10 years. The maximum and minimum spreads are capped at the 95th and 5th percentiles to account for outliers. The data point marked ‘current’ represents the most recent quarter. Past performance is not a guarantee of future results and this chart is not intended to be a valuation tool.
Average OAS Spread: Max/Min/Avg/Current (10-Year History)
Robert W. Baird & Co.
1348
481
132 12483
283
88
15 25 13 (100)
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
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High Yield Corporate MBS Global Agencies
Spre
ad o
ver T
reas
ury
Bond
(bps
)
CurrentAverage
High Yield Corporate MBS Global AgenciesHigh 1348 481 132 124 83
Average 581 181 55 61 32
Low 283 88 15 25 13
Current 660 165 24 50 21
Current/Historical Spreads (%)
43
Mutual Fund Over/Under Performance (Bond Funds)
Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of December 2015: 103 for Short-Term Taxable, 214 Intermediate Term, 46 for Short-Term Municipal, and 70 for Intermediate Municipal. Source: Morningstar Direct; Barclays benchmarks; Baird Analysis. See important disclosures and definitions included with this publication.
Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year)
Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years)
Mutual Fund Performance
Active investment managers often have a primary objective of outperforming a relevant market benchmark based on the fund’s investment style. In certain periods, active managers can find it easier or more difficult to outperform.
This chart examines four main assets classes, detailing what percentage of mutual fund managers over- or under-performed in a given period. This provides useful context when assessing mutual funds that you may own.
Robert W. Baird & Co.
23%10%
31% 28%
0%
25%
50%
75%
100%
Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal
Perc
ent
of T
otal
% Underperform
% Outperform
79% 83%
43%53%
0%
25%
50%
75%
100%
Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal
Perc
ent o
f Tot
al
% Underperform
% Outperform
4444
Appendix and Important Disclosures
45
DisclosuresDisclaimers
This is not a complete analysis of every material fact regarding any company, industry or security. Theinformation has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.Past performance is not a guarantee of future results.
Style Definitions
Large Growth: equity securities of large capitalization companies having growth stock characteristics (highprice to earnings, high return on equity and low dividend yield. Based upon the Russell 1000® Growth Index.Large Value: equity securities of large capitalization companies having value stock characteristics (lowforecasted price‐to‐earnings ratio, low price‐to‐book ratio, high dividend yield). Based upon the Russell 1000®Value Index. Mid Growth: equity securities of middle capitalization companies having growth stockcharacteristics (high price to earnings, high return on equity and low dividend yield). Based upon the RussellMidcap® Growth Index. Mid Value: equity securities of middle capitalization companies having growth stockcharacteristics (high price to earnings, high return on equity and low dividend yield). Based upon the RussellMidcap® Value Index. Small Growth: equity securities of small capitalization companies having growth stockcharacteristics (high price to earnings, high return on equity and low dividend yield). Small capitalization stockmay be subject to additional risks including illiquidity. Based upon the Russell 2000® Growth Index. SmallValue: equity securities of small capitalization companies having value stock characteristics (low price‐to‐earnings ratio, low price‐to‐book ratio, high dividend yield). Small capitalization stocks may be subject toadditional risks including illiquidity. Based upon the Russell 2000® Value Index. International: a free float‐adjusted market capitalization index that is designed to measure developed market equity performance,excluding the US & Canada, consisting of 21 developed market country indices. Based upon the MSCI EAFEIndex. Satellite: these asset classes, as defined by Baird, include commodities, real estate, high yield bonds andemerging markets. Representative benchmarks are as follows: Dow Jones UBS Commodity (commodities), DowJones US REIT (real estate), BofA High Yield Master II (high yield), and MSCI Emerging Markets (emergingmarkets). Short Term Taxable: Short‐term bond portfolios invest primarily in corporate and other investment‐grade U.S. fixed‐income issues and have durations of one to 3.5 years. Based upon the Barclays 1‐3 YearGovt/Credit Index. Intermediate Taxable: Intermediate‐term bond portfolios invest primarily in corporate andother investment‐grade U.S. fixed‐income issues and have durations of 3.5 to six years. Based upon theBarclays Intermediate Gov’t/Credit Index. Short Term Municipal: Muni national short portfolios invest inbonds issued by various state and local governments to fund public projects. These portfolios have durations ofless than 4.5 years. Based upon the Barclays 3 Year Municipal Index. Intermediate Term Municipal: Muninational short portfolios invest in bonds issued by various state and local governments to fund public projects.These portfolios have durations of 4.5 to 7 years. Based upon the Barclays 7 Year Municipal Index.
GICS
The Global Industry Classification Standard ("GICS") is the exclusive property of Morgan Stanley CapitalInternational Inc. ("MSCI") and Standard & Poor's, a division of The McGraw‐Hill Companies, Inc. ("S&P") and islicensed for use by Robert W. Baird & Co. Inc. MSCI and S&P hereby provided all information "as is" andexpressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have anyliability.
Domestic Equity Benchmarks
S&P 500® Index: A representative sample of 500 leading companies in leading industries of the U.S. economy.Considered a large‐cap index.
Russell 3000® Growth Index: Measures the performance of those Russell 3000® Index companies with higherprice‐to‐book ratios and higher forecasted growth values. An all‐cap index.
Russell 3000® Value Index:Measures the performance of those Russell 3000® Index companies with lower priceto‐ book ratios and lower forecasted growth values. An all‐cap index.
Russell Top 50® Index:Measures the performance of the 50 largest companies in the Russell 1000® Index, whichrepresents approximately 40% of the total market capitalization of the Russell 1000® Index. A mega‐cap index.
Russell Top 200® Index: Measures the performance of the 200 largest companies in the Russell 1000® Index,which represents approximately 68% of the total market capitalization of the Russell 1000® Index. A large‐capindex.
Russell 1000® Growth Index: Measures the performance of those Russell 1000® Index companies with higherprice‐to‐book ratios and higher forecasted growth values. A large‐cap index.
Russell 1000® Value Index:Measures the performance of those Russell 1000® Index companies with lower priceto‐ book ratios and lower forecasted growth values. A large‐cap index.
Russell 1000® Defensive/Dynamic Index: Measures the performance of those Russell 1000® Index companiesbased in terms of volatility of price and earnings, leverage and return on assets. The Russell 1000® DefensiveIndex includes those with relative stability and less sensitivity to economic cycles. The Russell 1000® DynamicsIndex includes those with less stability and greater sensitivity to economic cycles.
Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000® Index,which represents approximately 36% of the total capitalization of the Russell 1000® Index. A mid‐cap index.
Russell Midcap® Growth Index: Measures the performance of those Russell Midcap® Index companies withhigher price‐to‐book and higher forecasted growth values. A midcap index.
Russell Midcap® Value Index: Measures the performance of those Russell Midcap companies with lower price‐tobook and lower forecasted growth values. A mid‐cap index.
Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000® Index,which represent approximately 10% of the total market capitalization of the Russell 3000® Index. A small‐capindex.
Russell 2000® Growth Index: Measures the performance of those Russell 2000® Index companies with higherprice‐to‐book ratios and higher forecasted growth values. A small‐cap index.
Russell 2000® Value Index:Measures the performance of those Russell 2000® Index companies with lower price‐to‐ book ratios and lower forecasted growth values. A small‐cap index.
Russell Microcap Index: Measures the performance of smallest 1000 companies in the Russell 2000® Index,which represents less than 3% of the total market capitalization. A micro‐cap index.
Dow Jones U.S. Real Estate: Measures the performance of Real Estate Investment Trusts (REIT) and othercompanies that invest directly or indirectly through development, management or ownership, includingproperties.
Dow Jones Industrial Average: A price‐weighted index composed of 30 actively‐traded large cap stocks.
Bloomberg Commodity: Aims to provide broadly diversified representation of commodity markets andrepresents 20 commodities, weighted based on economic significance and market liquidity.
S&P 500® High/Low Quality Index: The S&P Quality Rankings System measures growth and stability of earningsand dividends within the S&P 500 Index. The S&P 500 High Quality Index tracks stocks identified by Standard &Poor’s as high quality (ranked A and above); The S&P 500 Low Quality Index tracks stocks identified by Standard& Poor’s as low quality (ranked B and below).
The Russell Indices are a trademark of the Frank Russell Company. Russell® is a trademark of the Frank RussellCompany.
Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. This and other information is found in the prospectus or summary prospectus. For a prospectus or summary prospectus, contact your Baird Financial Advisor. Please read the prospectus carefully before investing.
Robert W. Baird & Co.
46
DisclosuresMSCI International Equity Benchmarks
MSCI EAFE Index: A free float‐adjusted market capitalization index that is designed to measure developedmarket equity performance, excluding the US & Canada. The MSCI EAFE Index consists of 21 developed marketcountry indices in Europe, Australasia, and the Far East. An international index.
MSCI EAFE Large Cap: The MSCI EAFE Large Cap Index is an unmanaged, market‐weighted index of largecompanies in developed markets, excluding the U.S and Canada. An international large cap index.
MSCI EAFE Mid Cap: The MSCI EAFE Mid Cap Index is a free float‐adjusted market capitalization index that isdesigned to measure the performance of mid capitalization equities in the developed markets excluding the US& Canada. An international mid cap index.
MSCI EAFE Small Cap: The MSCI EAFE Small Cap Index represents the small cap segment in 21 developed equitymarkets outside of North America. It targets 40% of the eligible small cap universe in each country. Aninternational small cap index.
MSCI EAFE Growth: A sub‐set of the MSCI EAFE Index, this benchmark is generally considered to berepresentative of the international growth stock market activity and often used as a benchmark forinternational growth equity portfolios. An international growth index.
MSCI EAFE Value: A sub‐set of the MSCI EAFE Index, this benchmark is generally considered to berepresentative of international value stock market activity and often used as a benchmark for internationalvalue equity portfolios. An international value index.
MSCI Europe Index: A free float‐adjusted market capitalization index that is designed to measure developedmarket equity performance in Europe. As of June 2006, the MSCI Europe Index consisted of the following 16developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK. An international index.
MSCI Pacific ex Japan Index: A free float‐adjusted market capitalization index designed to measure equitymarket performance in the Pacific region, minus Japan. As of June 2006, the MSCI Pacific ex Japan Indexconsisted of the following 5 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore.An international index.
MSCI BRIC: A free float‐adjusted market capitalization weighted index that is designed to measure the equitymarket performance of the following four emerging market country indices: Brazil, Russia, India and China.
MSCI Emerging Markets Index: A free float‐adjusted market capitalization index that is designed to measureequity market performance in the global emerging markets. As of December 2003 the MSCI Emerging MarketsIndex consisted of 26 emerging market country indices. An emerging markets index.
MSCI Country Indices: To construct an MSCI Country Index, every listed security in the market is identified.Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard(GICS®), and screened by size and liquidity. MSCI then constructs its indices by targeting for index inclusion 85%of the free float adjusted market capitalization in each industry group, within each country. By targeting 85% ofeach industry group, the MSCI Country Index captures 85% of the total country market capitalization while itaccurately reflects the economic diversity of the market. International indices.
Fixed Income Benchmarks
Barclays Aggregate Bond Index: is an unmanaged index that tracks domestic investment‐grade bonds,including corporate, government, and mortgage‐backed securities.
Barclays 1‐3 Yr Government/Credit Bond Index: Includes bonds covered by the Barclays Government/CreditIndex, with maturities from 1 up to (but not including) 3 years.
Barclays Intermediate Government/Credit Bond Index: Composed of approximately 3,500 publicly issuedcorporate and U.S. government debt issues rated Baa or better, with at least one year to maturity and at least$1 million par outstanding. The index is weighted by the market value of the issues included in the index. TheIndex has duration of a little over 3 years and a maturity equal to slightly more than 4 years.
Barclays Muni Bond Index: Bonds must have a minimum credit rating of at least Baa, an outstanding par valueof at least $3 million, part of a transaction of at least $50 million, issued after December 31, 1990 and have ayear or longer remaining maturity.
Barclays 3 Year Muni Bond Index: Includes bonds that have a minimum credit rating of BAA3, are issued as partof a deal of at least $50 million, have a minimum maturity of 2 years and a maximum maturity of 4 years, andhave been issued after December 31, 1990.
Barclays 7 Year Muni Bond Index: This index is a subset of the BC Municipal Bond Index. It includes maturitiesof six to eight years.
Barclays Global Aggregate ex USD Index: Tracks investment‐grade government, corporate, agency, andmortgage‐related bonds in markets outside the U.S. An international bond index.
BofA/ML US High Yield Master II Index: The US High Yield Master II Index tracks the performance of belowinvestment grade US dollar‐denominated corporate bonds publicly issued in the US domestic market, subjectto various qualifications. A high yield taxable bond index.
Barclays US Treasury Bond Index: Measures the performance of public obligations of the US Treasury with aremaining maturity of one year or more.
Barclays US MBS Index: Measures the performance of investment grade mortgage‐backed pass‐throughsecurities of GNMA, FNMA and FHLMC.
Barclays IG Corporate: Measures the performance of investment grade corporate bonds with a remainingmaturity of one year or more.
Citigroup Treasury Bill 3 Month: An unmanaged index of three‐month Treasury bills. Representative of short‐term money market deposits, or “cash”.
S&P/LTSA Leveraged Loan: A broad index designed to reflect the performance of U.S. dollar facilities in theleverage loan market.
Other Benchmarks
Dow Jones CSFB Managed Futures: Designed to provide transparent representation of managed futures hedgefund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi‐annuallyand performance is calculated quarterly.
Dow Jones CSFB Multi‐Strategy: Designed to provide transparent representation of fund of hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi‐annually and performance is calculated quarterly.
Dow Jones CSFB Long/Short: Designed to provide transparent representation of long/short equity hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi‐annually and performance is calculated quarterly.
Robert W. Baird & Co.
4747©2014 Robert W. Baird & Co. Incorporated. Member SIPC. rwbaird.com. 800-RW-BAIRD.
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