MARKET INSIGHTS. Guide to the Markets. Alternatives. 4Q 2016 As of September 30, 2016

Transcription

1 MARKET INSIGHTS Guide to the s Alternatives 4Q 216 As of September 3, 216

2 Asset class correlations 58 GTM Asia 2 1-year correlations Asia ex- Japan equity EM equity U.S. equity Asian USD bond USD EMD EM corp European high yield U.S. high yield U.S. agg U.S. dollar (DXY) Brent crude oil Gold REITs Asia ex- Japan equity EM equity U.S. equity Asian USD bond USD EMD EM corp European high yield U.S. high yield U.S. agg U.S. dollar (DXY) Brent crude oil Gold REITs year correlations Source: Bloomberg, DJ UBS, FactSet, J.P. Morgan Economics, MSCI, Standard & Poor s, J.P. Morgan Asset Management. Correlations based on MSCI AC Asia ex-japan (Asia ex-japan), MSCI Emerging s (EM Equities), S&P 5 (U.S. Equities), J.P. Morgan Asia Credit Index (JACI) (USD Asian Bond), J.P. Morgan Emerging Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Corporate Emerging Bond Index (CEMBI) (EM Corp), Bloomberg Barclays Pan European High Yield Index (European High Yield), Bloomberg Barclays U.S. Corporate High Yield Index (U.S. High Yield), Bloomberg Barclays U.S. ital Aggregate (U.S. Agg), U.S. Dollar DXY Index (U.S. Dollar), Brent Crude Oil Price (USD/bbl) (Brent Crude Oil), London Gold PM Price Fixing (USD/oz) (Gold) and FTSE EPRA/NAREIT Developed REITs Index (Global REITs). 1-year correlations are based on monthly returns from 3/9/6 3/9/16, and 3-year correlations from 3/9/13 3/9/16. Guide to the s Asia 4Q 216. Data reflect most recently available as of 3/9/16.

3 Oil: Short-term market dynamics Brent crude and dollar exchange rate USD / bbl USD real effective exchange rate 14 8 Brent crude oil U.S. oil inventory and rig count* Number of rigs Rig count 63 GTM Asia 3 Billion barrels U.S. oil inventory 12 USD REER (inverted scale) USD depreciation OPEC crude oil production Million barrels OPEC quota: 32.5M barrels/day 4 USD appreciation 2 '13 '14 '15 ' '13 '14 '15 '16 Source: (Left) FactSet, J.P. Morgan Asset Management. (Top right and bottom right) Baker Hughes, FactSet, U.S. Department of Energy, J.P. Morgan Asset Management. *Weekly U.S. crude oil and petroleum ending inventory includes strategic petroleum reserve, and active rig count represents both natural gas and oil rigs. Guide to the s Asia 4Q 216. Data reflect most recently available as of 3/9/16. 3

4 Oil: Long-term fundamentals World oil supply and demand Million barrels per day 98 IEA forecast* Oil supply and demand breakdown Million barrels per day 1 64 GTM Asia 4 IEA forecast* Oil supply Oil demand '95 ' '5 '1 '15 '13 '14 '15 '16 Global demand Non-OPEC supply OPEC supply Global crude breakeven cost curve Production cost 213, USD / bbl 12 8 offshores North Sea Canadian oil sands 4 U.S. Deepwater Heavy shale/ Russia Middle East conventionals oils light oil Production capacity, million barrels per day Arctic Source: (Top left and top right) IEA, J.P. Morgan Asset Management. (Bottom) Deloitte Point, IMF, Reuters, J.P. Morgan Asset Management. *Global demand and non-opec supply based on IEA forecast, whereas the OPEC supply for 216 is estimated to be the same as 215. Guide to the s Asia 4Q 216. Data reflect most recently available as of 3/9/16. 4

5 Commodities: Gold and industrial metals China s consumption of commodities Share of world total, 215 average 7% 6% 5% 4% 3% 2% 1% % 12% 47% 49% 5% 55% 6% Crude oil Zinc Nickel Copper Aluminium Iron ore 65 GTM Asia 5 Gold and real rates USD / oz U.S. 1-year Treasury inflation-protected security 2, 1,8 Gold price -1.5% TIPS yield (inverted) 1,6 -.5% 1,4 1,2.5% 1, 1.5% 8 2.5% '9 '1 '11 '12 '13 '14 '15 '16 Real copper price and major periods of industrialization USD / mt, three-year moving average 2, UK 15, U.S. 1, Japan and W. Europe China 5, Source: (Top left) MSCI, J.P. Morgan Asset Management. (Top right) U.S. Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom) J.P. Morgan Securities, J.P. Morgan Asset Management. Guide to the s Asia 4Q 216. Data reflect most recently available as of 3/9/16. 5

6 Alternative sources of income 66 GTM Asia 6 Asset class yields 1% 8.4% 8% 7.% 6.5% 6% 5.2% 5.1% 4% 4.% 3.9% 3.8% 3.7% 3.7% 3.5% 2% 2.6% 2.6% 2.1% 1.6% % 6 Source: Alerian, Bank of America, Bloomberg, Clarkson, Drewry Maritime Consultants, FactSet, Federal Reserve, FTSE, MSCI, NCREIF, Standard & Poor s, J.P. Morgan Asset Management. Maritime = Unlevered yields for maritime assets are calculated as the difference between charter rates (rental income) and operating expenses as a percentage of current asset value. Yields for each of the sub-vessel types above are calculated and the respective weightings are applied to arrive at the current sub-sector specific yields, which are then weighted to arrive at the current indicative yield for the World Maritime Fleet. Asset classes are based on NCREIF ODCE (Private Real Estate), FTSE NAREIT Global/USA REITs (Global/U.S. REITs), MSCI Global Infrastructure Asset Index (Infrastructure Assets), Bloomberg Barclays U.S Convertibles Composite (Convertibles), J.P. Morgan Government Bond Index EM Global (GBI-EM) (Local EMD), J.P. Morgan Emerging Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index Non-investment Grade Corporate (Asia HY), MSCI Emerging s (EM ), MSCI The World Index (DM ), MSCI Emerging s High Dividend Yield Index (EM High Div. ), MSCI The World High Dividend Yield Index (DM High Div. ), MSCI USA (U.S. ). Guide to the s Asia 4Q 216. Data reflect most recently available as of 3/9/16.

7 Portfolio construction, asset class returns and volatility 72 GTM Asia 7 Annualized returns and volatility Total returns in USD* 15% High dividend (HD) equities Equities Bonds and cash Alternatives Portfolios Hypothetical portfolio construction Conservative Balanced Aggressive DM equities 1% 3% 2% EM equities 5% 1% 4% U.S. HY 1% 15% 1% U.S. bonds 25% 1% 5% Cash 35% 1% % EMD 1% 15% 5% REITs 5% 1% 2% AxJ HD APxJ HD EM HD Annualized returns 12% 9% 6% Private real estate EMD Asian bonds Hedge fund - distressed Hedge fund - rel val Hedge fund - macro Conservative U.S. HY Balanced U.S. DM HD DM APxJ Aggressive Europe AxJ EM REITs U.S. bonds 3% Hedge fund - mkt neutral Investing principles 7 Cash % % 5% 1% 15% 2% 25% Annualized volatility Source: Bloomberg, Dow Jones, FactSet, MSCI, Standard & Poor s, J.P. Morgan Asset Management. Hypothetical portfolios were created to illustrate different risk/return profiles and are not meant to represent actual asset allocation. USD total return calculations are based on MSCI Total Return, Bloomberg Barclays and J.P. Morgan indices. AxJ stands for MSCI AC Asia ex-japan and APxJ stands for MSCI AC Asia Pacific ex-japan. *Monthly total returns between 3/9/1 and 3/9/16 used for all, except for quarterly total returns used in private real estate between 3/9/1 and 3/6/16 due to data availability. Guide to the s Asia 4Q 216. Data reflect most recently available as of 3/9/16.

8 Correlations and volatility GTM U.S. 54 z U.S. EAFE EME Bonds Corp. HY Munis Currcy. EMD Cmdty. REITs Hedge funds Private equity Ann. Volatility U.S % EAFE % EME % Bonds % Corp. HY % Munis % Currencies % EMD % Commodities % REITs % Hedge funds % Private equity 1. 11% 8 Source: Barclays Inc., Bloomberg, Cambridge Associates, Credit Suisse/Tremont, FactSet, Federal Reserve, MSCI, NCREIF, Standard & Poor s, J.P. Morgan Asset Management. Indexes used : S&P 5 Index; Currencies: Federal Reserve Trade Weighted Dollar; EAFE: MSCI EAFE; EME: MSCI Emerging s; Bonds: Barclays Aggregate; Corp HY: Barclays Corporate High Yield; EMD: Barclays Emerging ; Cmdty.: Bloomberg Commodity Index; Real Estate: NAREIT ODCE Index; Hedge Funds: CS/Tremont Hedge Fund Index; Private equity: Cambridge Associates Global Buyout & Growth Index. Private equity data are reported on a two quarter lag. All correlation coefficients and annualized volatility calculated based on quarterly total return data for period 9/3/6 to 9/3/16. This chart is for illustrative purposes only. Guide to the s U.S. Data are as of September 3, 216.

9 Understanding alternatives GTM U.S. 55 Alternatives and portfolio risk/return Annualized volatility and returns, 2Q91 1Q16 1% 6% Stocks 2% Bonds 2% Alternatives Manager alpha and dispersion Based on returns from * 3% 25% Top quartile Median Bottom quartile Return 9% 8% 2% Stocks 6% Bonds 2% Alternatives 4% Stocks 4% Bonds 2% Alternatives 5% Stocks 5% Bonds 7% Stocks 3% Bonds Annual Return 2% 15% 1% 5% % -5% 3% Stocks 7% Bonds 7% 4% 6% 8% 1% 12% Volatility 9 Source: Cambridge Associates, HFRI, J.P. Morgan Asset Management; (Left) Barclays, FactSet, NCREIF, Standard & Poor s; (Right) Lipper. The portfolios that do not contain alternatives are a mix of the S&P 5 and the Barclays U.S. Aggregate. The 2% allocation to alternatives shown on the left reflects the following: 1% in hedge funds (HFR FW Comp.), 5% in private equity and 5% in private real estate. The volatility and returns are based on data from 2Q91 to 1Q16, encompassing 25 years of data. *Manager dispersion is based on: annual returns for large cap core, Core Bond; monthly returns for hedge funds; annual returns for private equity, venture capital, and buyout & growth; and quarterly returns for U.S. real estate. Guide to the s U.S. Data are as of September 3, 216.

10 Hedge funds GTM U.S yrs. '2-' YTD Ann. Vol. 5.5% 28.7% 14.2% 1.% 15.8% 11.4% 4.7% 26.5% 15.1% 2.1% 16.% 32.4% 13.7% 4.5% 7.8% 6.3% 16.4% 5.3% 23.% 1.9% 8.6% 15.2% 11.4% -3.% 23.% 12.5%.8% 9.7% 14.5% 5.8% 1.4% 6.1% 6.3% 1.%.9% 21.5% 7.9% 6.1% 12.8% 1.% -17.3% 22.3% 11.5% -.5% 6.5% 13.4% 5.3%.4% 4.9% 6.% 8.6% -1.7% 16.9% 7.5% 6.1% 12.2% 8.7% -2.8% 2.3% 8.9% -.7% 4.7% 7.5% 3.6%.2% 3.1% 5.5% 6.2% -3.1% 9.1% 6.1% 5.3% 8.2% 5.7% -26.4% 6.9% 3.2% -1.5% 3.1% 6.4% 3.2% -.2% 2.1% 5.% 5.1% -22.1% 3.3% 3.4% 4.9% 7.% 5.5% -37.% -1.7% 2.5% - 4.3% -1.3%.1% 2.6% -2.8%.4% 2.8% 2.7% Hedge fund returns in different market environments Average return in up and down months for S&P 5 4% 3% 2% 1% % -1% -2% -3% -4% -5% 1.3% HFRI FW Comp. S&P 5 S&P 5 up 3.% -1.1% -3.7% S&P 5 down Hedge fund returns in different market environments Average return in up and down months for Barclays Agg. 1.%.8%.5%.5%.3%.% -.5% HFRI FW Comp. Barclays U.S. Agg. -1.% -.7% Barclays Agg up Barclays Agg down 1 Source: Barclays, FactSet, HFRI, Standard & Poor s, J.P. Morgan Asset Management. Hedge fund returns in different market environments are based on monthly returns over the past 15 years through August 31, 216, due to data availability. Yearto-date returns are as of August 31, 216. Guide to the s U.S. Data are as of September 3, 216.

11 Private debt and equity GTM U.S. 57 Private company age and market value 9 Avg. age at IPO (years) 8 years 8 7 Avg. post offer value ($ mm) $2, years $ $3, $2,5 $2, $1,5 $1, $5 $ Public vs. private equity returns MSCI AC World total return and Global Buyout & Growth Index* 14% 12% 1% 8% MSCI ACWI Buyout & Growth Index 11.3% 1.9% 12.% 12.9% Composition of firms external financing sources 1% 8% 6% 4% Bank lending 4% 1% 86% ital markets Non-bank lending 24% 46% 6% 4% 2% 5.8% 4.6% 5.6% 6.2% 2% % Europe Source: Cambridge Associates, Deutsche Bank, FactSet, MSCI, National Venture ital Association, J.P. Morgan Asset Management. Age at IPO is defined as time elapsed from first funding round until IPO date. *Data as of 1Q16. Guide to the s U.S. Data are as of September 3, % U.S. % 5 years 1 years 15 years 2 years 11

12 Yield alternatives: Domestic and global GTM U.S. 58 S&P 5 total return: Dividends vs. capital appreciation Average annualized returns 2% ital appreciation Dividends 15% 1% 5% % -5% 13.9% 13.6% 3.% 4.7% 5.4% 6.% 5.1% -5.3% 12.6% 15.3% 1.6% 4.4% 3.3% 4.2% 4.4% 2.5% 1.8% -2.7% 5.8% 4.% -1% s 194s 195s 196s 197s 198s 199s 2s 1926 to 215 Asset class yields 1% 8% 6% 4% 2% 8.4% 7.2% 6.% 4.% 3.9% 3.7% 3.7% 3.5% 2.6% 2.6% 2.1% 1.6% 12 % Maritime MLPs Preferreds Infrastructure Assets Global REITs U.S. REITs Convertibles Private Real Estate Source: FactSet, J.P. Morgan Asset Management; (Top) Ibbotson, Standard & Poor s; (Bottom) Alerian, BAML, Barclays, Clarkson, Drewry Maritime Consultants, Federal Reserve, FTSE, MSCI, NCREIF, Standard & Poor s. Dividend vs. capital appreciation returns are through 12/31/15. Yields are as of 9/3/16, except maritime (12/31/215), infrastructure assets and private real estate (6/3/16). Maritime: Unlevered yields for maritime assets are calculated as the difference between charter rates (rental income) and operating expenses as a percentage of current asset value. Yields for each of the sub-vessel types above are calculated and the respective weightings are applied to calculate sub-sector specific yields, and then weighted to arrive at the current indicative yield for the World Maritime Fleet; MLPs: Alerian MLP; Preferreds: BAML Hybrid Preferred Securities; Private Real Estate: NCREIF ODCE; Global/U.S. REITs: FTSE NAREIT Global/USA REITs; Infrastructure Assets: MSCI Global Infrastructure Asset Index; Convertibles: Barclays U.S. Convertibles Composite; EM : MSCI Emerging s; DM : MSCI The World Index; U.S. : MSCI USA. Guide to the s U.S. Data are as of September 3, 216. DM EM U.S. U.S. 1-year

13 Global commodities GTM U.S. 59 Commodity prices Commodity price z-scores Gold prices USD per ounce Bloomberg Commodity $72.9 $238. Index Livestock $85.3 $24. $71.5 $24. Gold, inflation adjusted Gold Crude oil $26.2 $145.3 $48.2 Industrial metals Agriculture Natural gas Silver Gold $566.7 $84.2 $12. $47.7 $1.8 $8.8 $55.1 $3. $19.2 $ $266.8 $11.8 $ $48.6 $13.6 Commodity prices and inflation Year-over-year % change Headline CPI Bloomberg Commodity Index Sep. 216: $1,323 Example Low level Current High level Source: FactSet, J.P. Morgan Asset Management; (Left) Bloomberg, CME; (Top right) BLS, CME; (Bottom right) Bloomberg, BLS. Commodity prices are represented by the appropriate Bloomberg Commodity sub-index. Crude oil shown is Brent crude. commodity prices are represented by futures contracts. Z-scores are calculated using daily prices over the past 1 years. Guide to the s U.S. Data are as of September 3,

14 Global commercial real estate GTM U.S. 6 U.S. real estate net operating income growth Year-over-year NCREIF ODCE Index NOI growth 25% Europe real estate property yield spreads Property yields vs. government bonds vs. BBB rated bonds 1% Government bonds BBB-rated bonds All-property yield 8% 2% 6% 4% 15% 2% 1% % % % 2Q16: 5.1% Asia Pacific real estate property yield spreads Property yields vs. government bonds vs. BBB-rated bonds 8% 6% 4% All-property yield Government bonds BBB-rated bonds -5% 2% -1% % Source: (Left) U.S. Real Estate: NCREIF, J.P. Morgan Asset Management; (Top right) Europe real estate: IPD, Barclays J.P. Morgan Asset Management; (Bottom right) Asia Pacific real estate: IPD, FTSE, S&P ASX, J.P. Morgan Asset Management. All property yields (equally-weighted, capitalization rates), government bonds and BBB-rated bonds for Asia Pacific are represented by Australia and Japan. Guide to the s U.S. Data are as of September 3,

15 Commodities GTM UK 69 Commodity prices Index level, rebased to 1 at Dec China s imports of key commodities Millions of metric tonnes 12 Iron ore (LHS) Crude oil (LHS) 8 Copper (RHS) assets Bloomberg Commodity Index weights Livestock 6% Industrial metals 17% Energy 31% Precious metals 15% Crops 31% 2 '13 '14 '15 '16 Gross fixed capital formation in commodity industry Index level, rebased to 1 at Jan Global oil and gas* '95 ' '5 '1 '15 Source: (Left) Bloomberg, FactSet, J.P. Morgan Asset Management. (Top right) Thomson Reuters Datastream, China Customs, J.P. Morgan Asset Management. (Bottom right) Australia Bureau of Statistics, Worldscope, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Global data defined as global listed integrated oil and gas. Guide to the s - UK. Data as of 3 September 216. Australian mining

16 Oil market drivers GTM UK 7 Crude oil prices USD per barrel 16 YTD change Brent crude +29.7% US rig count vs. oil inventories* Thousands of barrels (LHS); rigs (RHS) 6 Inventories 1,8 14 1, Rigs 2 ' '2 '4 '6 '8 '1 '12 '14 '16 assets 8 6 Average: $ '8 '84 '88 '92 '96 ' '4 '8 '12 '16 Global oil supply and demand Millions of barrels per day Supply Demand Forecast 8 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Source: (Left) FactSet, J.P. Morgan Asset Management. (Top right) Bloomberg, Baker Hughes, US Department of Energy, J.P. Morgan Asset Management. *Excluding US strategic petroleum reserve. (Bottom right) Bloomberg, EIA, J.P. Morgan Asset Management. Forecast from EIA. Guide to the s - UK. Data as of 3 September

17 Gold market dynamics GTM UK 71 Gold vs. US 1-year Treasury real yields $ per Troy ounce (LHS); % inverted (RHS) 1,9 1,6 Real yields (inverted) Gold price $ per Troy ounce 2,5 Inflation-adjusted gold price Gold price 1,3 Gold..5 2, 1, '12 '13 '14 '15 ' ,5 assets Breakdown of world gold demand by sector Tonnes 215 2,5 Q2 216 ann. 2, 1,5 1, 5-5 Jewellery Technology Total bar and coin demand ETFs & similar products Central bank & other inst. '69 '74 '79 '84 '89 '94 '99 '4 '9 '14 Source: (Top left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom left) World Gold Council, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management. Guide to the s - UK. Data as of 3 September , 5 17

18 Risk-adjusted returns and downside protection GTM UK 72 Risk-adjusted returns of a 5/5 portfolio Sharpe ratio of a portfolio of 5% global equities and 5% global bonds* 3.5 Three-month stock and bond correlations Of total return on US equities (S&P 5) and US Treasuries (1-yr) year Sharpe ratio 5-year Sharpe ratio '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Hedge fund returns in different market environments %, average total return in up and down months, assets '4 '6 '8 '1 '12 '14 ' S&P US bonds*** -.7 HFRI FW** HFRI FW** -3.8 S&P 5 up S&P 5 down Bond up Bond down 18 Source: (Left) MSCI, J.P. Morgan Asset Management. *The equity index is the MSCI World (EUR hedged) and the bond index is the JP Morgan Global Bond index (EUR hedged). The portfolio is rebalanced monthly. Sharpe ratio is calculated as (Return - Risk free rate) / Volatility. (Top right) Bloomberg, J.P. Morgan Asset Management. (Bottom right) Barclays, Thomson Reuters Datastream, Hedge Fund Research, Standard & Poor s, J.P. Morgan Asset Management. **HFRI FW is Hedge Fund Research Index Fund Weighted. ***US bonds is the Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Guide to the s - UK. Data as of 3 September 216.

19 Alternative strategies GTM UK 73 Manager dispersion: Public and private markets* %, annual returns th percentile Median 2 25 th percentile Public vs. private equity returns %, MSCI AC World total return vs. Global Buyout & Growth Index** 18 MSCI ACWI Global Buyout & Growth Index years 1 years 15 years 2 years Infrastructure returns %, OECD allowed RoE over cost of debt 16-5 Public Private 12 Electric assets Recession Utility bond 1-yr US Treasury '7 '8 '9 ' '1 Natural gas Source: (Left) Lipper, Cambridge Associates. *Manager dispersion is based on the time period from 31 December 29 through 31 December 214, except for private equity, which is based on the five-year period ending 31 March 214 due to returns being reported with a lag. (Top right) National Venture ital Association, MSCI, Cambridge Associates, Deutsche Bank, FactSet, J.P. Morgan Asset Management. **Data as of Q315. (Bottom right) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. Guide to the s - UK. Data as of 3 September

20 J.P. Morgan Asset Management: Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 5 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 5 leading companies in leading industries of the U.S. economy. Although the S&P 5 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The Tokyo Stock Price Index ('TOPIX') is a composite index of all common stocks listed on the First Section of Tokyo Stock Exchange (TSE).The index is basically a measure of the changes in aggregate market value of TSE common stocks. The base for the index is the aggregate market value of its component stocks as of the close on January 4, The aggregate market value is calculated by multiplying the number of listed shares of each component stock by its price and totaling the products derived there from. The Bombay Exchange Sensitive Index ( SENSEX), first compiled in 1986, was calculated on a " italization-weighted" methodology of 3 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 23, SENSEX is being calculated on a free-float market capitalization methodology. The Korea Composite Stock Price Index ( KOSPI) is market capitalization based index on all common stocks listed on the Stock Division of the Korea Exchange (KRX) and excludes preferred stocks. The stock price index is calculated using the actual price traded on the market and not the base price used for market management such as establishment of price change limits. When no market price is available for issues that are not being traded or have halted trading, the latest closing price is used. KOSPI was a assigned a base index of 1 set to January 4, 198. The China Shenzhen Composite Index is an actual market-cap weighted index that tracks the stock performance of all the A-share and B-share lists on Shenzhen Stock Exchange. The index was developed on April 3, 1991 with a base price of 1. The MSCI EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America. The MSCI Emerging s Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 27, the MSCI Emerging s Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 29 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The following MSCI Total Return Indices SM are calculated with gross dividends: This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits. The MSCI Europe Index SM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 27, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Pacific Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 27, the MSCI Pacific Index consisted of the following 5 Developed countries: Australia, Hong Kong, Japan, New Zealand, and Singapore. The MSCI Europe ex UK Index SM is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe, excluding the United Kingdom. The MSCI Europe ex UK Index consists of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland. The MSCI Pacific ex Japan Index SM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region, excluding Japan. As of June 27, the MSCI Pacific Index consisted of the following 4 Developed countries: Australia, Hong Kong, New Zealand, and Singapore. The MSCI USA Index SM is designed to measure the performance of the large and mid cap segments of the U.S. market. With 586 constituents, the index covers approximately 84% of the free float-adjusted market capitalization in the U.S.. The MSCI USA Index was launched on Dec ember 31, The MSCI China Index SM captures large and mid cap representation across China H shares, B shares, Red chips and P chips. With 148 constituents, the index covers about 84% of this China equity universe. The MSCI China Index was launched on December 31, The MSCI Indonesia Index SM is designed to measure the performance of the large and mid cap segments of the Indonesian market. With 25 constituents, the index covers about 84% of the Indonesian equity universe. The MSCI Indonesia Index was launched on December 31, 199. The MSCI Korea Index SM is designed to measure the performance of the large and mid cap segments of the South Korean market. With 15 constituents, the index covers about 84% of the Korean equity universe. The MSCI Korea Index was launched on December 31, The MSCI India Index SM is designed to measure the performance of the large and mid cap segments of the Indian market. With 71 constituents, the index covers about 84% of the Indian equity universe. The MSCI India Index was launched on December 31, The MSCI Japan Index SM is designed to measure the performance of the large and mid cap segments of the Japan market. With 315 constituents, the index covers approximately 84% of the free float-adjusted market capitalization in Japan. The MSCI Japan Index was launched on December 31, The MSCI Hong Kong Index SM is designed to measure the performance of the large and mid cap segments of the Hong Kong market. With 42 constituents, the index covers approximately 84% of the free float-adjusted market capitalization of the Hong Kong equity universe. The MSCI Hong Kong Index was launched on December 31, The MSCI Taiwan Index SM is designed to measure the performance of the large and mid cap segments of the Taiwan market. With 113 constituents, the index covers approximately 84% of the free float-adjusted market capitalization in Taiwan. The MSCI Taiwan Index was launched on December 31, West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc. The Dow Jones-UBS Commodity Subindexes represent commodity groups and sectors, as well as single commodities, that make up the Dow Jones-UBS Commodity Index. The subindexes track exchange-traded futures of physical commodities, and the commodity groups and sectors, like in the case of the broad index, are weighted to account for economic significance and market liquidity. The different subindexes are Energy, Livestock, Grains, Industrial Metals, and Precious Metals. 2

21 J.P. Morgan Asset Management: Index Definitions, Risks and Disclosures The Euro Stoxx 6 Index represents large, mid and small capitalization companies across 18 European countries. The Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-emg countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included. The Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $25 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible. The Barclays Corporate Bond Index is the Corporate component of the U.S. Credit index. The Barclays TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury. The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities. The J.P. Morgan GBI-EM Global Diversified consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index. The J.P. Morgan Corporate Emerging s Bond Index (CEMBI): The CEMBI tracks total returns of US dollardenominated debt instruments issued by corporate entities in Emerging s countries, and consists of an investable universe of corporate bonds. The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market. The VIX-CBOE Volatility Index measures market expectations of near-term volatility conveyed by S&P 5 Index (SPX) option prices. The MOVE-Merrill Lynch Option Volatility Index is a blended implied normal volatility for constant one-month atthe-money options on U.S. Treasuries. Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's future financial health. Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. The price of equity securities may rise, or fall because of changes in the broad market or changes in a company s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. securities are subject to stock market risk meaning that stock prices in general may decline over short or extended periods of time. Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock. Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock. Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies can raise or lower returns. Also, some markets may not be as politically and economically stable as other nations. Investments in emerging markets can be more volatile. The normal risks of international investing are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss. Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns. There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Investing using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions. 21

22 J.P. Morgan Asset Management: Risks and Disclosures The Insights program provides comprehensive data and commentary on global markets without reference to products. It is designed to help investors understand the financial markets and support their investment decision making (or process). The program explores the implications of economic data and changing market conditions for the referenced period and should not be taken as advice or recommendation. The views contained herein are not to be taken as an advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Unless otherwise stated, all data are as of September or most recently available. MI-GTMALT OCTOBER216 J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in India by JPMorgan Asset Management India Private Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited, or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd; in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number Kanto Local Finance Bureau (Financial Instruments Firm) No. 33 ); in Korea by JPMorgan Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 21 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN ) (AFSL ); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients use only by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc. In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only. Copyright 216 JPMorgan Chase & Co. All rights reserved. 22