P A N O R A M A. A Fearless Market SWITZERLAND EUROPE UNITED STATES ASIA

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1 P A N O R A M A SWITZERLAND A Fearless Market Will the Swiss Small and Mid Cap companies continue to outperform the Large caps? p. 06 EUROPE With high earnings growth, will European equities finally catch up with the rest of the world? p. 08 UNITED STATES Are market current valuations justified? p. 10 ASIA Will valuations in emerging Asia remain low indefinitely? p. 12 Q2 2017

2 EDITORIAL Dear Reader, We are pleased to announce that the Bruellan Asset Management team has been strengthened by the appointment of a new fixed income fund manager. Yvan Mencattini has more than 25 years of experience in fixed income at leading investment management firms. His management process has earned him two distinct awards from LIPPER for the performance of one of his bond funds. We therefore take this opportunity to enhance our PANORAMA publication and we now offer you a segment dedicated to fixed income. On behalf of the BAM team, I wish you an interesting read. A Fearless market After ending 2016 on a strong note, equity markets have continued their firm appreciation during this first quarter with an appreciation of 6.1% for the S&P 500, 6.3% for the DJ Europe Stoxx and 9.5% for the MSCI Asia Pacific. Equity markets seems to be fearless despite numerous risks. On the political front, increasing social polarization and nationalism has brought Brexit and its long lasting consequences, a French presidential election saga and rising US protectionism, to name just a few. On the economic front, artificially low interest rates have led to misallocation of capital, and many countries have increased their sovereign debt to pre 2008 levels. These risks are real, but fortunately, significant improvements in macroeconomic and microeconomic developments are also visible. Indeed, most regions saw their economic growth estimates revised upward during the last quarter. Forecasts for 2017 GDP growth have been revised from 1.4% to 1.6% for the Eurozone, 1.2% to 1.7% for the UK, 2.2% to 2.3% for the US market, 1% to 1.1% for Japan. Stable growth of 5.8% is expected for the Asia ex-japan region (at 5.8%). Leading economic indicators continue to point toward a positive environment as 80% of the world s main countries now have a Manufacturing PMI in expansionary territory. Furthermore, 2/3 of these countries have witnessed an acceleration since the beginning of the year. World economic growth will remain below potential levels but it is resilient and accelerating. This growth acceleration was followed by significant increases in price pressures in almost all countries. The consumer price index (CPI) has increased in almost all regions. For example, the monthly Eurozone CPI has reached its highest level since early 2013 (to 2%) and the US CPI its highest level since 2012 (to 2.5%). However, this is mostly due to rising energy prices, since core CPI remains stable. With more growth and inflation, the number of sovereign bond yielding a negative rate have shrink significantly. Back to July 2016, Swiss, Japanese, Eurozone rates were negative up to 15 years (30 for Switzerland) whereas today, no sovereign bond above 9 years have a negative yield. Florian Marini, CIO Chart: US earnings are back to positive level after five consecutive quarters of negative growth. At the company level, the last earnings season has been the best in almost two years. With two consecutive quarters of positive earnings growth, the earnings recession (five consecutive quarters of negative earnings growth) is finally behind us. Companies have posted strong quarterly earnings growth in all main regions (Eurozone + 12%, US + 9% and Japan + 12%) (cf. chart above for US market). Moreover, almost all sectors have made a positive contribution to these earnings. Earnings growth expectations for 2017 have been revised upward for the first time in years in almost all regions (Europe, Japan, Emerging Markets) with the exception of the US. US earnings growth has been revised downward from 12.8% one year ago to 10.2% now, in contrast to a market which is up by 6.1% in 3 months. As a consequence, despite numerous political and economic risks, the global economy continues to improve and corporate earnings are the best in almost two years in all regions. The current risk in our view is more related to the comparison of earnings growth with the recent stock market appreciation. Markets have skyrocketed despite a downward earnings revision for the largest market (US). This could lead to a correction for the equity market but we would view this as a buying opportunity. 2 BRUELLAN - PANORAMA - Q2 2017

3 CONTENTS 4-5 Market Performance & Allocation Grids 6-7 Switzerland 8-9 Europe United States Asia Fixed Income Technical Corner About our Funds Bruellan in the News & Agenda Disclaimer & Where to find us BRUELLAN - PANORAMA - Q

4 MARKET PERFORMANCE From To Economic Indicators Real GDP % Inflation % PMI Debt %GDP Current Account %GDP Budget %GDP Unemploy ment % Interest rates USA Euro Area Switzerland UK Asia ex Japan Japan Brazil Russia India China World Current Current Current Current Current 3 Months 10 Years % 2.4% % 0.3% % -0.1% % 1.1% % 3.7% % 0.1% % 8.5% 6.6% 10.1% 4.2% 6.6% % Exchange-Rate Movements Against USD (%) RUB XAU AUD DKK JPY INR BRL GBP CHF SEK EUR CAD CNY NOK Against CHF (%) RUB XAU AUD JPY INR BRL GBP SEK EUR DKK CNY CAD NOK USD Against EUR (%) RUB XAU AUD JPY INR BRL GBP CHF SEK DKK CAD CNY NOK USD Stock Markets: Returns & Valuation Bond Markets Leading PE USD EUR CHF GBP EM Local Government LT Median Current EM Corporate S&P % 4.6% 4.3% 4.4% US High Yield Corporate Eurostoxx 8.3% 6.8% 6.5% 6.6% USD Inflation Swiss Perf. Index 9.4% 7.8% 7.5% 7.6% US Corporate FTSE % 3.8% 3.5% 3.7% Euro High Yield Corporate MSCI Asia Ex-Jpn 12.8% 11.2% 10.9% 11.0% US Treasury 7-10 Yrs Nikkei % 3.0% 2.7% 2.8% Euro Corporate Brazil Bovespa 12.1% 9.7% 9.4% 9.3% US Treasury 1-3 Yrs MSCI Russia India SENSEX -4.6% 17.1% -5.9% 15.5% -6.2% 15.1% -6.1% 15.3% Euro Gov. 0-1 Year Euro Gov Years China CSI % 3.9% 3.6% 3.7% Euro Inflation MSCI World 6.4% 4.9% 4.6% 4.7% Sectors: Returns & Valuation (Leading PE) USA Europe World USA Europe World LT Median Current LT Median Current LT Median Current Cons. Discr. 8.3% 5.2% 6.9% Cons. Staples 5.3% 7.4% 6.6% Financials 2.2% 4.7% 4.1% Energy -6.9% -5.5% -5.6% Industrials 4.5% 8.4% 6.3% Precious Metals Gold Industrial Metals Coffee (EUR) Agriculture Commodities Technology 12.1% 11.1% 12.0% Materials 5.8% 5.7% 6.3% Utilities 5.0% 6.0% 5.9% Health Care 8.2% 6.0% 7.8% Telecom -4.1% 3.6% 0.5% WTI Brent Natural Gas Real Estate 2.3% 0.2% 3.5% BRUELLAN - PANORAMA - Q2 2017

5 ALLOCATION GRIDS Global Asset Classes Stocks Bonds Gold Cash Overweight Marketweight Underweight Main Drivers Global economy continues to improve and corporate earnings are the best in almost two years in all regions. The economy's improvement and higher inflation are pushing us away from Central banks' intense easing policies and low interest rate environment. Could act as a safe haven asset in case of market downturn. Global valuations are demanding. Elections in Europe, Trump's beginning as president and Brexit could be obstacles. Economy slowing down. Risks Interest rate increase is a drag on this non-yielding asset. Equities US Europe Switzerland Asia Pacific ex-japan Sales and earnings growth are back to normal. However, after strong performance in Q1, equity market valuations are now demanding. Macroeconomic environment in the Eurozone is improving significantly and earnings are now growing at a faster rate compared to their US counterparts. Swiss companies will benefit from their global leading positioning. However, after a strong market performance in Q1, valuations are now demanding. Industrial recovery continues, valuations remain low Setback in economic reforms may move markets as valuations are not low. Political risks and Governments highly indebted. Strong and rapid appreciation of Swiss franc would have negative impact on exports of Swiss companies. International trade flows affect markets more than fundamentals Japan Earnings growth is rising at double digit rate. Wage growth and inflation remain feeble Bonds Corporate Our positive view on the economy implies a period of low corporate spreads. Economy slowing down. Sovereign Global economic improvement leads to a rise in rates. Soaring costs of debt for highly indebted countries. Emerging Positive economic expectations continue to support the emerging markets in USD. Economy falling back into slowdown Currencies EUR vs USD Interest rate differential in favor of a stronger USD against EUR. EUR vs CHF Moderate appreciation of the Euro against CHF is expected to continue. SNB will continue to mitigate the CHF appreciation. USD vs CHF Interest rate differential in favor of a stronger USD against CHF. EUR vs GBP Higher inflation in UK following Brexit should lead to higher interest rate differential. GBP is expected to appreciate against EUR. EUR vs JPY USD vs GBP With global economy improvement, JPY should lose attractivity as a safe haven currency. Interest rate differential in favor of a stronger USD against GBP. BRUELLAN - PANORAMA - Q

6 SWITZERLAND The global economic acceleration should continue to benefit the Swiss economy. After an economic growth of 1.3% in 2016, the economy should accelerate slightly in 2017 to above 1.5%. This acceleration is being accompanied by inflation being positive for the first time in 5 years, and a narrowing universe of bonds yielding a negative interest rates. Swiss equities remain an interesting asset class for investors, especially in certain areas which will be detailed below, and the Swiss franc will continue to play its role of safe haven. Chart 1: The KOF leading indicator of the economy is pointing toward GDP improvement The Swiss economy should continue to benefit from the broad improvement in global economic growth. Currently 80% of countries in the world have a PMI Manufacturing index in expansionary territory (up from 60% in early 2016) and all major trading partners of Switzerland have witnessed improving economic conditions in recent months. European trading partners represent around half of Swiss exports, Asia one third and North America around 14%. After a GDP growth rate of 1.3% in 2016, the Swiss economy should accelerate slightly in 2017, with leading indicators of the economy pointing toward an acceleration in the coming months. Indeed, in February the Swiss Manufacturing PMI reached its highest level in five and a half years, and the Swiss KOF indicator (chart 1) reached its highest level since These readings would normally be associated with an economy gaining a slight momentum above the market expectation of 1.5%; in , those same readings were associated with GDP growth of 1.8 to 2.0%. The global acceleration has been followed by a significant increase in price pressure in almost all European countries. The European consumer price index (CPI) surged from 1.1% in December to 2% in February (and back to 1.5% in March) (chart 2). Swiss inflation was not immune to this pressure, and after 5 years in negative territory, the CPI reached its highest level in March at PLUS 0.6%. Chart 2: Consumer Price indices for the Eurozone and Switzerland have reached new 5 year highs 6 BRUELLAN - PANORAMA - Q2 2017

7 Interest rates are also moving upwards with inflation and economic growth. The Swiss 10 year government bond yield has moved from -0.64% in July 2016 to -0.09% in March. The negative interest rate environment for long-term maturity securities is narrowing and helping sectors dependent on the yield curve, such as insurance companies and banks. Swiss National Bank (SNB) policy remains unchanged with cash interest rates at -0.75% and a commitment to continue its forex intervention to mitigate the Swiss franc appreciation. The currency is stable despite pressure coming from political risks, such as the current cacophony surrounding the French elections. Fortunately, Swiss companies have shown that they can cope with a strong currency thanks to their strong capacity for adaptation and innovation. In 2016, once again, Swiss Small & Mid Cap companies outperformed large ones (chart 3), in earnings and sales as well as stock market performance. In fact, large companies evolved in line with small and mid caps until 2014, at which point a considerable difference in market performance began. The same divergence was seen in companies earnings, where small and mid caps started doing better than their large cap peers. This rally has been fueled partly by strong inflows into funds specializing in Swiss Small and Mid Cap companies. Due to the lower liquidity of this segment, these funds have started to have problems accepting new money today. Chart 3: Swiss Small and Mid Caps have been outperforming large cap companies since 2014 Table 1: Strong sales growth expectations in Small and Mid cap companies Table 2: Earnings growth expectations are more attractive in Small and Mid cap companies Performance wise, the small and mid cap index is already up 9% year to date (table 2) and the large cap SMI is up only 6.5% in the light of downward earnings revisions. «It is important to monitor an eventual change of situation where Blue chip companies would begin to rebound at the expense of Small and Mid caps.» This difference has continued in Sales for SMI companies (Large caps) have already been revised down from +0.1% to -0.2%, and earnings growth from +5.3% to +2.8% (table 1). At the same time, Small and Mid Caps maintained a strong sales growth rate at around 5% and earnings should grow by 10% for sales and earnings expectations are high and steady in the small and mid cap segment. However, despite the great quality of those companies, it is important to monitor an eventual change of situation where Blue chip companies would begin to rebound at the expense of Small and Mid caps. In conclusion, Swiss indices have already surged since the beginning of the year despite negative earnings revisions, increasing the risks of a possible market correction. Nevertheless, the Swiss economy should continue to benefit from improvement in global growth. While still below the long term average, resilient growth is the current scenario for the Swiss economy, with GDP growth expected to be above 1.5% in Our view remains positive concerning Swiss equities for the coming quarters. BRUELLAN - PANORAMA - Q

8 EUROPE The macroeconomic environment in the Eurozone is improving significantly and European earnings are now growing at a faster rate than those of their US counterparts. Our positive view therefore remains unchanged for the coming quarters, but long term risks cannot be ignored, such as high sovereign debt levels, political tensions and protectionist rhetoric. Chart 1: Eurozone Manufacturing and Services PMI After ending 2016 with a signification acceleration, the Eurozone-area s leading economic indicator continued to gain momentum slightly, with the Manufacturing PMI increasing from 54.9 to 56.2 during the first three months of the year. The good news came from the Services PMI which improved significantly, rising from 53.7 to 56.5 (chart 1). Both indices have now reached their highest levels in almost six years. The European Central Bank (ECB) has revised its 2017 Eurozone GDP growth forecast for the second consecutive quarter: from 1.6% in September, 1.7% in December and now up to 1.8% in March. «Eurozone-area s leading economic indicator continued to gain momentum.» Chart 2: Eurozone CPI and Core CPI This growth acceleration was followed by significant increases in price pressures in almost all European countries. The consumer price index (CPI) increased from 1.1% in December to 1.5% in March (chart 2), reaching its highest level since early This is mostly due to rising energy prices, since core CPI remains low at 0.7%. The rise in inflation toward the 2% long term target rate puts pressure on the ECB to taper its loose monetary policy. 8 BRUELLAN - PANORAMA - Q2 2017

9 At the company level, the global earnings recession finally seems to be behind us. The last earnings season has shown the strongest growth since the second quarter of 2015 (+12% compared to Q4 2015), and has been strong across nearly all sectors, with only the consumer sector posting a negative result. Following improving guidance in Eurozone GDP (from 1.4% to 1.6%) and in inflation rates (from 1.3% to 1.7%), 2017 expected sales growth has been revised upwards from 5.5% to 5.7%, and earnings growth from 12% to 13.5%. Operating margins, a crucial part of Europe s improvement, also picked up strongly recently (chart 3). Chart 3: Operating Margins and Earnings per Shares have been picking up recently We took into account those better top down numbers and readjusted our expectations for European sales and earnings growth. We expect sales to grow between 3.5% and 5% in 2017 (up from between 2.5% and 4% previously) and earnings between 8% and 11% (up from between 6% and 9%). Our numbers based on macro expectations are still below the market s expectations, which are based on analysts expectations for each company. Either there will be an increase in GDP estimates, which would be positive for the market, or, to the contrary, sales and earnings revisions could come down, which could put some pressure on market prices. «The last earnings season has shown the strongest growth since the second quarter of 2015 (+12% compared to Q4 2015), and has been strong across nearly all sectors, with only the consumer sector posting a negative result.» The earnings revisions ratio for the next 12 months 1 is at a 5 year high (chart 4), confirming strong positive momentum. Chart 4: Earnings Revision Ratio at a 5 year high Once again, political risk has come under the spotlight with the cacophony surrounding the French Presidential election. After the Brexit vote and the American election, investors fear the rise of Marine Le Pen, who is expected to be the leading candidate for the first electoral round to be held on April 23rd. However, we do not expect the National Front candidate to win the general election during the run-off on the 7th of May. In conclusion, the muted performance in the European market is disappointing in comparison with US performance, and the reason probably stems from the constant political instability. However, investors should keep in mind that the macro-economic environment in the Eurozone is improving significantly and that European earnings are now growing at a faster rate compared to their US counterparts. Our positive view therefore remains unchanged for the coming quarters, but long term risks cannot be ignored, such as high sovereign debt levels, political tensions and protectionist rhetoric. 1 The proportion of companies for which analysts upgrade earnings numbers compared to companies for which analysts downgrade numbers. BRUELLAN - PANORAMA - Q

10 UNITED STATES The US economy continues growing very steadily. On the corporate side, revenue and profit growth are back to normal after two weaker years. Chart 1: Employee compensation and profits, % of net corporate value added The US economy remains steadily on its growth path, 2017 real GDP growth is expected to remain at around 2%, as it has for seven years already. Though inflation is still below the Federal Reserve (Fed) s target, the need for further rate increases is there because high employment rate continues to push up wages and consumption demand continues accelerating. After years of deleveraging, household balance sheets are not very stretched anymore, and home loan and credit card delinquencies are also at very low levels. The overall US macroeconomic picture is very stable at the moment as the private consumption is strongly supported by the improving situation of households. The other side of the coin is the persistently low productivity growth, which stands at about one percent compared to the long-term average of two. Low productivity growth keeps overall economic growth low or enables high employment despite slow growth, whichever way one prefers to look at it. The common market expectation is that low productivity growth scenario is here to stay. However, historically tight jobs market should amplify productivity growth, meaning companies have stronger incentives to seek more output per employee (chart 1). The slowing labor force growth will certainly amplify this effect, especially if restrictive immigration policies will be implemented by the new administration in the coming years. We could well start seeing some pickup in productivity as the domestic economy remains quite stable and the slack in the jobs market is disappearing. «The overall US macroeconomic picture is very stable at the moment as the private consumption is strongly supported by the improving situation of households.» 10 BRUELLAN - PANORAMA - Q2 2017

11 Chart 2: Free cash flow yield of S&P 500 While the stock market in the US is not historically at cheap levels (chart 2), the valuations reflect the quite bright future expectations when compared to the last couple of years. It should be noted that the period was exceptionally weak when revenue and income growth were dragged down by two main factors: appreciating dollar and declining commodity prices. The sectors most affected were Energy and Materials, but also Information technology because of its global sales base as well as some industry-specific factors. There were no large scale spillover effect to other sectors (especially Financials) from high default rates in Energy and Materials sectors. The stock market as a whole did not react very violently, as those effects were expected to be mostly temporary. For this year and the next, the growth trends in revenue and profit should be in back to normal mode as can be seen from the graph 3 below: Chart 3: S&P 500 Revenue and net income growth Unsurprisingly, lately the expectations about the USA have revolved around developments in politics and how the new administration s plans are advancing. One of the most important items on the agenda, repealing Obamacare as well as the related taxes, has seen some initial progress in the form of a new GOP House draft bill. As expected, the plan is that the penalty charged to those who refuse to buy insurance would be repealed immediately, along with some Obamacare-related taxes. Costs would be reduced through imposing per capita caps and ending the expansion of Medicaid that grants coverage for the poor. In addition, the president has been very clear about the need to provide insurance coverage to everyone. «For this year and the next, the growth trends in revenue and profit should be in back to normal mode.» Since the introduction of the Affordable Care Act in 2010, about 20 million previously uninsured people gained coverage, and it is popular in some Republican-controlled states as well. Repealing and replacing Obamacare is a very challenging project even though the goal would seem to be very much like modified Obamacare with a new name. This is despite Republican majority in both houses of the Congress: a few Republican senators have already announced that they will not back any proposal that does not protect people on Medicaid. We still expect that the reform, if any, will not be dramatic as such plan would not likely pass in Congress. A reform that will have even wider effect will be the one concerning tax code. While business tax and repatriation tax reforms will likely move forward, the border tax adjustment is a far more complex one to implement. In a simple model, the basic problem is that the effect of border tax is offset by appreciating dollar, and the implicit cost of the trade barrier would fall on the US consumer. Tax reform is also a high priority matter, and we expect to get more details quite soon. Any meaningful changes to business tax code would be an added bonus to our optimistic US outlook. BRUELLAN - PANORAMA - Q

12 ASIA Valuations in emerging Asia remain low despite strong macro outlooks. The industrial upturn in China gives more room to contain credit growth and keep the rebalancing orderly. Chart 1: Valuations Most of the Southeast Asian markets have seen significant outflows since the US elections. It seems that large institutional investors, on aggregate, pulled money in order to invest more in the US. Interestingly, valuations in emerging Asia remain persistently low despite probably the best macroeconomic outlooks in the world. Expectations of higher interest rates and yield curve normalization in the US should not explain such a drastic and long term valuation difference between the developed markets and emerging Asian markets (chart 1). These dynamics of international investment flows do cause big movements in stock prices as well as in currencies, which perhaps further explains the persistence of negative momentum in Asia. But for a longer term investor looking for value, the current weakness creates quite favorable entry points, as the selling in our opinion continues to be quite indiscriminate. It should also be noted that the stock markets in Southeast Asia are rather small in market capitalization versus the largest Western markets, so relatively small fund flows create substantial volatility. Only a few billion US dollar outflow per quarter can easily shift a large Asian market such as Indonesia by double digit percentage points. As a result, valuations can remain quite low for an extended period of time, which has been the case in most of the emerging markets. In Southeast Asian markets, overall growth rate expectations remain more or less stable, and are at quite high levels relative to other regions (chart 2). Domestic demand in these countries continues to grow quickly thanks to extremely favorable long term demographics. Very young populations ensure high predictability for long term consumption growth which in essence benefits most of the businesses that focus on serving the domestic economy instead of exporting raw materials overseas. 12 BRUELLAN - PANORAMA - Q2 2017

13 Chart 2: GDP growth estimates for 2017 Most of the Southeast Asian countries continue to grow at rate 2 to 3 times faster than Western developed economies, even when the turmoil of recent years caused by China s rebalancing is taken into account. China s problematic and unbalanced economic model did cause an extraordinary bubble in the commodity markets in past years, and while Southeast Asian countries definitely benefited from the Chinese growth miracle, in our opinion investors in general do not understand the real drivers behind these countries economic growth. The fact is that short term developments in this sector depend highly on commodity prices as it has a very high operational leverage and producer prices will drop back as soon as base effects reverse. Though there is nothing structural about the industrial upturn, it gives more room to contain credit growth and keep the rebalancing orderly. This is obviously a good thing for the overall economy and quite in line with the government policy of supporting companies following the old economic model, in order to give enough time for the new privately-managed and more profitable enterprises to become the effective growth driver of a future China. The recent stabilization in global commodity markets does not change the fact that most heavy industries in China will continue implementing serious cuts in excess capacity in coming years. This will be the prevalent trend in many Chinese industries steel manufacturing, coal mining, aluminum smelting and shipbuilding, to name a few. Chart 3: China retail sales growth «Though there is nothing structural about the industrial upturn, it gives more room to contain credit growth and keep the rebalancing orderly.» Most Southeast Asian countries have no structural challenges such as an aging population and dependence on fixed asset investment, and economic growth rates are rather healthily based on meeting the needs of the growing population of consumers. Taking into account all of the above, the populous countries of Southeast Asia are one of the most interesting places to invest right now, particularly if investors seek long term value at a reasonable price. In China, producer prices and industrial profits have been on an upward trajectory recently, after a stretch of declines. We would not put much weight on expectations of Chinese heavy industry returning to a sustainable high growth path, as the sector still has longer-term profitability and overcapacity issues. We emphasize very often to our clients the unavoidable need for the Chinese overall GDP growth rate to decelerate from the current 6%+ annualized rate to more healthy low single digit rates, but in our opinion, this is still not very well understood by markets. Yet it remains a fact that a low growth rate driven primarily by strong household spending is much more desirable than very high but empty and non-profitable investment-driven growth. Meanwhile household consumption, the future backbone of the economy, and retail sales, especially online, continue to grow as a share of the GDP (chart 3). BRUELLAN - PANORAMA - Q

14 FIXED INCOME At the last FOMC meeting the Fed raised rates as expected (chart A), and kept its median projection of future rates unchanged. Based on our base case scenario, we are more constructive on USD fixed rate assets, since the expected 12-month return has turned positive. The credit spread asset class in general offers little upside in a late-cycle boom and faces asymmetric downside risk at the current level of spreads. Chart A: US 10 year yield versus Fed Funds rate Chart A : Implied Fed Funds Target Rate SOVEREIGN As expected, the Fed raised rates and kept its median Chart B: US Yield curve [10 years minus 2 years] projection of future rates unchanged. We are constructive on USD bonds. At the last FOMC meeting the Fed raised the federal funds rate by 25bp, a move which was already fully priced in by the market. They maintained their median projections for both 2017 and 2018 (chart A ). This latest Fed decision reinforces our idea that they will pursue their monetary policy in order to manage the market s inflation expectations and to avoid an unpredictable rise in US 10 years rate. Therefore we believe that the US yield curve, measured by the difference between the rate on US 10 year and 2 year Treasuries, will continue to flatten (chart B). In our main scenario we are more constructive on USD bonds, as expected 12-month returns are now positive. We remain underweight in core EUR and CHF bonds, as technical factors, especially the European Central Bank Quantitative Easing program, are keeping prices at a rich level. EMERGING Positive economic factors continue to support the emerging market. We are constructive overall although there is limited room for further spread tightening. Emerging market and developing economies are showing signs of recovery, broadening in Asia and remaining mixed in EMEA and in LATAM. With both external and domestic demand gaining momentum, emerging market bonds are able to withstand the tightening USD monetary conditions. These positive factors for the asset class will continue to drive inflow from investors. Overall, we still see good reasons to be constructive even though there is limited room for spread tightening due to tight valuations. Despite the fact that USD emerging market debt will naturally be negatively impacted by rising US rates (chart C), we remain positive on a one year horizon. Chart C: Emerging USD Spread versus US Treasury 14 BRUELLAN - PANORAMA - Q2 2017

15 CORPORATE We prefer US Investment Grade bonds versus European, as the recent spread compression on European bonds means there is not enough of a return to compensate a rate increase in Europe. Fundamentals in corporate bonds remain strong, as growth expectations are positive. In Europe, the leverage ratio, as measured by Net Debt to EBITDA, is better now than last year. In the US, leverage has picked up slightly but remains below trend. That being said, spread compression (chart D) is limited as technical factors have distorted both markets. The European Central Bank, through its Corporate Sector Purchase Program (CSPP), has been buying bonds at a rate of EUR 7.8 billion per month. This program will continue to keep spreads tight, and credit premium are not high enough to compensate a rate increase in Europe. Therefore, we prefer to remain underweight in investment grade company bonds in Europe versus the US. HIGH YIELD Solid credit fundamentals continue to support the high yield Chart E: High yield spreads vs governement asset class. However, the recent strong spread compression means has led to became more cautious. Solid credit fundamentals continue to support the High Yield in a positive economic growth cycle and contribute to improve credit metrics to keep default rate at a very low level. After the recent strong spread compression (chart E), this asset class offers little upside in a late-cycle boom, and faces asymmetric downside as current spread levels (i.e. ~400bps) paying just the actual company leverage ratio. However, technical factors remain supportive as inflows into High Yield funds have been positive and expected primary issuance remains below the record of In this environment, we believe that Corporate Hybrid bonds offer a better risk /return profile, and Banks AT1 is attractive as the recovery in corporate loan volume will support bank revenues. BRUELLAN FIXED INCOME PROJECTION Chart D: Global Corporate box plot [from June 2015 to March 2017] Currency / Expected Country Return at 1 Years Core Govt USD Overweight [5 Years] EUR Underweight CHF Underweight Peripheral Govt FR Underweight [10 Years Spreads vs Germany] IT Overweight SP Underweight PT Overweight Inflation Linked USD Neutral [10 Years BreakEven] EUR Neutral UK Neutral Credit - Corporate EUR Neutral Credit - Senior Financial EUR Neutral Credit -Subordinated Financial EUR Neutral Credit - Hybrid EUR Neutral High Yield EUR Neutral Credit - US Corporate USD Overweight Emerging Corporate USD Overweight BRUELLAN - PANORAMA - Q

16 TECHNICAL CORNER EQUITIES BONDS - 10-YEAR YIELDS 16 BRUELLAN - PANORAMA - Q2 2017

17 CURRENCIES COMMODITIES BRUELLAN - PANORAMA - Q

18 ABOUT OUR FUNDS BRUELLAN DYNAMIC TACTICAL FUND «A solid cornerstone to any investment portfolio» Graph: Historical performance of the Bruellan Dynamic Tactical fund vs World Index The Bruellan Dynamic Tactical fund, managed by Antti Tilkanen and Petteri Pihlaja, is an equity fund with no geographical restrictions. The investment strategy of the fund focuses solely on companies fundamentals, without market timing, hedging or speculation. The key to superior long term returns is simple: just own companies with sustainable businesses that will generate ample free cash flow to their owners over the next several economic cycles. Good long-term results are achieved partly by avoiding classic mistakes that investors make; chasing investment fads, trying to time peaks and troughs of the market and generally being overly active all cause more harm than benefit as time passes. That is not to say that Tactical is a passive index fund, far from it. Our investment universe includes every listed company in the world, of which we get to pick the best ones, without any artificially set restrictions. We own only high-quality businesses whose success, with a high probability, is better than average over the economic cycle. Usual characteristics of our companies are high return on capital, high differentiation, strong market postion and success driven by their own competitive advantages rather than external factors. For these reasons, we don t have much interest in, for example, materials or energy sectors. As a result, the portfolio is quite different from the benchmark. The more time passes, the more positive the difference caused by owning only superior business models will be. An added bonus of owning only high quality companies is that the operational risk of the portfolio is very low, which is a good recipe for peace of mind in any market situation. While continuous comparison to the benchmark is not relevant to us, we obviously expect to make returns superior to the benchmark in the long term. We are clearly on the right track over the past five years; we are ahead of the world index and the vast majority of other global equity funds. 18 BRUELLAN - PANORAMA - Q2 2017

19 Inception date Currency Fund Managers Fund size Liquidity Cut Off ISIN Protea BAM European Equities Domicile Min. Investment Management fees Performance fees High Water Mark Benchmark Bloomberg Custodian Investment Manager Administrator Auditor Luxembourg/UCITS IV 20 January 2015 EUR Florian Marini, CFA Nicolas Vialis, CFA 25 Millions EUR Weekly Tuesday 1000 EUR 0.8%-1.2% 20% Yes Stoxx 600 Total Return Retail : LU Instit.: LU Retail : PROBEER LX Instit.: PROBEEI LX Pictet & Cie (Europe) S.A. Bruellan S.A. Fund Partner Solutions Deloitte Audit Domicile Fund Managers Fund size Protea BAM US Equities Luxembourg/UCITS IV Inception date 20 January 2015 Currency Liquidity Cut Off Min. Investment USD Petteri Pihlaja Antti Tilkanen 18 Millions USD Management fees 0.8%-1.2% Performance fees 20% High Water Mark Benchmark ISIN Bloomberg Custodian Investment Manager Administrator Auditor Weekly Tuesday 1000 USD Yes S&P 500 Total Return Retail : LU Instit.: LU Retail : PRBAMRU LX Instit.: PRBAMIU LX Pictet & Cie (Europe) S.A. Bruellan S.A. Fund Partner Solutions Deloitte Audit Protea BAM Asia Pacific Equities Domicile Fund Managers Fund size Luxembourg/UCITS IV Inception date 20 January 2015 Currency Liquidity Cut Off Min. Investment USD Petteri Pihlaja Antti Tilkanen 18 Millions USD Management fees 0.8%-1.2% Performance fees 20% High Water Mark Benchmark ISIN Bloomberg Custodian Investment Manager Administrator Auditor Weekly Tuesday 1000 USD Yes MSCI Asia Pac ex Japan Retail : LU Instit.: LU Retail : PRAPEXR LX Instit.: PRAPEXI LX Pictet & Cie (Europe) S.A. Bruellan S.A. Fund Partner Solutions Deloitte Audit Bruellan Dynamic Swiss Equities Domicile Switzerland Inception date 21 January 2015 Currency Fund Managers Fund size Liquidity Cut Off Min. Investment CHF Florian Marini, CFA Nicolas Vialis, CFA 30 Millions CHF Tuesday 1000 CHF Management fees 0.8%-1.2% Performance fees 20% High Water Mark Benchmark ISIN Bloomberg Custodian Investment Manager Administrator Auditor Weekly Yes Swiss Performance Index Retail : CH Instit.: CH Retail : BDFSECA SW Instit.: BDFSECB SW BCV Bruellan S.A. CACEIS KPMG Bruellan Dynamic Tactical Equities Domicile Inception date Currency Fund Managers Fund size Liquidity Cut Off Min. Investment Benchmark ISIN Switzerland 28 July 2005 EUR Petteri Pihlaja Antti Tilkanen 22 Millions EUR Weekly Tuesday 1000 EUR Management fees 0.8%-1.2% Performance fees 20% High Water Mark Bloomberg Custodian Investment Manager Administrator Auditor Yes MSCI World AC Net Return Retail : CH Instit.: CH Retail : PROBEER LX Instit.: PROBEEI LX BCV Bruellan S.A. CACEIS KPMG Domicile Protea BAM Global Bonds Fund Managers Fund size Luxembourg/UCITS IV Inception date 1 September 2015 Currency Liquidity Cut Off Min. Investment ISIN - Class EUR ISIN - Class CHF ISIN - Class USD Bloomberg Custodian Investment Manager Administrator Auditor EUR Yvan Mencattini 95 Millions EUR Weekly Tuesday 1000 EUR Management fees 0.6%-1% Retail : LU Instit.: LU Retail : LU Instit.: LU Retail : LU Instit.: LU Retail : PBGBREU LX Instit.: PBGBIEU LX Pictet & Cie (Europe) S.A. Bruellan S.A. Fund Partner Solutions Deloitte Audit BRUELLAN - PANORAMA - Q

20 BRUELLAN IN THE NEWS 20 BRUELLAN - PANORAMA - Q2 2017

21 AGENDA Calendar Q Date Country / Region Political Economical 04/05/2017 US FOMC Meeting Minutes 04/12/2017 Canada Bank of Canada Rate Decision 04/23/2017 France First round of French presidential election 04/27/2017 Japan BOJ Rate Decision 04/27/2017 Europe ECB Rate Decision 05/03/2017 US FOMC Rate Decision 05/04/2017 UK U.K. Local Elections 05/07/2017 France Second and final round of French presidential election 05/11/2017 UK Bank of England Bank Rate 05/24/2017 Canada Bank of Canada Rate Decision 05/24/2017 US FOMC Meeting Minutes 06/08/2017 Europe ECB Rate Decision 06/11/2017 France First round of Legislative Elections 06/14/2017 US FOMC Rate Decision 06/15/2017 UK Bank of England Bank Rate Decision 06/15/2017 Switzerland Swiss National Bank Rate Decision 06/16/2017 Japan BOJ Rate Decision 06/18/2017 France Second round of Legislative Elections BRUELLAN - PANORAMA - Q

22 Contributors Bruellan Asset Management Team: Florian Marini, Nicolas Vialis, Antti Tilkanen, Petteri Pihlaja, Yvan Mencattini Edition & Formatting Mélody Duarte Proof reading Anne Hornung-Soukup Disclaimer This publication is for private circulation and information purposes only and does not constitute a personal recommendation or investment advice or an offer to buy/sell or an invitation to buy/sell securities mentioned. This information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with local regulations. In some countries the distribution of this publication may be restricted: it is the reader s responsibility to find out what those restrictions are and observe them. Bruellan SA cannot be liable for a breach of such restrictions. Source of graphics: Bloomberg & Bruellan SA. Bruellan SA is FINMA regulated Bruellan SA - Copyright 22 BRUELLAN - PANORAMA - Q2 2017

23 WHERE TO FIND US Bruellan S.A. 2, rue S.- Thalberg CH-1201 Genève Tel Fax Bruellan S.A. Rue du Petit-Chêne 18 CH-1003 Lausanne Tel Fax Bruellan S.A. «La Vallée Blanche» CH-1936 Verbier Tel Fax Bruellan S.A. Rue Centrale 50 CH-3963 Crans-Montana Tel Fax BRUELLAN - PANORAMA - Q

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