Normalization for the real economy, low inflation, and ongoing accommodative monetary policies

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1 CONVICTIONS Conclusions of Natixis Asset Management s monthly investment committee November 2017 MACROECONOMIC ANALYSIS Normalization for the real economy, low inflation, and ongoing accommodative monetary policies Analysis of the market environment & core scenario GLOBAL MULTI-ASSET ALLOCATION We maintain our relative overweight on equities, while rebalancing our bond portfolios. Back to neutral on US bonds and we reduce our underexposure to the European market. Strategic and tactical analysis and allocation Focus on FIXED INCOME ECB extends QE until September 2018 with no changes in the breakdown of asset purchases. The nomination of Jerome Powell as next Fed chair ensures policy continuity. Spread products keep outperforming. EUROPEAN EQUITIES GLOBAL EMERGING BONDS We downgrade our opinion on European equities to neutral in the absence of positive drivers. The European equity market could consolidate following the recent rally. Healthy consolidation after ten months of strong performance.

2 MACROECONOMIC ANALYSIS The continuous rise in world trade is the signal of a normalization in the real economy in It reflects both an increase in global activity but also a more uniform improvement. Asia and developed countries contribute in similar ways. This new momentum has triggered a virtuous circle leading to a more optimistic feeling in the long term, particularly as the budgetary and/or monetary authorities do not wish to tighten their policy stance too quickly. This real normalization should make higher inflation figures possible in the next two to three years, particularly in the United States, thereby making the central banks job easier. Core macro scenario The American Economy Economic research World Economy PMI/Markit and ISM Surveys The US economy displays a robust profile. Carry-over growth for 2017 at the end of the third quarter stands at 2.1% and the fullyear figure is poised to be stronger as activity is set to accelerate during the fall as a result of damage repairs following summer hurricanes. Businesses and households have a very positive perception of their environment despite the lack of economic policy from the White House. Tax reform is expected over the months ahead. Euro Area Economy Eurozone growth is robust and has been upgraded for 2017, reflecting a catch-up for employment and investment, which is fueling domestic demand and expanding activity. Businesses and households are very optimistic on their environment and this should result in a solid growth profile in There is no sign of a sudden change in either the rather neutral fiscal policy or monetary policy, which remains very accommodative in the long run. Survey indices in the manufacturing sector were strong in October, particularly in developed countries. This is a signal that the upward pace of global trade continues. The Markit indicator for the world is at its highest level since April The Eurozone is still very robust while the US ISM index has moderately corrected the excess observed after the hurricanes. Emerging Countries' surveys Political risks In the UK, an agreement on Brexit will probably be reached in the long run on maintaining the country s access to the single market but with severe restrictions, particularly on rules for this single market that will have be adopted without negotiation by the UK. This will be the price to pay. However, this straightjacket will probably quickly become too restrictive for the United Kingdom which has a large diversified economy. The situation in Catalonia is unresolved and still raises risks for Spanish growth in The BRIC index and the emerging-country index dipped marginally. The decline in the Indian and Russian indices are not offset by the rise in the Brazilian index. The Chinese indicator is flat. In China, growth came out at 6.8% year-on-year in the third quarter and the situation is robust.

3 Indicators Growth and inflation Average growth Average Inflation USA Japan Euro Area U.Kingdom China France Key interest rates Source: Economic Research / Natixis AM Year end Monetary Policy Long Term Interest Rates (10 year) USA ; ; ; 3.2 Japan ; ; 0.3 0; 0.3 Euro Area ; ; ; 1.2 U.Kingdom ; ; ; 1.9 Source: Economic Research / Natixis AM Focus Monetary policies Central banks are gradually suggesting that the normalization process is under way. This is clearly the case for the Fed with the scheduled interest rate hike and the reduction of its balance sheet. This shift will have to take on board an economy running at full employment and with inflation slightly below the central bank's target: this is the challenge facing the new Fed chair Jerome Powell. It will be up to him to determine the path that the American economy will take, despite not really being a monetary policy specialist. So far he has followed Yellen, but soon he will be in the driving seat effectively determining monetary policy. The Bank of England also changed its monetary strategy by hiking its bank rate by 25bps to 0.5% in early November. However, the UK does not seem eager to raise its rate at a fast pace (two hikes in the next two years), as this hampers the credibility of their stance. The rise in inflation, currently at 3%, will not be sustainable and the BoE expects a sharp slowdown from Was it really so urgent to intervene? The ECB is staying on course. It is extending its asset purchase program into 2018, albeit with smaller amounts ( 30bn instead of 60bn) until at least September The ECB will continue to weigh heavily on the entire interest rate curve in 2018 as a result of considerable reinvestment of the income from its portfolio. The ECB has indicated that it will only raise its benchmark rate well after the end of asset purchases, so we can expect that to happen in the second half of 2019 at the earliest, or even later.

4 GLOBAL MULTI-ASSET ALLOCATION We maintain our relative overweight of around 10% on the equities portion, while rebalancing our bond portfolios. Back to neutral on US bonds and we reduce our underexposure to the European market. Theoretical model portfolio Investment and client solutions investment division Benchmark Min Strategic Allocation Max Asset Classes Tactical Allocation Change from previous Month Previous Month 50% 30% 50% 70% Bonds 47.0% 7.0% 40.0% 40% 20% 60% Bonds 31.0% 7.0% 24.0% Inflation World Bonds* 2.5% -4.0% 6.5% 10% 0% 20% Emerging Debt*** 2.5% -2.0% 4.5% Investment Grade 4.5% 2.0% 2.5% High Yield 6.5% 4.0% 2.5% 35% 20% 35% 50% Equities 40.0% 0.0% 40.0% 12.5% 5% 20% Euro 11.5% -0.5% 12.0% Europe ex Euro* 4.0% - 4.0% 12.5% 5% 20% USA* 12.5% % 5.0% 0% 10% Japan* 6.5% 0.5% 6.0% Developed Asia* 0.5% - 0.5% Emerging Asia** 4.5% 1.0% 3.5% 5.0% 0% 10% Emerging Europe- Africa - Middle East** % 1.5% Latin America** 0.5% 0.5% - 5% 0% 5% 10% Commodities 5.0% 1.0% 4.0% Energy 1.5% 1.0% 0.5% Industrial Metals Agriculture 1.0% - 1.0% Precious Metals 2.5% - 2.5% 10% 0% 10% 20% Currencies 8.0% -8.0% 16.0% 5.0% 20% Cash 8.0% -8.0% 16.0% 1.0% 5% Dollar / 5.0% - 5.0% 1.0% 5% Pound / % 1.0% 5% Swiss Franc / -2.5% % 1.0% 5% Yen / % 5% Emerging currencies / % 100% 100.0% % * Hedged again currency risk ** Unhedged a *** Debt issued in dollar hedged in uro

5 Core scenario for global allocation Fixed income Global cycle We reduced our sensitivity to US interest rate risk, in order to favor the euro zone: the increase in our exposure in this area involves both the high yield market and exposure to Italian debt. Mario Draghi has convinced the markets that the ECB did not intend to put a clear end to the quantitative easing program, even if the pace of bond purchases is halved, restricting the potential for a rise in rates. Equities The trend for corporate earnings remains solid, especially for technology stocks. We continue to focus our over-exposure on the euro area and Japan. Japanese equities in particular have caught up well since late August (+ 9%), boosted by Shinzo Abe s reelection and the continuity of the BoJ's monetary policy. We are maintaining our neutral position on emerging markets, where downward rate risk looks limited. Global growth remains strong (4%), synchronized (both emerging and developed countries) and noninflationary. Despite a strong rebound in commodities (oil, base metals), end prices for consumer goods still show no strong trends. Financial markets Currencies We maintain our long dollar positions against the euro and Swiss franc. Commodities Our over-exposure focused on gold through the end of October, but we also recently decided to neutralize our short positions on oil, in light of the risk of a rising geo-political premium due to tensions between Saudi Arabia and Iran. Markets continue to embrace risky assets that march on with their upward trend in a historically low volatility environment.

6 FIXED INCOME Fixed income investment division ECB extends QE until September 2018 with no changes in the breakdown of asset purchases. The nomination of Jerome Powell as next Fed chair ensures policy continuity. Spread products keep outperforming. Market analyses & outlook Mario Draghi announced an extension of QE until September 2018 with monthly purchases of 30bn. The breakdown of asset purchases has not changed. The public sector purchase program (PSPP) will still be the main policy instrument followed by operations in corporate credit and covered bond markets. The cutback in bond purchases should reduce the tendency to deviate from the capital key allocation rule. Bunds have welcomed the ECB decision and trade about 0.35%, and richness in Bund yields persists mainly reflecting scarcity issues. Peripheral spreads have narrowed considerably. The new electoral law in Italy and stabilization in the Catalonia situation have amplified the rally triggered by the ECB s moves to extend QE. Italy s BTPs trade at 140bps spreads, the narrowest in a year. Portugal continues to rally before a possible rating upgrade from Fitch next month. In the United States, Jerome Powell will be the next Fed Chair when Janet Yellen s term expires in February and this nomination ensures a smooth transition in US monetary policy. The Fed s balance sheet will contract at a predictable pace as announced by Janet Yellen in June. So the Treasury yield curve should flatten further. Ten-year yields hover about 2.35%. Spreads have narrowed on credit markets. ECB support will continue through the first 9 months of Spread compression is also visible in the high yield space where low default rates and robust economic growth attract institutional demand. Emerging markets keep benefitting from reduced borrowing needs and the quest for yield. Our positions MEDIUM AND LONG TERM INTEREST RATES The 10Y German yield remains in its range: 0.15%-0.55%, in place for a year, and more recently 0.30%-0.55%. We therefore remain tactical in terms of duration inside this range. From a country standpoint, we took some overexposure on Italian debt following the news on the Italian vote, and took profits on our overexposure on Spanish debt. In terms of diversification, we remain invested in credit (IG and HY) and convertible bonds but no covered bonds. MONEY MARKET RATES During its October 26 meeting, the ECB left its key rates unchanged again: Main Financing Operations rate at 0.00%, Facility Deposit Rate at -0.40% and Marginal Facility Lending Rate at 0.25%. But the ECB adjusted its non-conventional policy of securities purchases on the market (QE), reviewing both the pace and timeframe: from the beginning of 2018, monthly purchases will be cut to 30bn vs. 60bn previously and extended for an additional period of 9 months, pushing back the end of QE from end-2017 to end-september, The ECB however specified that this program of securities purchases could be either increased or extended if the economic and financial conditions require. Meanwhile, fixed-rate 3-month MRO and LTRO operations with "full allotment" are maintained until the end of ECB monetary policy has admittedly been reviewed, but remains accommodative. Against this backdrop, the monthly average for EONIA stood at % in October (-0.358% in September) with the 3-month Euribor at -0.33% (-0.329% in September). Our fixed rate allocation target for "tactical" funds still comes to [60%;80%]. Portfolio diversification in corporates securities remains a key theme.

7 Sovereign portfolio OVERVIEW 10/ /2017 Duration - Euro: - Neutral - Euro: - Neutral Yield curve - steepening - steepening Indexed bonds - Real euro interest rates: neutral - Real euro interest rates: neutral No specific curve positioning in Spain and flattening in Italy. Country selection core Neutral Neutral semi-core Underweight Underweight peripherals Neutral Neutral CREDIT Primary market activity on European investment grade credit was lower than expected. A number of issuers seem to have already met their financing needs for the year, with 65bn worth of new bonds issued in October, including 30bn for financials and 35bn for non-financials. The downsizing of the ECB s purchase program from 60bn to 30bn per month was offset by its extension to September 2018, as can be seen from subsequent credit spread moves in the European market. As a result, the Barclays Euro Aggregate Corporate Index posted a +1.11% return on the month thanks to an -11bps tightening of credit spreads and an -8bps tightening of sovereign rates. Worth highlighting is the continued outperformance of the subordinated insurance segment with a +2.55% return, posting the best monthly performance. View 10/ 2017* 12/ 2017* Two month credit view Sector view (IG) 10/ 2017* 12/ 2017* Covered** = + Cyclicals = = ABS =/+ =/+ Defensives = = Corporate High Yield Corporate Investment Grade = =/+ Financials = = = = Banking (Subordinated) - = Banking (Senior) = = Convertible + + Insurance = = Applicable until ** One month view Convertibles: convertible bonds remain on a very sound trend like the equity markets. We confirm our positive view on the economic environment out to the end of the year and keep the positive range to 5-15 for the medium term. High Yield: market fundamentals remain supportive for our market (stable leverage, low default rate). Valuations continue to be an issue as the market tends to be expensive in absolute terms. Spread levels are sustainable if the ECB maintains its APP. The central bank has reassured that it will merely slow the pace of its program. Primary market should continue to be active until the end of the year. We stay neutral to positive.

8 GLOBAL EMERGING TAUX EMERGENTS Healthy consolidation after ten months of strong performance Market analyses & Outlook The EM story has been quite stable over the month of October, with valuations mainly supported by the resilience of China and continued rising oil price trends despite upward pressure on US yields. IMF meetings in Washington highlighted ongoing strong interest on EM from investors, although the emergence of various risks continues to encourage further investor discernment within the EM sovereign asset class (Venezuela, Lebanon, etc.). Positive progress on the US budget pushed up US rates, with the 10y breaking the 2.40 level for the first time since May. In the meantime, the USD strengthened by 1.40% over the month pushing the EMFX to continue its consolidation. Thus the TRY, ZAR and MXN also continued to suffer the most with a return of -11;32%, -9.93% and -6.58% respectively since the beginning of September. Over the same period, local debt consolidated as well while still posting a very strong YTD performance at 10.91%. In the meantime, external debt was quite resilient posting a performance of +0.37% over the month of October and spreads narrowing by 3bps. Main downside risks remain on the US tax program, NAFTA for Mexico, geopolitics (US tensions with North Korea, Russia and Turkey), recent worrying developments in GCC (Lebanon, Saudi Arabia, etc.) and a heavy electoral agenda for the coming year. On the other hand, global macro continues to display positive trends and flows to the asset class remain strong, albeit at a slower pace, reaching a total of $97.2bn YTD, of which $63.7bn on hard currency supported by continued attractive EM yields vs DM. Our positions CORE SCENARIO Unchanged: EM and DM macro still on positive trends. Inflation is contained virtually everywhere, G3 central banks are in no hurry to hike rates. Healthy consolidation of the EM market after more than ten months of strong performance should provide good buying opportunities. EM flows Source: JP Morgan as at November 2017, 10 Main related risks Discernment needed more than ever given the emergence of specific risks and in light of valuations. US fiscal policy and rate hike to remain main downside risks to the EM rally.

9 EUROPEAN EQUITIES European equities investment division We downgrade our opinion on European equities to neutral in the absence of positive drivers. The European equity market could consolidate following the recent rally. Market analyses & outlook MSCI Europe Small Caps DNR / MSCI Europe DNR EURO STOXX 50 / S & P 500 implied volatility Our positions Source: Bloomberg Source: Bloomberg CORE SCENARIO Despite positive economic growth trends, we are adopting a more cautious stance on European equities after the recent market rally. We go neutral in view of weaker momentum on earnings expectations, persistent geopolitical threats as well as uncertainties in terms of monetary policies. In this context we maintain our sector allocation unchanged. We remain positive on materials, particularly chemicals, as well as on financials (banks and insurance), energy and telecommunications. We remain neutral on discretionary consumption (with a positive slant on automotive), information & technology, healthcare, utilities and industrials. We remain negative on consumer staples. We are negative on domestic UK companies in a hard Brexit scenario and prefer the Eurozone. We maintain a positive stance on European small capitalizations relative to large capitalizations. Main related risks US dollar exchange rate trends Economic situation in the US postelection. Tax cuts? Political uncertainties in Europe Geopolitical uncertainties/terrorist risk Monetary policy trends Financial stability and rising leverage in China Oil price trends

10 NATIXIS ASSET MANAGEMENT In brief Natixis Asset Management ranks among the leading European asset managers 1 with billion in assets under management and 700 employees 2. Natixis Asset Management offers its clients (institutional investors, companies, private banks, retail banks and other distribution networks) tailored, innovative and efficient solutions organized into five investment divisions: Fixed income, European equities, Investment and client solutions, Volatility and structured developed by Seeyond, Emerging equities developed by Emerise. Natixis Asset Management s offer is distributed through the global distribution platform of Natixis Global Asset Management and Groupe BPCE s two retail networks, Banque Populaire and Caisse d Epargne. > Further information: > Follow Natixis Asset Management on 1 Source: IPE Top 400 Asset Managers 2016 ranked Natixis Asset Management as the 49th largest asset manager based on global assets under management and by the country of the main headquarters and/or main European domicile, as of 31 December Source: Natixis Asset Management 06/30/2017. Seeyond is a brand of Natixis Asset Management. Emerise is a brand of Natixis Asset Management and Natixis Asset Management Asia Limited.

11 CONTRIBUTORS Philippe Berthelot Head of Credit Fixed income investment division Axel Botte Fixed income strategist Fixed income investment division Emmanuel Bourdeix co-cio of Natixis AM - Head of volatility and structured investment division (Seeyond) Olivier de Larouziere Head of Fixed income Fixed income investment division Laurence Fretille Product specialist European equities investment division Raphaël Gallardo Strategist Investment and client solutions investment division Ibrahima Kobar co-cio of Natixis AM Head of Fixed income investment division Brigitte le Bris Head of International fixed income and currencies Fixed income investment division Yves Maillot Head of European equities - European equities investment division Franck Nicolas Head of Investment and client solutions Investment and client solutions investment division Alain Richier Head of Money markets Fixed income investment division Philippe Waechter Chief economist - Economic research Coordination: Investment and Client Solutions investment division of Natixis Asset Management Natixis Asset Management s Communications Department Source: Strategic Investment Committee Natixis Asset Management Limited liability company - Share capital 50,434, Regulated by AMF under no. GP RCS Paris n Registered Office: 21 quai d Austerlitz Paris Cedex 13 - Tel This document is intended for professional clients only. It may not be used for any purpose other than that for which it was intended and may not be reproduced, disseminated or disclosed to third parties, whether in part or in whole, without prior written consent from Natixis Asset Management. No information contained in this document may be interpreted as being contractual in any way. This document has been produced purely for informational purposes. It consists of a presentation created and prepared by Natixis Asset Management based on sources it considers to be reliable. Natixis Asset Management reserves the right to modify the information presented in this document at any time without notice, and in particular anything relating to the description of the investment process, which under no circumstances constitutes a commitment from Natixis Asset Management. Natixis Asset Management will not be held liable for any decision taken or not taken on the basis of the information in this document, nor for any use that a third party might make of the information. Figures mentioned refer to previous years. Past performance does not guarantee future results. The analyses and opinions referenced herein represent the subjective views of the author(s) as referenced, are as of the date shown and are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material. In the EU (ex UK): This material is provided by NGAM S.A. or one of its branch offices listed below. NGAM S.A. is a Luxembourg management company that is authorized by the Commission de Surveillance du Secteur Financier and is incorporated under Luxembourg laws and registered under n. B Registered office of NGAM S.A.: 2, rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. France: NGAM Distribution (n RCS Paris). Registered office: 21 quai d'austerlitz, Paris. Italy: NGAM S.A., Succursale Italiana (Bank of Italy Register of Italian Asset Management Companies no ). Registered office: Via Larga, , Milan, Italy. Germany: NGAM S.A., Zweigniederlassung Deutschland (Registration number: HRB 88541). Registered office: Im Trutz Frankfurt 55, Westend Carrée, 7. Floor, Frankfurt am Main 60322, Germany. Netherlands: NGAM, Nederlands filiaal (Registration number ). Registered office: World Trade Center Amsterdam, Strawinskylaan 1259, D-Tower, Floor 12, 1077 XX Amsterdam, the Netherlands. Sweden: NGAM, Nordics Filial (Registration number Swedish Companies Registration Office). Registered office: Kungsgatan 48 5tr, Stockholm , Sweden. Spain: NGAM, Sucursal en España. Registered office: Torre Colon II - Plaza Colon, Madrid, Spain. In Switzerland: Provided by NGAM, Switzerland Sàrl, Rue du Vieux Collège 10, 1204 Geneva, Switzerland or its representative office in Zurich, Schweizergasse 6, 8001 Zürich.

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