Investment Manager Update from Wilshire Associates Active Diversified Portfolios

Transcription

1 Investment Manager Update from Wilshire Associates Active Diversified Portfolios As of March 31, 2018 Wilshire Associates ("Wilshire") is the investment manager for Active Diversified Portfolios. Wilshire is responsible for all strategy and investment decisions for the Portfolios. Wilshire is not affiliated with Ameriprise Financial. See fact sheet for additional details about the portfolio. Executive Summary The first quarter of 2018 marks only the second negative quarter in nearly six years. Market volatility returned after a tranquil Most of the major sectors were down during the quarter with information technology and consumer discretionary still leading the pack. Equity markets outside of the U.S. produced mixed results, with emerging markets posting positive returns while developed markets were in negative territory. The U.S. Treasury yield curve rose in a parallel fashion during the quarter, with most maturities up approximately 35 basis points. The Federal Open Market Committee (FOMC) decided to increase its target overnight rate by 25 basis points in March to a range of 1.50% to 1.75%. While the Committee s forecast for year-end rates was unchanged, the members increased their expectations for next year, suggesting a quickened pace in Credit spreads widened during the quarter, most noticeably with investment grade credit. In the first quarter, all 28 of the 28 Active Diversified Portfolios posted negative absolute returns. Portfolios with higher equity allocations performed better than less equity allocated portfolios as both U.S. and emerging market equities outpaced fixed income. This quarter, Blended Benchmark-relative performance was mostly positive with 24 out of 28 Active Diversified Portfolios outperforming their respective Blended Benchmarks gross of fees, but underperforming, net of fees, in all 28 portfolios. All 12 of the Portfolios (collectively the Funds ) outperformed their respective Blended Benchmarks net of fees. All 12 Portfolios (collectively the Alternatives ) also outperformed their respective Blended Benchmarks net of fees. All 4 Active Diversified Yield Portfolios (collectively the Yield ) underperformed their respective Blended Benchmarks net and gross of fees. Strong manager selection and asset allocation were contributors to performance. Remaining neutral to equities relative to fixed income hurt performance as equities outpaced bonds this quarter. Moving from neutral to an underweight position in growth equities relative to value also hindered relative performance. Exposure to small cap equities added value this quarter as they outpaced large-cap and mid-cap equities. An overweight to emerging markets equities relative to developed international equities also benefitted performance this quarter. Removing the overweight to alternatives relative to equities also helped this quarter. Within fixed income, exposure to core bonds slightly detracted, but exposure to high yield bonds added value. Exposure to municipal bonds also aided performance within the tax-sensitive portfolios as municipal bonds outpaced their taxable counterparts. As the investment manager, Wilshire Associates made the following underlying fund changes in the first quarter to align with its outlook and potentially enhance performance. Material changes included: Added ishares Core MSCI Emerging Markets ETF (IEMG) across Funds and Alternatives portfolios Added J.P. Morgan Tax Aware Equity (JPDEX) across Funds and Alternatives portfolios

2 Added ishares Core S&P Mid-Cap ETF (IJH) across Funds and Alternatives portfolios Removed Multi-Manager Directional Alternatives Strategies (CDAZX) across Funds portfolios Market Environment The U.S. stock market, represented by the Russell 3000 Index, was down -0.64% for the first quarter of This marks only the second negative quarter in nearly six years. Market volatility returned after a tranquil While the market never experienced a daily loss of 2% or more last year, there were five such down days during the first quarter of 2018, including a 4% loss in early February. The FOMC decided to increase its target overnight rate by 25 basis points in March to a range of 1.50% to 1.75%. Large capitalization stocks performed in-line with small caps, as the Russell 1000 Index fell -0.69% versus a loss of -0.08% for the Russell 2000 Index. The large-cap segment of the market has outpaced small caps over the past twelve months. The Russell Midcap Index was down -0.46% for the quarter, but up 12.20% for the trailing year. Growth stocks led value during the first quarter in both the large- and small-cap spaces. Most of the eleven major sectors were down during the quarter. The best performing sectors were information technology and consumer discretionary, while telecoms and consumer staples were the main detractors. Equity markets outside of the U.S. produced mixed results during the first quarter of 2018, with emerging markets, as measured by the MSCI Emerging Market Index, posting positive returns, while developed markets, as measured by the MSCI EAFE Index, were in negative territory. Emerging markets continue to lead all global equities and produced the only positive return for the quarter among the major equity segments. The U.S. dollar continued to weaken, providing a return boost for U.S. investors holding foreign currencies. Concerns about global trade conflicts dominated headlines during the quarter; however, it is yet to be seen whether the future holds a series of escalating tariffs or trade deals like the one announced between the U.S. and South Korea. Both the U.S. and China have imposed tariffs on each other, but there are reports of negotiations between the two major trading partners. Real estate securities were down in the U.S. during the first quarter, although March brought a strong rebound from previous losses. Commodity performance was mixed for the quarter. Master Limited Partnership (MLP) returns were negative for the quarter and for the past twelve months. Finally, gold prices were up and finished at approximately $1,327 per troy ounce, up 1.4% from last quarter. The U.S. Treasury yield curve rose in a parallel fashion during the quarter, with most maturities up approximately 35 basis points. The bellwether 10-year Treasury yield ended the quarter at 2.74%, up 34 basis points from year-end The FOMC decided to increase its target overnight rate by 25 basis points in March to a range of 1.50% to 1.75%. While the Committee s forecast for year-end rates was unchanged, the members increased their expectations for next year, suggesting a quickened pace in Credit spreads widened during the quarter, most noticeably with investment grade credit. High yield spreads (represented by the Bloomberg Barclays U.S. Corporate High Yield Bond Index), which have averaged 6% during the past decade, were still relatively low at 3.5% at quarter-end. Performance Review Absolute Performance Summary: In terms of absolute performance, the Active Diversified Funds Portfolios ranged from -1.51% net of fees and -1.02% gross of fees (Conservative Tax Neutral) to -0.87% net of fees and -0.37% gross of fees (Aggressive Tax Sensitive). Absolute performance within the Portfolios ranged from -1.57% net of fees and -1.08% gross of fees (Conservative Tax Neutral) to -0.85% net of fees and -0.35% gross of fees (All Equity Tax Sensitive). Absolute performance within the Active Diversified Yield Portfolios ranged from -2.69% net of fees and -2.20% gross of fees (Yield Enhanced) to % net of fees and -1.44% gross of fees (Moderate Conservative). For the quarter, the Active Diversified Funds Portfolios mostly outperformed their Active Diversified Alternatives Portfolios counterparts, both net and gross of max wrap fees. The Active Diversified Yield Portfolios underperformed both the Funds and Alternatives counterparts this quarter, both net and 2018 Ameriprise Financial, Inc. All rights reserved. 2

3 gross of max wrap fees. Alternatives added value in the more conservative portfolios while hindering the more aggressive portfolios. The Wilshire Liquid Alternatives Index was down -0.99% for the quarter, outpacing the Bloomberg Barclays U.S. Universal Bond Index by 42 basis points, but trailing the Russell 3000 Index by -35 basis points. Blended Benchmark-Relative Performance Summary: Relative performance was positively affected by strong manager selection and asset allocation this quarter. A recent removal of the overweight to domestic large-cap equities relative to small-cap equities added value. Exposure to growth-oriented equities aided performance with additional gains stemming from exposure to domestic small-cap equities. An overweight in emerging market equities relative to developed international markets also aided relative returns. Relative performance was also aided by the underweight to global REITs relative to global equities. Relative Performance Contributors: Within U.S. equities, exposure to large cap growthoriented equities helped this quarter. The Russell 1000 Growth Index significantly outpaced the Russell 1000 Value Index and the Russell 3000 Index by 4.25% and 2.06%, respectively. Exposure to domestic small cap equities also contributed to relative outperformance. The Russell 2000 Index outpaced the Russell 1000 Index and the Russell 3000 Index by 0.61% and 0.56%, respectively. Exposure to emerging markets equities helped this quarter. The MSCI Emerging Markets Index outpaced the MSCI EAFE Index and the MSCI ACWI Ex USA Index by 2.95% and 2.60%, respectively. Within fixed income, exposure to high yield bonds and bank loans, also known as leveraged loans, benefitted performance. The Bloomberg Barclays U.S. Corporate High Yield Bond Index and the Credit Suisse Leveraged Loan Index outpaced the Bloomberg Barclays U.S. Universal Bond Index by 0.55% and 2.99%, respectively. Within the tax-sensitive portfolios, exposure to municipal bonds also added value with the Bloomberg Barclays 1-15 Year Municipal Index outpacing the Bloomberg Barclays U.S. Universal Bond Index by 0.50%. Exposure to alternatives helped performance in the more conservative portfolios. The Wilshire Liquid Alternatives Index outpaced the Bloomberg Barclays U.S. Universal Bond Index by 0.42%. Relative Performance Detractors: From an asset allocation perspective, exposure to domestic large-cap value equities negatively affected performance. The Russell 1000 Value Index trailed both the Russell 1000 Growth Index and the Russell 3000 Index by -4.25% and -2.19%, respectively. Exposure to mid-cap value-oriented equities also weighed on relative performance. The Russell Midcap Value Index trailed the Russell Midcap Growth Index and the Russell 3000 Index by -4.67% and -1.86%, respectively. A large overweight to international markets relative to domestic markets also detracted. The MSCI ACWI Ex USA Index trailed the Russell 3000 Index by -0.54%, respectively. Exposure to international value equities also weighed on returns. The MSCI EAFE Value Index trailed both the MSCI EAFE Growth Index and the MSCI ACWI ex USA Index by -0.99% and -0.85%, respectively. Within fixed income, exposure to core bonds slightly detracted this quarter with the Bloomberg Barclays U.S. Aggregate Bond Index trailing the Bloomberg Barclays U.S. Universal Bond Index by -0.05%. Exposure to alternatives within the more aggressive portfolios detracted. The Wilshire Liquid Alternatives Index trailed the Russell 3000 Index by -0.35%. Performance Impact from Prior Quarter s Reallocation (mid-february 2018): Last quarter, Wilshire removed the overweight to alternatives relative to equities. This change helped performance during the first quarter as alternatives lagged equities. The increase in allocations to emerging market equities also helped as they outpaced both developed international and domestic equities. Wilshire implemented an overweight to domestic value-oriented equities relative to their growth counterparts. This change hurt this quarter as growth-oriented equities continued to outperform. Summary of Portfolio Changes Wilshire made several changes in an attempt to further improve the prospects of the portfolios. Since 2018 Ameriprise Financial, Inc. All rights reserved. 3

4 the last Ameriprise Active Diversified Portfolios (ADP) rebalance, the views of the Wilshire Funds Management Investment Strategy Committee ( ISC ) remained unchanged across most asset classes, sectors, and geographies. The ISC changed two of its views affecting the Active Diversified Portfolios models. Wilshire removed the overweight in directional alternatives relative to global equities and redeployed the capital to equities. This resulted in a small increase in equity beta, as Wilshire seeks to implement this shift through an allocation to long-short equity strategies. Wilshire also implemented an overweight to domestic value-oriented equities relative to growth equities. Wilshire believes that the recent tax-reform and performance mean-reversion will benefit domestic value-oriented equities. Wilshire also increased the exposure to emerging markets equities this quarter, as the valuations for emerging markets equities remain compelling. Additionally, Wilshire introduced J.P. Morgan Tax Aware Equity Fund (JPDEX) and ishares Core S&P Mid-Cap ETF (IJH) in the taxsensitive portfolios in an attempt to increase the taxefficiency. Outlook Global equity markets and risky assets alike surged higher in 2017 as earnings recovered, realized and implied market volatility tumbled to near-historic lows, and momentum and positive sentiment continue to propel valuations higher. In Wilshire s view, markets are very enthusiastic about the new U.S. administration s execution on tax reform, which may help extend the rally in risk assets even further, provided that monetary conditions do not tighten too quickly. Wilshire s macro outlook includes the following opinions: 1. From an interest rate risk perspective, Wilshire maintains a slightly shorter duration relative to each portfolio s Blended Benchmark, while the Blended Benchmarks durations have been gradually rising. Wilshire has continued to reiterate its belief that rates will remain low and interest rate sensitivity may provide a diversification benefit in the event that the economy and inflation continue to grow at a moderate pace. 2. Wilshire has removed the tilt toward large-cap relative to small-cap equities. Wilshire believes there is no longer a valuation case for being overweight domestic large-cap equities and finds that small-cap exposure provides a diversification benefit to its portfolios, particularly given the large overweight to international equities, as domestic large-caps may be more correlated to foreign economic growth, given their significant exposure to overseas earnings. 3. Wilshire moved from a neutral style view to a value bias, as Wilshire observes that prices of growth stocks imply a high level of optimism. After the extreme outperformance of growth versus value in 2017, Wilshire is positioning for performance mean-reversion in favor of value equities. It also believes that the recent tax reform will be favorable to value equities, and will serve as a near-term catalyst for a cyclical rally. 4. Wilshire observes an economic momentum in foreign economies relative to the U.S., and foreign equities remain more attractive on a valuation basis. Furthermore, Wilshire finds the U.S. dollar to be overvalued against major developed market currencies, which may lead to a performance tailwind for foreign equity allocations if there is further weakness in the U.S. dollar. As a result, Wilshire believes that maintaining a large overweight posture in foreign equities versus U.S. equities will provide the best opportunity to outperform. 5. Given ultra-low foreign developed market bond yields, Wilshire favors domestic fixed income over global fixed income; however, it recognizes that any weakness in the dollar would serve to benefit foreign bonds Ameriprise Financial, Inc. All rights reserved. 4

5 Portfolios Composite Performance (as of March 31, 2018) Conservative Moderate Conservative Moderate Moderate Aggressive Aggressive All Equity One Month Prior Qtr. 3/31/18 YTD 2018 One Year Three Year Five Year Ten Year Since Inception Net -0.03% -1.51% -1.51% 1.97% 0.46% 1.18% 2.05% 1.74% Gross 0.14% -1.02% -1.02% 4.05% 2.52% 3.26% 4.01% 3.66% Blended Benchmark 0.01% -1.20% -1.20% 4.05% 3.26% 4.00% 4.91% 4.73% Net -0.29% -1.37% -1.37% 3.69% 1.76% 2.76% 2.84% 2.39% Gross -0.12% -0.88% -0.88% 5.79% 3.84% 4.87% 4.82% 4.32% Blended Benchmark -0.36% -1.09% -1.09% 5.98% 4.41% 5.35% 5.56% 5.19% Net -0.65% -1.16% -1.16% 6.19% 3.21% 4.46% 3.77% 3.18% Gross -0.48% -0.66% -0.66% 8.35% 5.29% 6.57% 5.76% 5.13% Blended Benchmark -0.80% -0.97% -0.97% 8.29% 5.78% 7.02% 6.33% 5.72% Net -0.98% -1.13% -1.13% 8.17% 4.25% 5.78% 4.32% 3.63% Gross -0.81% -0.63% -0.63% 10.36% 6.39% 7.95% 6.33% 5.59% Blended Benchmark -1.19% -0.88% -0.88% 10.38% 6.98% 8.46% 6.92% 6.10% Net -1.36% -0.96% -0.96% 10.14% 5.25% 7.05% 4.78% 3.96% Gross -1.19% -0.46% -0.46% 12.37% 7.40% 9.23% 6.79% 5.92% Blended Benchmark -1.59% -0.80% -0.80% 12.50% 8.15% 9.90% 7.44% 6.40% Net -1.53% -0.88% -0.88% 11.74% 6.17% 8.13% 4.78% 3.69% Gross -1.36% -0.38% -0.38% 13.99% 8.34% 10.33% 6.79% 5.64% Blended Benchmark -1.90% -0.75% -0.75% 14.25% 9.05% 10.99% 7.75% 6.56% The portfolio inception date is 1/1/08 Tax - Sensitive Portfolios Composite Performance (as of March 31, 2018) Conservative - Tax Sensitive Moderate Conservative - Tax Sensitive Moderate - Tax Sensitive Moderate Aggressive - Tax Sensitive Aggressive - Tax Sensitive All Equity - Tax Sensitive One Month Prior Qtr. 3/31/18 YTD 2018 One Year Three Year Five Year Ten Year Since Inception Net -0.22% -1.17% -1.17% 2.72% 0.77% 1.48% 2.58% 2.29% Gross -0.05% -0.68% -0.68% 4.81% 2.83% 3.56% 4.55% 4.22% Blended Benchmark -0.14% -0.95% -0.95% 4.21% 3.30% 4.01% 4.83% 4.60% Net -0.45% -0.99% -0.99% 4.61% 2.11% 3.09% 3.32% 2.87% Gross -0.28% -0.50% -0.50% 6.74% 4.21% 5.20% 5.31% 4.80% Blended Benchmark -0.48% -0.88% -0.88% 6.10% 4.43% 5.36% 5.50% 5.09% Net -0.88% -0.94% -0.94% 6.78% 3.34% 4.55% 4.03% 3.45% Gross -0.71% -0.45% -0.45% 8.95% 5.46% 6.69% 6.03% 5.40% Blended Benchmark -0.90% -0.80% -0.80% 8.42% 5.81% 7.03% 6.29% 5.65% Net -1.15% -0.89% -0.89% 8.64% 4.46% 5.94% 4.54% 3.86% Gross -0.98% -0.39% -0.39% 10.84% 6.60% 8.10% 6.54% 5.81% Blended Benchmark -1.25% -0.77% -0.77% 10.46% 7.00% 8.48% 6.89% 6.06% Net -1.54% -0.87% -0.87% 10.43% 5.43% 7.20% 4.93% 4.06% Gross -1.37% -0.37% -0.37% 12.67% 7.59% 9.39% 6.94% 6.02% Blended Benchmark -1.62% -0.75% -0.75% 12.53% 8.16% 9.90% 7.43% 6.39% Net -1.74% -0.89% -0.89% 11.83% 6.15% 8.15% 4.83% 3.75% Gross -1.57% -0.39% -0.39% 14.09% 8.32% 10.36% 6.85% 5.71% Blended Benchmark -1.90% -0.75% -0.75% 14.25% 9.05% 10.99% 7.75% 6.56% The portfolio inception date is 1/1/08. Past performance does not guarantee future returns, and processes used may not achieve the desired results Ameriprise Financial, Inc. All rights reserved. 5

6 Portfolios Composite Performance (as of March 31, 2018) Conservative 1 Moderate Conservative Moderate Moderate Aggressive Aggressive 1 All Equity The portfolio inception date is 7/1/09. One Month Prior Qtr. 3/31/18 YTD 2018 One Year Three Year Five Year Ten Year Since Inception Net -0.13% -1.57% -1.57% 1.58% 0.00% 0.83% N/A 2.94% Gross 0.04% -1.08% -1.08% 3.65% 2.05% 2.90% N/A 4.95% Blended Benchmark -0.01% -1.19% -1.19% 3.57% 2.67% 3.38% N/A 5.22% Net -0.40% -1.36% -1.36% 3.25% 1.25% 2.20% N/A 4.20% Gross -0.23% -0.87% -0.87% 5.34% 3.33% 4.30% N/A 6.23% Blended Benchmark -0.38% -1.08% -1.08% 5.39% 3.67% 4.58% N/A 6.47% Net -0.70% -1.21% -1.21% 5.51% 2.24% 3.49% N/A 5.45% Gross -0.53% -0.72% -0.72% 7.65% 4.33% 5.61% N/A 7.51% Blended Benchmark -0.81% -0.96% -0.96% 7.58% 4.94% 6.12% N/A 8.03% Net -1.05% -1.11% -1.11% 7.59% 3.49% 4.94% N/A 6.71% Gross -0.88% -0.61% -0.61% 9.77% 5.61% 7.09% N/A 8.78% Blended Benchmark -1.21% -0.87% -0.87% 9.77% 6.24% 7.69% N/A 9.64% Net -1.34% -0.99% -0.99% 9.34% 4.44% 6.24% N/A 8.19% Gross -1.17% -0.50% -0.50% 11.55% 6.58% 8.41% N/A 10.30% Blended Benchmark -1.55% -0.80% -0.80% 11.73% 7.38% 9.05% N/A 11.03% Net -1.44% -0.91% -0.91% 10.37% 5.05% 6.99% N/A 8.90% Gross -1.27% -0.42% -0.42% 12.60% 7.19% 9.18% N/A 11.01% Blended Benchmark -1.72% -0.78% -0.78% 12.76% 8.00% 9.79% N/A 11.79% Tax - Sensitive Portfolios Composite Performance (as of March 31, 2018) Conservative - Tax Sensitive Moderate Conservative - Tax Sensitive Moderate - Tax Sensitive Moderate Aggressive - Tax Sensitive Aggressive - Tax Sensitive All Equity - Tax Sensitive The portfolio inception date is 7/1/09. One Month Prior Qtr. 3/31/18 YTD 2018 One Year Three Year Five Year Ten Year Past performance does not guarantee future returns, and processes used may not achieve the desired results. Since Inception Net -0.26% -1.26% -1.26% 2.30% 0.35% 1.12% N/A 3.26% Gross -0.09% -0.77% -0.77% 4.38% 2.41% 3.19% N/A 5.28% Blended Benchmark -0.15% -0.94% -0.94% 3.71% 2.70% 3.38% N/A 5.01% Net -0.45% -1.14% -1.14% 3.76% 1.50% 2.45% N/A 4.42% Gross -0.28% -0.64% -0.64% 5.87% 3.58% 4.55% N/A 6.46% Blended Benchmark -0.50% -0.86% -0.86% 5.52% 3.72% 4.60% N/A 6.28% Net -0.84% -0.96% -0.96% 6.08% 2.53% 3.71% N/A 5.62% Gross -0.67% -0.46% -0.46% 8.23% 4.63% 5.84% N/A 7.68% Blended Benchmark -0.91% -0.80% -0.80% 7.71% 4.97% 6.13% N/A 7.89% Net -1.21% -0.98% -0.98% 7.95% 3.68% 5.02% N/A 6.77% Gross -1.04% -0.49% -0.49% 10.14% 5.80% 7.17% N/A 8.85% Blended Benchmark -1.26% -0.78% -0.78% 9.83% 6.26% 7.70% N/A 9.57% Net -1.47% -0.93% -0.93% 9.55% 4.57% 6.32% N/A 8.12% Gross -1.30% -0.43% -0.43% 11.76% 6.70% 8.50% N/A 10.22% Blended Benchmark -1.57% -0.78% -0.78% 11.73% 7.38% 9.05% N/A 11.00% Net -1.57% -0.85% -0.85% 10.56% 5.12% 7.03% N/A 8.89% Gross -1.40% -0.35% -0.35% 12.80% 7.27% 9.22% N/A 11.00% Blended Benchmark -1.72% -0.78% -0.78% 12.76% 8.00% 9.79% N/A 11.79% 2018 Ameriprise Financial, Inc. All rights reserved. 6

7 Active Diversified Yield Portfolios Composite Performance (as of March 31, 2018) Active Diversified Yield Moderate Conservative Active Diversified Yield Moderate Active Diversified Yield Enahnced Moderate Active Diversified Yield Moderate Aggressive One Month Prior Qtr. 3/31/18 YTD 2018 One Year Three Year Five Year Ten Year Since Inception Net -0.26% -1.94% -1.94% 3.21% 1.54% 2.32% N/A 3.93% Gross -0.09% -1.44% -1.44% 5.31% 3.62% 4.41% N/A 6.02% Blended Benchmark -0.36% -1.09% -1.09% 5.98% 4.41% 5.35% N/A 6.41% Net -0.57% -2.17% -2.17% 4.49% 2.59% 3.40% N/A 5.19% Gross -0.40% -1.68% -1.68% 6.61% 4.69% 5.52% N/A 7.31% Blended Benchmark -0.80% -0.97% -0.97% 8.29% 5.78% 7.02% N/A 8.11% Net -0.25% -2.69% -2.69% 1.78% 1.87% 2.30% N/A 4.25% Gross -0.08% -2.20% -2.20% 3.85% 3.96% 4.40% N/A 6.35% Blended Benchmark -0.30% -1.41% -1.41% 5.18% 5.16% 6.36% N/A 8.00% Net -0.77% -2.11% -2.11% 5.76% 3.67% 4.60% N/A 6.52% Gross -0.60% -1.61% -1.61% 7.91% 5.79% 6.74% N/A 8.66% Blended Benchmark -1.19% -0.88% -0.88% 10.38% 6.98% 8.46% N/A 9.56% The portfolio inception date is 8/1/10. Past performance does not guarantee future returns, and processes used may not achieve the desired results Ameriprise Financial, Inc. All rights reserved. 7

8 Disclosures Wilshire Associates ("Wilshire") is the investment manager for Active Diversified Portfolios. Wilshire is responsible for all strategy and investment decisions for the Portfolios. Wilshire Funds Management, a business unit of Wilshire Associates Incorporated, uses mathematical, statistical and qualitative investment processes to allocate assets, select managers and construct portfolios and funds in ways that seek to outperform their specific benchmarks. Wilshire is not affiliated with Ameriprise Financial. Wilshire is a registered service mark of Wilshire Associates Incorporated, Santa Monica, California. All other trade names, trademarks, and/or service marks are the property of their respective holders. Wilshire makes no warranties, expressed or implied, as to results to be obtained from use of information provided by Wilshire and used in this service. This material may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. Third-party information contained herein has been obtained from sources believed to be reliable. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Any opinions expressed in this material are current only as of the time made and are subject to change without notice. Wilshire assumes no duty to update any such statements. The financial advisor is responsible for client suitability. This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Absolute return is the return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation, expressed as a percentage, that an asset, such as a stock or a mutual fund, achieves over a given period of time. Relative return is the return an asset achieves over a period of time compared to a benchmark. The relative return is the difference between the asset's return and the return of the benchmark. Performance Individual account performance may vary and the actual return of a client s account will be reduced by the wrap fee and other expenses that will be incurred by that client. Current performance may be lower or higher than the performance information shown. Depending on the portfolio, the composite performance may be calculated by Ameriprise Financial Services, Inc. or the Investment Manager. Annualized performance is calculated on a trailing basis. In nearly all cases, the composites are created on an asset and time-weighted basis using month-end market values and returns. The portfolio's investment manager was changed to Wilshire in February Past performance shown above through January 2017 reflects the portfolio's prior investment manager, Ameriprise Financial Services, Inc. Portfolios The performance indicated above is comprised of 1) a single account invested in the portfolio model from 1/1/08 to 3/31/09, and 2) all eligible fully discretionary accounts from 4/1/09 to present. All eligible accounts are added to the composite after one full calendar month of performance. Unless otherwise stated, the composite performance presented is shown both gross and net of Max Wrap Fee and includes the reinvestment of dividends where permitted, other distributions and applicable expenses of the underlying mutual funds. Performance reflects Max Wrap Fee of 1.5% prior to 8/1/10 and 2.0% thereafter. Returns are annualized for periods of one year or greater. Portfolios The performance indicated above is comprised of 1) a single account invested in the portfolio model from 7/1/09 to 8/31/09, and 2) all eligible fully discretionary accounts from 9/01/09 to present. All eligible accounts are added to the composite after one full calendar month of performance. Unless otherwise stated, the composite performance presented is shown both gross and net of Max Wrap Fee and includes the reinvestment of dividends where permitted, other distributions and applicable expenses of the underlying mutual funds. Performance reflects Max Wrap Fee of 1.5% prior to 8/1/10 and 2.0% thereafter. Returns are annualized for periods of one year or greater. Active Diversified Yield Portfolios Composite performance as presented is comprised of 1) a single account invested in the portfolio model from 8/1/10 to 12/31/11 and, 2) all eligible fully discretionary accounts from 1/1/12 to present. All eligible accounts are added to the composite after one full calendar month of performance. Unless otherwise stated, the composite performance presented is shown both gross and net of Max Wrap Fee and other distributions and applicable expenses of the underlying mutual funds. The composite performance does not include the reinvestment of dividends, unless otherwise permitted. The Max Wrap Fee is 2.0%. Returns are annualized for periods of one year or greater Ameriprise Financial, Inc. All rights reserved. 8

9 Blended Benchmarks The Blended Benchmark returns presented reflect a weighted combination of multiple indices. For the Active Diversified Portfolios, the Blended Benchmark used is selected by Ameriprise Financial Services, Inc., and corresponds to the asset allocation mix of the portfolios as reflected. The index performance is not illustrative of a specific investment. Indices are unmanaged and not available for direct investment. Indices are presented as total return with dividends reinvested. These indices may not be similar to your portfolio Ameriprise Financial, Inc. All rights reserved. 9

10 Indexes The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass throughs), ABS and CMBS (agency and non-agency). The Bloomberg Barclays U.S. Universal Bond Index represents the union of the US Aggregate Index, US Corporate High Yield Index, Investment Grade 144A Index, Eurodollar Index, US Emerging Markets Index, and the non-erisa eligible portion of the CMBS Index. The index covers USD-denominated, taxable bonds that are rated either investment grade or high-yield. Some US Universal Index constituents may be eligible for one or more of its contributing subcomponents that are not mutually exclusive. These securities are not double-counted in the index. The US Universal index was created on January 1, 1999, with index history backfilled to January 1, The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg Barclays EM country definition, are excluded. The US Corporate High Yield Index is a component of the US Universal and Global High Yield Indices. The index was created in 1986, with history backfilled to July 1, The Bloomberg Barclays 1-15 Year Municipal Index consists of tax-exempt general obligation, revenue and private activity bonds and notes, which are issued by or on behalf of states, territories or possessions of the U.S. and the District of Columbia and their political subdivisions, agencies and instrumentalities with a remaining maturity of more than three years and less than 15 years. The Citigroup Three-Month Treasury Bill Index measures the return equivalents of yield averages. It is not marked to market. The Index is an average of the last three three-month Treasury bill month-end rates. The Credit Suisse Leveraged Loan Index tracks the investable market of the U.S. dollar denominated leveraged loan market. It consists of issues rated 5B or lower, meaning that the highest rated issues included in this index are Moody s/s&p ratings of Baa1/BB+ or Ba1/BBB+. All loans are funded term loans with a tenor of at least one year and are made by issuers domiciled in developed countries. The MSCI ACWI Ex USA Index (net of taxes) (MSCI ACWI Ex USA - net) is a net of taxes index, capturing large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. The index targets coverage of approximately 85% of the global equity opportunity set outside the US. DM countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK. EM countries include: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The MSCI EAFE (Europe, Australasia, Far East) Index is a free float adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom, as of June The MSCI EAFE Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across Developed Markets countries around the world, excluding the US and Canada. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend. With 540 constituents, the index targets 50% coverage of the free float-adjusted market capitalization of the MSCI EAFE Index. The MSCI EAFE Value Index captures large and mid-cap securities exhibiting overall value style characteristics across Developed Markets countries around the world, excluding the US and Canada. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. With 482 constituents, the index targets 50% coverage of the free float-adjusted market capitalization of the MSCI EAFE Index. The MSCI Emerging Markets Index captures large- and mid-cap representation across 24 Emerging Markets (EM) countries. With 843 constituents, the index covers approximately 85% of the free float adjusted market capitalization in each country. The MSCI Emerging Markets Index consists of the following 24 EM country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates, as of December The MSCI U.S. REIT Index measures the performance of the large-, mid- and small-cap segments of US equity REIT securities. The index represents most of the US REIT universe and securities classified in the REIT sector according to the Global Industry Classification Standard (GICS). It is a free float market capitalization weighted index Ameriprise Financial, Inc. All rights reserved. 10

11 The Russell 1000 Index measures the performance of the large-cap segment of the US equity universe representing approximately 92% of the US market. The Russell 1000 is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected. The Russell 1000 includes the largest 1000 securities in the Russell The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. The Russell 1000 Growth is constructed to provide a comprehensive and unbiased barometer of the large-cap growth market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate large-cap growth manager's opportunity set. The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe. The Russell 1000 Value is constructed to provide a comprehensive and unbiased barometer of the large-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate large-cap value manager's opportunity set. The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. The Russell 2000 includes the smallest 2000 securities in the Russell The Russell 3000 Index is composed of 3000 large US companies, as determined by market capitalization. This portfolio of securities represents approximately 98% of the investable US equity market. The Russell 3000 Index is comprised of stocks within the Russell 1000 and the Russell 2000 Indices. The index was developed with a base value of as of 12/31/1986. The Russell Midcap Index measures the performance of the mid-cap segment of the US equity universe. The Russell Midcap Index is constructed to provide a comprehensive and unbiased barometer for the mid-cap segment and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap opportunity set. The Russell Midcap Index is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market and current index membership. The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the US equity universe. The Russell Midcap Growth Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap growth market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate mid-cap growth manager's opportunity set. The Russell Midcap Value Index measures the performance of the mid-cap value segment of the US equity universe. The Russell Midcap Value Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine value probability approximates the aggregate mid-cap value manager's opportunity set. The Wilshire Liquid Alternatives Index measures the collective performance of the five Wilshire Liquid Alternative strategies that make up the Wilshire Liquid Alternative Universe. The Wilshire Liquid Alternatives Index (WLIQA) is designed to provide a broad measure of the liquid alternative market by combining the performance of the Wilshire Liquid Alternative Equity Hedge Index (WLIQAEH), Wilshire Liquid Alternative Global Macro Index (WLIQAGM), Wilshire Liquid Alternative Relative Value Index (WLIQARV), Wilshire Liquid Alternative Multi-Strategy Index (WLIQAMS), and Wilshire Liquid Alternative Event Driven Index (WLIQAED). Portfolio Risks The portfolios are subject to risks associated with the underlying funds including, but not limited to: market risk, credit risk, interest rate risk, foreign/emerging markets risk, sector risk and risks associated with alternative investments. See the fund prospectus for a definition of these and other specific risks associated with the underlying funds. Tax-sensitive portfolios may include tax-exempt municipal bond funds and/or equity mutual funds with lower turnover rates. Income from tax-exempt funds may be subject to state and local taxes as well as federal and/or state alternative minimum tax. Federal and state taxes will apply to any capital gain distributions and any gains or losses on sales. Like real estate, REITs are subject to illiquidity, valuation and financing complexities, taxes, default, bankruptcy and other economic, political, or regulatory occurrences. Investments in small and mid-capitalization companies involve greater risks and volatility than investments in larger, more established companies. Generally, large-cap companies are more mature and have limited growth potential compared to smaller companies. In addition, large companies may not be able to adapt as easily to changing market conditions, potentially resulting in lower overall performance compared to the broader securities markets during different market cycles International investing involves increased risk and volatility due to potential political and economic instability, currency fluctuations, and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging markets Ameriprise Financial, Inc. All rights reserved. 11

12 There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. In general, equity securities tend to have greater price volatility than debt securities. The market value of securities may fall, fail to rise or fluctuate, sometimes rapidly and unpredictably. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Loan investments present issuer default risk. Alternative investments cover a broad range of strategies and structures designed to be low or non-correlated to traditional equity and fixed-income markets with a long-term expectation of illiquidity. Alternative investments involve substantial risks and are more volatile than traditional investments, making them more suitable for investors with an above-average tolerance for risk. Income from tax-exempt municipal bonds or municipal bond funds may be subject to state and local taxes, and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains. Non-investment-grade (high-yield or junk) securities present greater price volatility and more risk to principal and income than higher rated securities. ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution. Commodity investments may be affected by the overall market and industry- and commodity-specific factors, and may be more volatile and less liquid than other investments. Preferred stock is subject to issuer default risk. A rise in interest rates may result in a price decline of preferred stock held by the fund. Falling rates may result in the fund investing in lower yielding securities, lowering the fund s income and yield. Dividend payments are not guaranteed and the amount, if any, can vary over time. Master Limited Partnerships (MLPs) concentrate investments in the natural resource sector and are subject to the risks of energy prices and demand and the volatility of commodity investments. Damage to facilities and infrastructure of MLPs may significantly affect the value of an investment and may incur environmental costs and liabilities due to the nature of their business. MLPs are subject to significant regulation and may be adversely affected by changes in the regulatory environment. Growth securities, at times, may not perform as well as value securities or the stock market in general and may be out of favor with investors. Value securities may be unprofitable if the market fails to recognize their intrinsic worth or the portfolio manager misgauged that worth. Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Diversification and asset allocation do not assure a profit or protect against loss. Please review the Ameriprise Managed Accounts Client Disclosure Brochure or, if you have elected to pay a consolidated advisory fee, the Ameriprise Managed Accounts and Financial Planning Service Disclosure Brochure for a full description of services offered, including fees and expenses. Investment products are not federally or FDIC insured, are not deposits or obligations of, or guaranteed by any financial institution, and involves investment risks including possible loss of principal and fluctuation in value. Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser Ameriprise Financial, Inc. All rights reserved. 12