Q FOR FINANCIAL PROFESSIONAL USE ONLY. FOR FINANCIAL PROFESSIONAL USE ONLY.

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1 Factors De-Mystified Q1 2017

2 Introducing the Factors

3 Framing the Factor Discussion Size Value Quality Momentum Low Volatility Should we use a three-factor model for asset pricing or a new five factor model given that recent research documents that over 300 variables have been published as candidate factors? Source: Harvey, Campbell R. & Yan Liu. Luck Factors. July 2,

4 Weighted Average Market Cap of Variety of es Weighted Average Market Cap of Small Cap Focused es Weighted Average Market Cap $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $1,223 WisdomTree es S&P Small Cap 600 es MSCI es CRSP es $1,695 $1,755 $1,850 $1,850 $1,992 $3,322 $3,844 $3,876 $3,918 $0 WT SmallCap Earnings S&P Small Cap 600 Value WT SmallCap Dividend S&P Small Cap 600 WT U.S. SmallCap Quality Dividend Growth S&P Small Cap 600 Growth MSCI USA Small Cap CRSP Small Cap Value CRSP Small Cap CRSP Small Cap Growth Sources: WisdomTree, Bloomberg, with data as of 12/31/2016. Past performance is not indicative of future results. You cannot invest directly within an. es selected based on constituent-level data access. Weights subject to change. 4

5 Concept of Equal-Weight or Yield-Weight or Risk-Weight Delinking Size from Weight 0.10 Loading to the Small Cap Factor Loading to SMB Factor WT High Dividend WT LargeCap Dividend S&P 500 Low Volatility High Dividend S&P 500 Low Volatility S&P WT Earnings MSCI USA S&P 500 Dividend Aristocrats FTSE RAFI U.S WisdomTree es S&P es MSCI es FTSE RAFI es Dow Jones es Dow Jones U.S. S&P High Yield MSCI USA Risk- S&P 500 Equal- Select Dividend Dividend Aristocrats Weighted Weight Sources: WisdomTree, Bloomberg, Kenneth French Data Library. SMB refers to Small-minus-big and is the sensitivity or factor loading to small caps, with higher numbers indicating greater loading to small caps and negative numbers indicating greater loading to large caps. If numbers are more negative, exposure is to larger stocks. Regression results based on a 3-Factor Regression (Mkt-Rf, SMB, HML) over period from 9/30/2012 to 12/31/2016. Start date based on S&P 500 Low Volatility High Dividend live data calculation to nearest month-end. You cannot invest directly within an. Weights subject to change. 5

6 Does Size Matter or is it Size Plus an Additional Focus? Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Cumulative Growth of $1,000 $5,000,000 $500,000 $50,000 Constituent Group Avg. Ann. Return Avg. Ann. Risk Small Value 16.27% 19.28% Small Quality 14.53% 20.46% Small Momentum 17.83% 21.32% Small Growth 8.18% 23.59% Small-Low Quality 9.79% 22.74% Small-Low Momentum 5.18% 24.59% Small Caps 11.75% 21.72% $6,525,051 $3,194,793 $1,424,768 $383,620 $148,247 $67,278 $14,948 $5,000 $500 Jun-63 Nov-64 Apr-66 Sep-6 7 Feb-6 9 Jul-70 Dec-71 May-73 Oct-74 Mar-76 Aug-77 Jan-79 Jun-80 Nov-81 Apr-83 Sep-8 4 Feb-8 6 Jul-87 Dec-88 May-90 Oct-91 Mar-93 Aug-94 Jan-96 Jun-97 Nov-98 Apr-00 Sep-0 1 Feb-0 3 Jul-04 Dec-05 May-07 Oct-08 Mar-10 Aug-11 Jan-13 Jun-14 Nov-15 Small Value Small Quality Small Momentum Small Growth Small-Low Quality Small-Low Momentum Small Caps Sources: Concept for slide from paper Size Matters, if you Control Your Junk. by Cliff Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz, and Lasse H. Pedersen, with first draft as of January Data for chart from Kenneth French Data Library. Past performance is not indicative of future results. You cannot invest directly in an. 6

7 What is Value (or Growth)? es Don t Make It Easy MSCI USA Enhanced Value The value score for each security is calculated by combining the z-scores of three valuation descriptors, namely Forward Price to Earnings, Enterprise Value/Operating Cash Flows and Price to Book Value. Weighting of qualifying securities is market cap weight*final value score, with the result ensured to be sector neutral. S&P 500 Growth & Value es vs. S&P 500 Pure Growth & Pure Value es Value and Growth es divide the complete market capitalization of the S&P 500 into approximately equal segments, limiting the number of stocks that overlap between them. Weighting is by market capitalization. Based on identifying approximately ¼ of the market capitalization of the index as pure growth and ¼ as pure value. There are no overlapping stocks & stocks are weighted by their style attractiveness. Russell 1000 Value & Growth es Stocks are ranked on their book to price ratio, their I/B/E/S forecast medium term growth (2-year) and their sales per share historical growth. Standardized units and scores are created for each stock, with 50% from the book to price ratio and 50% split evenly between the forecast medium term growth and sales per share historical growth. Based on an algorithm, a percentage of the weight of a given stock is assigned to value and a percentage is assigned to growth. Between the two indexes, 100% of the weight is represented, i.e., if 20% of the market cap is in the value index, 80% of the market cap will be in the growth index. Sources: MSCI, Standard & Poor s, Russell, methodology documents and factsheets, with descriptions most recent as of December 31,

8 Valuation Ratios: What is the Difference? Selecting a "Value" or "Growth" Selecting a "Value" or "Growth" Forward P/E Ratio 25.0x 20.0x 15.0x 10.0x 5.0x 12.9x 13.1x 17.6x 18.9x 19.2x 20.3x 20.7x Price to Book Value Ratio 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 1.3x 1.8x 2.0x 2.9x 2.9x 3.8x 5.0x 0.0x S&P 500 Pure Value MSCI USA Enhanced Value S&P 500 Value S&P 500 MSCI USA S&P 500 Growth S&P 500 Pure Growth 0.0x S&P 500 Pure Value MSCI USA Enhanced Value S&P 500 Value S&P 500 MSCI USA S&P 500 Pure Growth S&P 500 Growth Sources: WisdomTree, Bloomberg, with data as of 12/31/2016. Past performance is not indicative of future results. You cannot invest directly within an. 8

9 S&P 500 Universe-Value or Pure Value? What About the WisdomTree Earnings 500? Weight 70% 60% 50% 40% 30% 20% 10% 0% How to think about "Value" for the S&P 500 Starting Universe & the WisdomTree Earnings % 63.8% 36.9% 25.9% 21.4% 23.4% 24.4% 26.8% 22.3% 18.4% 20.1% 21.0% 15.1% 17.4% 7.0% 5.8% 5.0% 0.2% 3.3% Below 15.8x Between 15.8x & 20.3x Between 20.3x & 25.8x Above 25.8x Negative Earnings P/E Ratio Buckets 2.8% WT Earnings 500 S&P 500 Pure Value S&P 500 Value S&P 500 Weight 40% 35% 30% 25% 20% 15% 10% 5% 0% Value or "Pure" Value? Weight in 166 Securities within BOTH S&P 500 Value & Growth es 30.9% Weight in S&P 500 Value 34.5% Weight in S&P 500 Growth Sources: WisdomTree, Bloomberg, with data as of 12/31/2016. You cannot invest directly within an. Weights subject to change. 9

10 S&P MidCap 400 Universe-Value or Pure Value? What about the WisdomTree MidCap Earnings? Weight 60% 50% 40% 30% 20% 10% 0% How to think about "Value" for the S&P MidCap 400 Starting Universe & the WisdomTree MidCap Earnings 36.0% 54.0% 31.4% 31.0% 27.3% 25.4% 23.5% 24.9% 24.1% 20.5% 18.0% 15.4% 12.9% 15.5% 11.2% 12.1% 4.7% 6.6% 5.1% 0.3% Below 17.3x Between 17.3x & 22.2x Between 22.2x & 30.1x Above 30.1x Negative Earnings P/E Ratio Buckets WT MidCap Earnings S&P MidCap 400 Pure Value S&P MidCap 400 Value S&P MidCap 400 Weight 40% 35% 30% 25% 20% 15% 10% 5% 0% Value or "Pure" Value? Weight in 129 Securities Common to BOTH S&P MidCap 400 Value & Growth es 30.7% Weight in S&P MidCap 400 Value 37.3% Weight in S&P MidCap 400 Growth Sources: WisdomTree, Bloomberg, with data as of 12/31/2016. You cannot invest directly within an. Weights subject to change. 10

11 S&P SmallCap 600 Universe-Value or Pure Value? What About the WisdomTree SmallCap Earnings? Weight 60% 50% 40% 30% 20% 10% 0% How to think about "Value" for the S&P SmallCap 600 Starting Universe & the WisdomTree SmallCap Earnings 48.4% 44.8% 30.3% 19.5% 26.8% 28.3% 27.1% 13.5% 23.4% 22.3% 19.3% 16.4% 11.4% 18.0% 13.4% 8.6% 10.6% 8.7% 7.7% 1.5% Below 18.4x Between 18.4x & 23.5x Between 23.5x & 34.0x Above 34.0x Negative Earnings P/E Ratio Buckets WT SmallCap Earnings S&P SmallCap 600 Pure Value S&P SmallCap 600 Value S&P SmallCap 600 Weight 40% 35% 30% 25% 20% 15% 10% 5% 0% Value or "Pure" Value? Weight in 181 Securities Common to BOTH S&P SmallCap 600 Value & Growth es 31.0% Weight in S&P SmallCap 600 Value 36.4% Weight in S&P SmallCap 600 Growth Sources: WisdomTree, Bloomberg, with data as of 12/31/2016. You cannot invest directly within an. Weights subject to change. 11

12 What is Quality? Benjamin Graham 1) Adequate enterprise size, as insulation against the vicissitudes of the economy; 2) Strong financial condition, measured by current ratios that exceed two and net current assets that exceed long term debt; 3) Earnings stability, measured by 10 consecutive years of positive earnings; 4) A dividend record of uninterrupted payments for at least 20 years; 5) Earnings-per-share growth of at least one-third over the last ten years. Jeremy Grantham 1) Low leverage 2) High profitability 3) Low earnings volatility Joel Greenblatt Return on Invested Capital (ROIC), with earnings yield to maintain sensitivity to valuation Robert Novy-Marx Ratio of gross profits to assets Source: Novy-Marx, Robert. Quality Investing. December 2012 (Significantly Revised May 2014). 12

13 Quality vs. Sector Neutral Quality Return on Equity / Return on Assets 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Sector Return on Equity & Return on Assets 21.3% 32.2% 13.5% Return on Equity MSCI USA Sector Neutral Quality MSCI USA MSCI USA Sector MSCI USA Neutral Quality Quality 6.1% 11.4% 2.6% Return on Assets MSCI USA Quality MSCI USA Consumer Discretionary 12.58% 21.54% 12.65% Consumer Staples 9.14% 8.48% 9.21% Energy 7.45% 0.17% 7.43% Financials 14.29% 1.85% 14.63% Health Care 13.51% 12.29% 13.59% Industrials 9.89% 15.62% 9.75% Information Technology 21.16% 37.31% 20.87% Materials 2.93% 2.01% 2.95% Real Estate 3.03% 0.73% 3.02% Telecommunication Services 2.78% 0.00% 2.74% Utilities 3.24% 0.00% 3.16% Leverage 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x Sector Over/Underweights of MSCI USA Quality vs. MSCI USA Information Technology Consumer Discretionary Industrials Consumer Staples Materials Health Care Real Estate Telecommunication Services Utilities Energy Financials 3.5x -12.8% -7.3% -0.7% -0.9% -1.3% -2.3% -2.7% -3.2% Leverage 2.8x MSCI USA Sector Neutral MSCI USA Quality Quality 5.9% 8.9% 5.3x 16.4% -20.0% -10.0% 0.0% 10.0% 20.0% Over/Underweight vs. MSCI USA MSCI USA Sources: WisdomTree, Bloomberg, MSCI, with data as of 12/31/2016. You cannot invest directly within an. Past performance is not indicative of future results. Weights subject to change. 13

14 Introducing Momentum Momentum is the phenomenon that securities that have performed well relative to peers (winners) on average continue to outperform, and securities that have performed poorly (losers) tend to continue underperform. The return premium is evident in 212 years (yes, this is not a typo, two hundred and twelve years of data from 1801 to 2012) of U.S. equity data, dating back to the Victorian age in U.K. equity data, in more than 20 years of out-of-sample evidence from its original discovery, in 40 other countries, and in more than a dozen other asset classes. Some of the most common myths are that momentum is too small and sporadic a factor, works mostly on the short-side, works well only among small stocks, and doesn t survive trading costs. Source: Asness, Clifford et. Al. Fact, Fiction and Momentum Investing. Journal of Portfolio Management. Special 40 th Anniversary Issue. 14

15 Momentum as a Factor has Delivered Percentage of Rolling Periods of Positive Returns 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Percentage of Rolling Periods of Specified Lengths that Factors Delivered Positive Returns 78.7% 85.2% 62.4% 55.2% 54.7% 75.2% 81.4% 83.5% 81.1% 61.5% 69.5% 96.1% 96.9% 82.6% 1-Year 3-Year 5-Year 10-Year 20-Year MOM SMB HML 100.0% Sources: WisdomTree, Kenneth French Data Library. Period is from 12/31/1926 to 12/31/2016. MOM: Refers to Momentum, and higher positive values indicate greater loading to stocks with strong recent performance. SMB: Refers to Small-minus-big and is the sensitivity or factor loading to small caps, with higher numbers indicating greater loading to small caps. HML: Refers to High-minus-low and is the sensitivity or factor loading to value, specifically the book value to market value ratio, with higher meaning more loading toward value. 15

16 Different Ways to Access Low Volatility MSCI Minimum Volatility es begin with selecting the Parent (i.e. the MSCI USA for the MSCI USA Minimum Volatility ) to perform total risk minimizing optimization. The Parent serves as the universe of eligible securities for optimization. Notably, there is no short-selling. The process is run semi-annually. The S&P Low Volatility approach begins also with selecting the Parent (i.e. the S&P 500 for the S&P 500 Low Volatility ). At the 4 quarterly rebalances, the selects the, in the case of the S&P 500 Low Volatility, 100 least volatile stocks based on the trailing 252-day volatility. Constituents are weighted on the basis of the inverse of their volatility, i.e. the least volatile stocks receives the highest weight. The S&P Low Volatility High Dividend approach begins also with selecting the Parent (i.e. the S&P 500 for the S&P 500 Low Volatility High Dividend ). All stocks from the S&P 500 are ranked in descending order by their trailing 12-month dividend yield. The top 75 stocks with the highest dividend yields are selected, but no more than 10 stocks can be selected from any one sector. If a sector reaches 10 stocks, the next highest yielding stock from the other sectors is selected, down the list, until 75 stocks are selected. Trailing 252-day volatility is then calculated, and the 50 stocks with the lowest realized 252-day volatility are selected. Weighting is by dividend yield, but maximum constituent weight is 3.0% and maximum sector weight is 25% at the semi-annual rebalances. Sources: MSCI & Standard & Poor s methodology documents. Most recent updates available as of 12/31/

17 Accessing Low Volatility with S&P es Number of Constituents S&P 500 Low Volatility High Dividend Number of Constituents Sector S&P S&P 500 Low Volatility 505 S&P 500 S&P 500 Low Volatility S&P 500 Low Volatility High Dividend Consumer Discretionary 12.0% 5.4% 7.6% Consumer Staples 9.4% 20.4% 6.9% Energy 7.6% 0.0% 2.2% Financials 14.8% 12.1% 5.3% Health Care 13.6% 10.3% 4.8% Industrials 10.3% 15.5% 14.4% Information Technology 20.8% 2.8% 12.1% Materials 2.8% 1.0% 8.0% Real Estate 2.9% 6.4% 13.3% Telecommunication Services 2.7% 2.2% 6.6% Utilities 3.2% 23.9% 18.8% Price to Earnings Ratio Dividend Yield P/E Ratio 25.0x 20.0x 15.0x 10.0x 15.6x 20.6x 20.9x Dividend Yield 5% 4% 3% 2% 2.09% 2.48% 4.10% 5.0x 1% 0.0x S&P 500 Low Volatility High Dividend S&P 500 Low Volatility S&P 500 0% S&P 500 S&P 500 Low Volatility S&P 500 Low Volatility High Dividend Sources: WisdomTree, Bloomberg, Standard & Poor s, with data as of 12/31/2016. You cannot invest directly within an. Past performance is not indicative of future results. Weights subject to change. 17

18 Accessing Low Volatility with MSCI es Sector Name MSCI USA Minimum MSCI USA Volatility Consumer Discretionary 7.73% 12.92% Consumer Staples 14.27% 9.15% Energy 2.07% 7.09% Financials 11.22% 14.39% Health Care 18.89% 13.59% Industrials 7.86% 9.71% Information Technology 16.27% 21.39% Materials 2.06% 3.03% Real Estate 8.04% 2.99% Telecommunication Services 3.35% 2.61% Utilities 8.25% 3.12% P/E Ratio 25.0x 20.0x 15.0x 10.0x 5.0x P/E Ratio 21.5x 21.7x Number of Constituents Dividend Yield 3% 2% 1% 0% % MSCI USA 184 Dividend Yield Number of Constituents 2.39% MSCI USA Minimum Volatility x MSCI USA MSCI USA Minimum Volatility 0 MSCI USA Minimum Volatility MSCI USA Sources: WisdomTree, Bloomberg, MSCI, with data as of 12/31/2016. You cannot invest directly within an. Past performance is not indicative of future results. Weights subject to change. 18

19 2016 Study of Two Periods (Rising & Falling Rates) Falling Rate Period in 2016 Rising Rate Period in 2016 Cumulative Return 20.0% 15.0% 10.0% 5.0% 0.0% 13.4% S&P 500 Low Volatility 18.6% S&P 500 Low Volatility High Dividend 5.4% S&P % MSCI USA Minimum Volatility 5.2% MSCI USA Cumulative Return 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -2.7% S&P 500 Low Volatility 3.4% S&P 500 Low Volatility High Dividend 6.2% S&P % MSCI USA Minimum Volatility 6.1% MSCI USA Sources: WisdomTree, Bloomberg, with data for falling rate period from 12/31/2015 to 7/8/2016. Data for rising rate period is from 7/8/2016 to 12/31/2016. You cannot invest directly within an index. Past performance is not indicative of future results. 19

20 The Long-Term Picture Examining Different Fundamentals over Time

21 Do Patterns of Share Issuance Matter for Long- Term Returns? Cumulative Growth of $1,000 based on Share Issuance Groupings Cumulative Growth of $1,000 $500,000 $50,000 $5,000 Constituent Group Avg. Ann. Return Avg. Ann. Risk Share Reducers 12.69% 14.46% No Change in Issuance 12.79% 14.77% Low Share Issuers 10.41% 14.72% High Share Issuers 5.49% 18.34% Market 10.08% 15.28% $629,259 $600,036 $200,480 $171,433 $17,450 $500 Jun-63 Jan-65 Aug-66 Mar-68 Oct-69 May-71 Dec-72 Jul-74 Feb-7 6 Sep-7 7 Apr-79 Nov-80 Jun-82 Jan-84 Aug-85 Mar-87 Oct-88 May-90 Dec-91 Jul-93 Feb-9 5 Sep-9 6 Apr-98 Nov-99 Jun-01 Jan-03 Aug-04 Mar-06 Oct-07 May-09 Dec-10 Jul-12 Feb-1 4 Sep-1 5 Share Reducers No Change in Issuance Low Share Issuers High Share Issuers Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by patterns of share issuance. Share reducers indicate firms decreasing their number of shares outstanding, no change in issuance indicates firms that do not increase or decrease their shares outstanding, low share issuers indicate the lowest 20% of firms that do increase their shares outstanding and high share issuers indicate the highest 20% of firms that do increase their shares outstanding. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. You cannot invest directly in an index. 21

22 Low Beta or High Beta Stocks? Cumulative Growth of $1,000 by Beta Groupings Cumulative Growth of $1,000 $50,000 $5,000 Constituent Group Avg. Ann. Return Avg. Ann. Risk Low Beta 10.52% 12.13% High Beta 9.38% 24.76% Market 10.08% 15.28% $211,870 $171,433 $121,643 $500 Jun-63 Dec-64 Jun-66 Dec-67 Jun-69 Dec-70 Jun-72 Dec-73 Jun-75 Dec-76 Jun-78 Dec-79 Jun-81 Dec-82 Jun-84 Dec-85 Jun-87 Dec-88 Jun-90 Dec-91 Jun-93 Dec-94 Jun-96 Dec-97 Jun-99 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14 Dec-15 Low Beta High Beta Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by beta to the market. Low beta indicates the lowest 20% of firms and high beta indicates the highest 20% of firms by market beta. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 22

23 The Difference That Dividends Have Made Growth of $1,000 $500,000 $50,000 $5,000 Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Constituent Group Avg. Ann. Return Avg. Ann. Risk No Dividends 9.43% 23.66% High Dividends 11.63% 14.13% Low Dividends 9.29% 18.26% Market 10.08% 15.28% $361,994 $171,433 $124,871 $116,245 $500 Jun-63 Feb-6 5 Oct-66 Jun-68 Feb-7 0 Oct-71 Jun-73 Feb-7 5 Oct-76 Jun-78 Feb-8 0 Oct-81 Jun-83 Feb-8 5 Oct-86 Jun-88 Feb-9 0 Oct-91 Jun-93 Feb-9 5 Oct-96 Jun-98 Feb-0 0 Oct-01 Jun-03 Feb-0 5 Oct-06 Jun-08 Feb-1 0 Oct-11 Jun-13 Feb-1 5 Oct-16 No Dividends High Dividends Low Dividends Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by dividend yield or lack of dividend yield. Low dividends indicates the lowest 20% of firms by trailing 12-month dividend yield and high dividends indicates the highest 20% of firms by trailing 12-month dividend yield. No dividends indicates no dividend yield over the prior year and therefore no dividends paid. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 23

24 The Difference That Earnings Have Made Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Growth of $1,000 $500,000 $50,000 Constituent Group Avg. Ann. Return Avg. Ann. Risk Negative Earnings 8.86% 25.67% Low Earnings Yield 8.51% 17.42% High Earnings Yield 14.10% 16.87% Market 10.08% 15.28% $1,168,287 $171,433 $94,157 $79,454 $5,000 $500 Jun-63 May-65 Apr-67 Mar-69 Feb-7 1 Jan-73 Dec-74 Nov-76 Oct-78 Sep-8 0 Aug-82 Jul-84 Jun-86 May-88 Apr-90 Mar-92 Feb-9 4 Jan-96 Dec-97 Nov-99 Oct-01 Sep-0 3 Aug-05 Jul-07 Jun-09 May-11 Apr-13 Mar-15 Negative Earnings Low Earnings Yield High Earnings Yield Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by earnings yield. Low earnings yield indicates the lowest 20% of firms by trailing 12-month earnings yield and high earnings yield indicates the highest 20% of firms by trailing 12-month earnings yield. Negative earnings indicates negative earnings yield over the prior year and therefore negative earnings. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 24

25 The Differences That Cash Flows Have Made Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Growth of $1,000 $750,000 $75,000 $7,500 Constituent Group Avg. Ann. Return Avg. Ann. Risk High Cash Flow Yield 14.10% 15.98% Low Cash Flow Yield 8.98% 17.32% Negative Cash Flow Yield 7.89% 26.49% Market 10.08% 15.28% $1,166,932 $171,433 $99,897 $58,389 $750 Jun-63 Feb-6 5 Oct-66 Jun-68 Feb-7 0 Oct-71 Jun-73 Feb-7 5 Oct-76 Jun-78 Feb-8 0 Oct-81 Jun-83 Feb-8 5 Oct-86 Jun-88 Feb-9 0 Oct-91 Jun-93 Feb-9 5 Oct-96 Jun-98 Feb-0 0 Oct-01 Jun-03 Feb-0 5 Oct-06 Jun-08 Feb-1 0 Oct-11 Jun-13 Feb-1 5 Oct-16 High Cash Flow Yield Low Cash Flow Yield Negative Cash Flow Yield Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by trailing 12- month cash flow yield. High cash flow yield refers to firms in the Highest 20% of the trailing 12-month cash flow yield spectrum. Low cash flow yield refers to firms in the lowest 20% by trailing 12-month cash flow yield. Negative cash flow yield refers to firms with negative cash flows over the prior 12-month period. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 25

26 Value or Growth? Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Growth of $1,000 $750,000 $75,000 $7,500 Constituent Group Avg. Ann. Return Avg. Ann. Risk Growth 9.22% 16.52% Value 14.41% 18.07% Market 10.08% 15.28% $1,350,360 $171,433 $112,573 $750 Jun-63 Jan-65 Aug-66 Mar-68 Oct-69 May-71 Dec-72 Jul-74 Feb-7 6 Sep-7 7 Apr-79 Nov-80 Jun-82 Jan-84 Aug-85 Mar-87 Oct-88 May-90 Dec-91 Jul-93 Feb-9 5 Sep-9 6 Apr-98 Nov-99 Jun-01 Jan-03 Aug-04 Mar-06 Oct-07 May-09 Dec-10 Jul-12 Feb-1 4 Sep-1 5 Growth Value Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by book to market value ratio. Value refers to firms in the highest 20% of book to market value ratio, indicating lower prices relative to book value. Growth refers to firms in the lowest 20% of book to market value ratio, indicating higher prices relative to book value. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 26

27 Small Caps or Large Caps? Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Cumulative Growth of $1,000 $750,000 $75,000 $7,500 Constituent Group Avg. Ann. Return Avg. Ann. Risk Small Caps 11.75% 21.72% Large Caps 9.67% 14.61% Market 10.08% 15.28% $383,620 $171,433 $140,386 $750 Jun-63 Jan-65 Aug-66 Mar-68 Oct-69 May-71 Dec-72 Jul-74 Feb-7 6 Sep-7 7 Apr-79 Nov-80 Jun-82 Jan-84 Aug-85 Mar-87 Oct-88 May-90 Dec-91 Jul-93 Feb-9 5 Sep-9 6 Apr-98 Nov-99 Jun-01 Jan-03 Aug-04 Mar-06 Oct-07 May-09 Dec-10 Jul-12 Feb-1 4 Sep-1 5 Small Caps Large Caps Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by market capitalization size. Small caps refer to firms in the lowest 20% of the market capitalization size spectrum. Large caps refer to firms in the highest 20% by market capitalization size. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 27

28 Has Profitability Made a Difference? $750,000 Cumulative Growth of $1,000 (June 30, 1963 to December 31, 2016) Constituent Group Avg. Ann. Return Avg. Ann. Risk Robust Profitability 11.41% 15.32% Weak Profitability 7.68% 19.50% Market 10.08% 15.28% $325,295 $171,433 Cumulative Growth of $1,000 $75,000 $7,500 $52,565 $750 Jun-63 Dec-64 Jun-66 Dec-67 Jun-69 Dec-70 Jun-72 Dec-73 Jun-75 Dec-76 Jun-78 Dec-79 Jun-81 Dec-82 Jun-84 Dec-85 Jun-87 Dec-88 Jun-90 Dec-91 Jun-93 Dec-94 Jun-96 Dec-97 Jun-99 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14 Dec-15 Robust Profitability Weak Profitability Market Sources: WisdomTree, Kenneth French Data Library. Period is from June 30, 1963 to December 31, Groups of stocks characterized by operating profitability. Robust profitability refers to firms in the Highest 20% of the operating profitability spectrum. Weak profitability refers to firms in the lowest 20% by operating profitability. Market refers to all U.S. publicly listed stocks. Past performance is not indicative of future results. 28

29 Placing the Long-Term Studies into the Factor Context Introducing the Regression Model

30 Specifying the Regression Model Mkt-Rf: A measure of sensitivity to broad moves of the market, very similar to the beta statistic. Lower numbers indicate potential for less volatility than that of the market. SMB: A measure of sensitivity to the performance of small cap stocks relative to large cap stocks. 0 indicates neutrality. Values with greater negative loading indicate sensitivity to large caps. Values with greater positive loading indicate sensitivity to small caps. HML: A measure of the sensitivity to the performance of value stocks relative to growth stocks. 0 indicates neutrality. Values with greater positive loading indicate loading to value stocks. Values with greater negative loading indicate loading to growth stocks. A critical point is that value is measured by high book to market value ratio and growth is measured by low book to market value ratio. RMW: A measure of the sensitivity to the performance of Robustly profitable stocks relative to Weakly profitable stocks. 0 indicates neutrality. Values with greater positive loading indicate loading to stocks with higher operating profitability. Values with greater negative loading indicate loading to stocks with lower operating profitability. Operating profitability in this context is annual revenue minus cost of goods sold, interest expense and SG&A (Selling, General and Administrative Expenses). MOM: A measure of the sensitivity to the performance of stocks with high prior returns relative to the performance of stocks with low prior returns. 0 indicates neutrality. Values with greater positive loading indicate loading to stocks with high prior returns. Values with greater negative loading indicate loading to stocks with low prior returns. 30

31 Measuring Sensitivity to Mkt-Rf Loading to Mkt-Rf (June 30, 1963 to December 31, 2016) Loading to Mkt-Rf Share Issuance 0.82 Beta Dividend Yield Earnings Yield 0.99 Cash Flow Yield Value & Growth Size Operating Profitability Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 31

32 Measuring Sensitivity to Size Loading to SMB (June 30, 1963 to December 31, 2016) Share Issuance Beta Dividend Yield Earnings Yield Cash Flow Yield Value & Growth Size Operating Profitability Loading to SMB Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 32

33 Measuring Sensitivity to Value Loading to HML (June 30, 1963 to December 31, 2016) Share Issuance Beta Dividend Yield Earnings Yield Cash Flow Yield Value & Growth Size Operating Profitability Loading to HML Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 33

34 Measuring Sensitivity to Quality/Profitability Loading to RMW (June 30, 1963 to December 31, 2016) Share Issuance Beta Dividend Yield Earnings Yield Cash Flow Yield Value & Growth Size Operating Profitability Loading to RMW Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 34

35 Measuring Sensitivity to Momentum Loading to MOM (June 30, 1963 to December 31, 2016) 0.10 Loading to MOM Share Issuance Beta Dividend Yield Earnings Yield Cash Flow Yield Value & Growth Size Operating Profitability Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 35

36 How Might We Measure Sensitivity to Interest Rates?

37 Have Interest Rates Mattered for Stocks with Different Levels of Volatility? 30.0% 25.0% 26.5% Average Return 20.0% 15.0% 10.0% 9.7% 16.0% 18.1% 10.5% 11.6% 13.3% 11.5% 5.0% 2.8% 0.0% Greater than 1% Rise Greater than 1% Fall All Periods Different Movements of the U.S. 10-Year Treasury Note Low Beta High Beta Market Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 37

38 Have Interest Rates Mattered for Different Levels of Dividend Yield? 35.0% 30.0% 31.0% 25.0% Average Return 20.0% 15.0% 10.0% 8.2% 21.1% 16.0% 12.0% 20.4% 11.4% 13.7% 10.0% 14.2% 12.9% 12.6% 5.0% 0.0% Greater than 1% Rise Greater than 1% Fall All Periods Movement of U.S. 10-Year Treasury Note Interest Rate No Dividends High Dividends Low Dividends Market Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 38

39 Have Interest Rates Mattered for Different Levels of Earnings Yield? 30.0% 27.7% 25.0% 20.0% 18.5% Average Return 15.0% 10.0% 15.5% 16.0% 8.0% 16.5% 10.5% 13.9% 10.2% 15.8% 11.5% 5.0% 4.5% 0.0% Greater than 1% Rise Greater than 1% Fall All Periods Movement of U.S. 10-Year Treasury Note Interest Rate Negative Earnings Low Earnings Yield High Earnings Yield Market Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 39

40 Have Interest Rates Mattered for Small Cap Stocks? 35.0% Average Return 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 30.4% 25.9% 26.5% 25.3% 23.4% 24.1% 22.4% 15.8% 13.1% 12.0% 2.3% 1.6% 4.8% 20.7% 18.9% 17.4% 15.5% 13.1% 11.7% 9.6% 0.0% -5.0% -10.0% -7.5% Greater than 1% Rise Greater than 1% Fall All Periods Movement of U.S. 10-Year Treasury Note Interest Rate Small Value Small Quality Small Momentum Small Growth Small-Low Quality Small-Low Momentum Small Caps Sources: WisdomTree, Kenneth French Data Library. Data is based on monthly returns from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. 40

41 How to Consider Interest Rates & Their Impact on Different Types of Stocks Industry Analysis of Interest Rate Sensitivity Utilities Non-Durables 0.34 Health Care 0.24 Telecommunications 0.17 Shops 0.09 Manufacturing Financials Energy Durables High Tech First Third Sec ond Fourth Fifth Sixth Seventh Eighth Ninth Tenth Analysis of Deciles Sorted by Variance in Terms of Interest Rate Sensitivity Loading to Interest Rate Factor Analysis of Deciles Sorted by Beta in Terms of Interest Rate Sensitivity Loading to Interest Rate Factor Analysis of Deciles Sorted by Dividend Yield in Terms of Interest Rate Sensitivity First Sec ond Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth Tenth Ninth Eighth Sixth Seventh Fifth Fourth Third Sec ond First Non-Payers Loading to Interest Rate Factor Loading to Interest Rate Factor Sources: WisdomTree, Kenneth French Data Library, Morningstar Direct. Period is from 6/30/1963 to 12/31/2016. Past performance is not indicative of future results. If numbers are more positive, this means that there has been a greater instance of positive returns in that grouping of stocks at the same time when bond returns have been positive in other words, interest rates were falling, since positive bond returns mean falling rates. If numbers are more negative, this means that there has been a greater instance of positive returns in that grouping of stocks when bond returns were negative in other words, interest rates were rising

42 WisdomTree & Smart Beta Today

43 Framing the Smart Beta Discussion Equal-Weight Fundamentally-Weight Single Factor Weighting: Dividends, Earnings, Revenues, etc. Multi-Factor Weighting: Does this dilute the impact of any one factor? Low Volatility-Weight Optimizations Highest dividend yield, lowest volatility, etc. Stock Selection Broad-based or Narrow Based on price behavior (low volatility, Momentum) or on Fundamentals 43

44 There are Different Ways to Focus on Dividends Weight Exposure to Different Market Capitalization Size Buckets 100.0% 75.0% 50.0% 25.0% 0.0% 64.7% 86.0% 85.8% Above $10 billion Dow Jones U.S. Select Dividend WisdomTree Dividend Sector 34.1% 11.6% 11.8% Between $2 billion & $10 billion Market Capitalization Size Exposure Buckets Dow Jones U.S. Select Dividend 1.2% 2.4% 2.5% Below $2 billion WisdomTree High Dividend WisdomTree High Dividend WisdomTree Dividend Consumer Discretionary 11.00% 6.78% 9.31% Consumer Staples 8.43% 16.93% 13.04% Energy 10.33% 11.55% 7.97% Financials 15.43% 5.90% 12.96% Health Care 2.83% 10.59% 10.26% Industrials 12.08% 6.76% 10.07% Information Technology 2.11% 8.52% 13.91% Materials 7.37% 1.79% 3.05% Real Estate 0.00% 12.52% 8.21% Telecommunication Services 1.97% 9.12% 5.37% Utilities 28.44% 9.53% 5.86% Trailing 12-Month Dividend Yield Weighted Average Market Capitalization 4% 3% 2% 1% 0% $140 $120 $100 $80 $60 $40 $20 $0 Weighted Average Market Capitalization (in $, billions) $41.5 Dow Jones U.S. Select Dividend 3.60% Dow Jones U.S. Select Dividend $131.2 $131.4 WisdomTree High Dividend Dividend Yields 3.80% WisdomTree High Dividend WisdomTree Dividend 3.04% WisdomTree Dividend Sources: WisdomTree, Bloomberg, with data as of 12/31/2016. You cannot invest directly within an. Weights subject to change. Past performance is not indicative of future results. 44

45 A Long History of Dividend Growth Sounds Good, But Number of Constituents Total Market Capitalization (in billions) Number of Constituents S&P MidCap S&P MidCap 400 Dividend Aristocrats 576 WisdomTree MidCap Earnings 407 WisdomTree MidCap Dividend Total Market Capitalization $2,500 $2,000 $1,500 $1,000 $500 $0 $1,692 S&P MidCap 400 $228 S&P MidCap 400 Dividend Aristocrats $1,980 WisdomTree MidCap Earnings $2,327 WisdomTree MidCap Dividend Sources: WisdomTree, Bloomberg, Standard & Poor s with data as of 12/31/2016. You cannot invest directly within an. 45

46 Russell vs. S&P Aren t They Both Beta? Russell Methodology: The process begins with a very broadly inclusive approach defined by the Russell 3000E, which included 3,525 stocks as of December 31, The Russell Top 200 is selected as the largest 200 companies from this. Ranked by market capitalization, the Russell MidCap is the 201 st to 1000 th company (therefore 800 stocks). The Russell 2000 is the 1,001 st to 3000 th largest company. Combined, the Russell Top 200 plus the Russell MidCap plus the Russell 2000 would equal the same constituents as the Russell Source: Russell 3000E factsheet as of 12/31/2016. S&P Methodology: An important difference in S&P s methodology for determining stocks eligible for the S&P 500, S&P MidCap 400 and S&P SmallCap 600 es is that the sum of the most recent four consecutive quarters Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter. Given that initial inclusion is in part determined by passing this measure, it tells us out of the gate that S&P tends to avoid more speculative companies. Generally Accepted Accounting Principles (GAAP): Principles of accounting utilized in the U.S. that deal with different aspects and assumptions that are deemed acceptable in calculating the earnings of a firm. Sources: Russell U.S. Equity es v2.3 FTSE Russell. December 2016, Russell 3000E Factsheet as of 12/31/2016, S&P U.S. Indices Methodology. S&P Dow Jones Indices. January

47 Russell S&P WisdomTree Earnings Inclusiveness Initial Profitability Ongoing Profitability % of Rolling Periods 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 100.0% 100.0% 90.6% 72.2% S&P 500 Beats Russell Top % 62.4% 75.2% 86.8% S&P MidCap 400 Beats Russell MidCap 93.7% 98.3% 99.4% 100.0% S&P SmallCap 600 beats Russell Year 5-Year 7-Year 10-Year % of Rolling Periods 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 50.6% 55.7% 48.6% WisdomTree Earnings 500 beats S&P % 100.0% 100.0% WisdomTree MidCap Earnings beats S&P MidCap % 52.5% 75.7% WisdomTree SmallCap Earnings beats S&P SmallCap Year 5-Year 7-Year Top chart sources: WisdomTree, Bloomberg, with data from 1/31/1997 to 1/31/2017, a 20-Year period. Bottom chart sources: WisdomTree, Bloomberg, with data from 2/1/2007 to 1/31/2017, a 10-Year period that coincides with the longest live calculation period for WisdomTree s Earnings es within this chart. You cannot invest directly within an. Past performance is not indicative of future results. 47

48 Returns of Factors During Common Live Period of an Array of Smart Beta es Average Annual Factor Returns over Past 3 Years 10.0% 8.0% The Market was up. 8.2% Average Annual Return 6.0% 4.0% 2.0% The Large Caps outperformed Small Caps. Value outperformed Growth. 2.4% Robust Profitability outperformed Weak Profitability. 0.9% High prior momentum outperformed Low prior momentum. 0.4% 0.0% -2.0% -1.4% Mkt-Rf SMB HML RMW MOM Factor Sources: WisdomTree, Kenneth French Data Library, with data from 12/31/2013 to 12/31/2016. You cannot invest directly within an. Past performance is not indicative of future results. 48

49 All Cap & Large Cap Regression Coefficients Name Mkt-Rf SMB HML RMW MOM Avg. Ann. Return S&P 500 Low Volatility High Dividend % Dow Jones U.S. Select Dividend % S&P High Yield Dividend Aristocrats % WisdomTree High Dividend % MSCI USA Minimum Volatility % S&P 500 Low Volatility % WisdomTree Dividend % MSCI USA Risk-Weighted % MSCI Momentum % WisdomTree LargeCap Dividend % S&P 500 Dividend Aristocrats % MSCI USA Quality % FTSE RAFI U.S % S&P % S&P 500 Equal Weight % MSCI USA % WisdomTree U.S. Quality Dividend Growth % WisdomTree Earnings % WisdomTree Earnings % NASDAQ U.S. Dividend Achievers Select % Sources: WisdomTree, Bloomberg, Kenneth French Data Library, with data from 12/31/2013 to 12/31/2016, a period which allows for live data for all es shown. You cannot invest directly within an. 49

50 Mid Cap & Small Cap Regression Coefficients Name Mkt-Rf SMB HML RMW MOM Avg. Ann. Return WisdomTree MidCap Dividend % S&P Mid Cap % WisdomTree MidCap Earnings % Name Mkt-Rf SMB HML RMW MOM Avg. Ann. Return WisdomTree SmallCap Dividend % WisdomTree U.S. SmallCap Quality Dividend Growth % WisdomTree SmallCap Earnings % FTSE RAFI U.S % Russell % Sources: WisdomTree, Bloomberg, Kenneth French Data Library, with data from 12/31/2013 to 12/31/2016, a period which allows for live data for all es shown. You cannot invest directly within an. 50

51 Weighting Equity Markets by the Dividend Stream 10 Largest Companies in the WisdomTree Dividend, Ranked by Cash Dividends, as of November 30, 2016* Company Name Indicated Dividend Per Share Shares Outstanding (Billions) Dividend Stream (Billions) Percent of Total Dividend Stream 1 EXXON MOBIL CORP $ % 2 APPLE INC $ % 3 MICROSOFT CORP $ % 4 AT&T INC $ % 5 VERIZON COMMUNIC $ % 6 JOHNSON&JOHNSON $ % 7 CHEVRON CORP $ % 8 GENERAL ELECTRIC $ % 9 WELLS FARGO & CO $ % 10 PFIZER INC $ % Top 10 Companies, Total Contributions $ % WisdomTree Dividend : Total Dividend Stream $ % Sources: WisdomTree, Bloomberg. Past performance is not indicative of future results. You cannot invest directly into an index. Holdings are subject to change. *The annual screening date for the WisdomTree Dividend takes place at the end of November. Indicated Dividend Per Share: As of the 11/30/2016 Screening date, this refers to the most recent regular dividend per share that the respective firm has indicated that it will pay over the coming dividend payment cycles Dividend Stream: Dividend per share multiplied by the number of shares outstanding. 51

52 Weighting Equity Markets by the Earnings Stream 10 Largest Companies in the WisdomTree Earnings, Ranked by Earnings, as of Nov. 30, 2016* Sources: WisdomTree, Standard & Poor s. *The date was chose to coincide with the most recent annual screening date for the WisdomTree Earnings, which takes place at the end of November each year. Past performance is not indicative of future results. You cannot invest directly into an index. Holdings are subject to change. 52

53 Thoughts on the Future

54 Annual Factor Performance vs the S&P 500, *Avg Ann Value 17.07% 1.44% % 27.63% 19.89% 12.20% 23.53% -0.11% % 19.12% 7.92% % 29.71% 40.15% 11.71% -7.87% 25.77% 6.35% Size -5.30% 23.33% % 66.22% 17.48% 5.04% 19.25% -6.47% % 36.23% 29.15% -9.50% 17.86% 47.18% 3.61% -5.75% 24.11% 9.52% 2600 Quality -2.71% -5.24% % 21.46% 11.75% 4.54% 15.51% 12.15% % 27.13% 15.52% 5.16% 13.00% 31.06% 13.63% -0.42% 11.66% 6.28% Mom % -9.57% % 27.07% 10.71% 15.85% 9.92% 19.15% % 15.77% 26.35% -4.32% 15.48% 37.09% 12.45% 5.22% 4.21% 5.47% 2400 S&P % % % 28.68% 10.88% 4.91% 15.79% 5.49% % 26.46% 15.06% 2.11% 16.00% 32.39% 13.69% 1.38% 11.96% 4.51% 2200 S&P 500 Price Source: Bloomberg as of 12/31/2016. *Avg Ann= Average annual return from Factor return data from Fama and French Data Library. Value: Top 30% large caps by book-to-market. Size: Lowest 30% by market cap. Quality: Top 30% large caps by operating profitability. Mom (Momentum): Top 30% large caps by prior price momentum. Past performance is not indicative of future results. You cannot invest directly in an. 54

55 What is Smart Beta? BETA Rules-Based Market Cap Weighted Representative Of Asset Class Measures Average Return of All Stocks Captures Beta SMART BETA Rules-Based Non Market-Cap Weighted Quantitative Seeks to Capture Return Premia Through Selection/Weighting & Rebalancing Seeks to Create Passive Factor Investing ALPHA Active Stock Picking Stock Selection Risk Human Judgment Seeks to Create Alpha Passive ETFs Active Mutual Funds ETFs $2.6 Trillion Mutual Funds* $14.0 Trillion Total $16.6 Trillion Source: Morningstar as of 12/31/2016.* Mutual funds include Equity, Allocation, Alternative, Commodities, Convertibles, Fixed Income, Money Market and Tax Preferred. Note, ETFs can also be actively managed. 55

56 Equity Mutual Fund Data By Morningstar Category Value Blend Growth Large AUM: 940 Billion Median Expense Ratio: 1.00% 5Yr Percent of Peers Beaten by Beta : 89% AUM: 2 Trillion Median Expense Ratio:.96% 5Yr Percent of Peers Beaten by Beta : 87% AUM: 1.2 Trillion Median Expense Ratio: 1.05% 5Yr Percent of Peers Beaten by Beta : 81% Mid AUM: 196 Billion Median Expense Ratio: 1.12% 5Yr Percent of Peers Beaten by Beta : 89% AUM: 289 Billion Median Expense Ratio: 1.06% 5Yr Percent of Peers Beaten by Beta : 90% AUM: 246 Billion Median Expense Ratio: 1.16% 5Yr Percent of Peers Beaten by Beta : 78% Small AUM: 124 Billion Median Expense Ratio: 1.25% 5Yr Percent of Peers Beaten by Beta : 69% AUM: 244 Billion Median Expense Ratio: 1.19% 5Yr Percent of Peers Beaten by Beta : 61% AUM: 188 Billion Median Expense Ratio: 1.22% 5Yr Percent of Peers Beaten by Beta : 76% Total AUM: 5.4 Trillion Source: Morningstar as of 12/31/2016. Beta es: Large Value: Russell 1000 Value, Large Blend: S&P 500, Large Growth: Russell 1000 Growth, Mid Value: Russell Midcap Value, Mid Blend: S&P MidCap 400, Mid Growth: Russell Midcap Growth, Small Value: Russell 2000 Value, Small Blend: Russell 2000, Small Growth: Russell 2000 Growth. Past performance is not indicative of future results. You cannot invest directly in an. 56

57 How to categorize by Alpha Instead of Beta Value Blend Growth Small Mid Large Value Size Quality Momentum Low Volatility 57

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