Product Trends And Opportunities For Asset Gathering

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1 Product Trends And Opportunities For Asset Gathering Christina West Moderator Introductions Investment Consultant, Morningstar, Inc Frank Koudelka Senior Vice President & Global ETF Product Specialist, State Street Crit Thomas Global Market Strategist, Touchstone Investments Rachel Schnoll Head of US Product Strategy, Goldman Sachs 1

2 U.S. Mutual Fund Flows and Assets Flows and Assets as of July 31, trillion outflows since financial crisis of 2008 Flows (USD Billion) $750 $250 $ $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Assets (USD Billions) Net Flow Net Assets 3 Source: ETFGI as of 07/31/17, ICI Statistical Update as of 07/31/17, 2017 flows annualized U.S. ETP Flows and Assets Flows and Assets as of July 31, 2017 Flows (USD Billion) $600 $550 $450 $350 $300 $250 $150 $100 $50 $1.5 trillion inflows since financial crisis of $3,250 $3,000 $2,750 $2,500 $2,250 $2,000 $1,750 $1,500 $1,250 $750 $250 Assets (USD Billions) Net Flow Net Assets 4 Source: ETFGI as of 07/31/17, ICI Statistical Update as of 07/31/17, 2017 flows annualized 2

3 U.S. Domestic Equity ETF and Mutual Fund Flow Trend Cumulative Net Flows as of December 31, 2016 Cumulative Flows (USD Billion) $1,400 $1,200 $800 $600 $600 $800 $1,200 $1, Active Mutual Funds Index ETFs Index Mutual Funds Mostly DC $$$ $800 B has entered equity ETFs since Financial Crisis $1,100 B has left active equity MFs since Financial Crisis Source: ICI 2016 Fact Book as-of 12/31/16 Most New Funds in 2017 Non core - Factor tilt - ESG mandate - Risk or volatility management feature - Narrowly focused These are funds that are not likely to get 20% of investor's strategic asset allocation Rather, funds might get a 5% slice 3

4 Launches by Broad Asset Class, Popular Categories Broad Asset Class Total Open End ETF Active Strategi c Beta Passive ESG Allocation Alternative Commodities Equity Fixed Income Tax Preferred % 44% 61% 17% 22% 10% Fixed Income Commodities 2017 Launches by Broad Asset Class Morningstar Category Total Open End ETF Active Beta Passive ESG Large Blend World Large Stock Foreign Large Blend Large Value High Yield Bond Multialternative Small Blend Corporate Bond Diversified Emerging Mkts Intermediate-Term Bond Allocation Fund Launches YTD 8/31/2017 # Funds Launched Open-End Active 142 Passive 34 Total 176 ETF Active 44 Passive 95 Total 139 Grand Total 315 Open End Active Open End Passive Active Beta Assets in Launched Funds USD bil Open-End Active 14,470,547, Passive 3,484,960, Total 17,955,507, ETF Active 1,715,471, Passive 3,022,103, Total 4,737,574, Grand Total 22,693,082, *strategic beta is a subset of passive in the tables and first two pies Open End Active Open End Passive *excludes Fidelity K6 classes, which are not new strategies, as well as Fidelity Flex and Series funds, which are used in proprietary advisory accounts and funds of funds, respectively 4

5 Most Launches by Provider Total Active Beta Passive ESG Take Wells Fargo open-end factor funds and misc pegged to in-house benchmarks; seven have 0.00% prospectus net expense First Trust misc ETFs Natixis new ESG target-date series 1290 Funds new target-date series multi-manager funds for existing Destinations fee-based advisory portfolios ishares misc ETFs Direxion leveraged or short exposure via ETFs Powershare s allocation and strategic beta ETFs Also of note: AB FlexFee funds American Beacon Alpha Quant Delta Shares Managed Risk Fidelity Flex target date series and underlying flex funds with 0.00% fees (to be captured by limited distribution through) Fidelity fee based advisors), Series funds (used in Fidelity FoF, 0.01% fee) Franklin Liberty ETFs, strategic beta Hartford ETFs QuantX, risk managed to in house benchmarks Growing Impact U.S. assets engaged in socially responsible investing strategies rise to $8.7 trillion $, Billions 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Source: US SIF Foundation 5

6 U.S. ETP Smart Beta Flows and Assets Flows and Assets as of July 31, 2017 Flows (USD Billion) $100 $90 $80 $70 $60 $50 $40 $30 $20 $ $900 $800 $700 $600 $300 $100 Assets (USD Billion) Net Flow Net Assets Source: ETFGI as of 07/31/17, ETF.com as of 07/31/17, 2017 Annualized Largest Funds Launched this Year Name Inception Date Single Fund Size USD Investment Morningstar Share Class Type Category Global Broad Category Group Socially Conscious Beta Index Fund Fund of Funds Institutional Minimum Investment Prospectus Net Expense Ratio Morningstar Fee Level - Broad Schwab US Aggregate Bond Index 2/23/2017 Yes 1,438,760,806 Open-End Fidelity SAI US Momentum Index 2/9/2017 Yes 1,078,577,266 Open-End SEI World Select Equity (SIIT) A 6/30/2017 Yes 982,727,419 Open-End Intermediate- Term Bond American Century NT High Income G 5/19/2017 No 723,807,291 Open-End High Yield Bond Fidelity Commodity Strategy 5/30/2017 No 690,488,186 Open-End *does not include Fidelity K6, Flex or Series funds, or Destinations line up 1 American Century NT High Income's Investor class has a Morningstar Fee Level Broad of Average Fixed Income No No Yes No No Low Large Growth Equity No Yes Yes No No Low World Large Stock Equity No No No No Yes 100, Low Fixed Income No No No No Yes Low 1 Commodities Commodit Broad Basket ies No No No No No Low 6

7 Ten Largest Funds Launched this Year, continued Name Inception Date Single Share Class Fund Size USD Investment Type Morningsta r Category Global Broad Category Group Socially Conscious Beta Index Fund Fund of Funds Institutional Minimum Investment Prospectus Net Expense Ratio Morningstar Fee Level - Broad Russell Inv Multi-Asset Growth Strat S 3/7/2017 No 622,327,252 Open-End World Allocation Allocation No No No No No Below Avg PowerShares Treasury Collateral ETF 1/10/2017 Yes 452,931,661 ETF Principal Active Global Dividend Inc ETF 5/9/2017 Yes 449,852,343 ETF DeltaShares S&P 500 Managed Risk ETF 7/31/2017 Yes 392,330,634 ETF Ultrashort Bond Fixed Income No No Yes No No 0.08 Low World Large Stock Equity No No No No No 0.58 Low Large Blend Equity No No Yes No No 0.60 Below Avg *does not include Fidelity K6, Flex or Series funds, or Destinations line up 1 American Century NT High Income's Investor class has a Morningstar Fee Level Broad of Average Share Class Types Launched 2017 Class Funds A 55 Adv 13 B 1 C 22 D 11 Inst 335 Inv 29 N 58 No Load 2 Other 323 Retirement 299 S 33 T 139 Total

8 U.S. ETP Passive Flows and Assets Flows and Assets as of July 31, 2017 Flows (USD Billion) $450 $350 $300 $250 $150 $100 $ $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $800 $600 Assets (USD Billion) Net Flow Net Assets Source: ETFGI as of 07/31/17, ETF.com as of 07/31/17, 2017 Annualized Institutional vs. Retail ETF Breakdown By Distribution Channel (USD trillion, percent) * Most international investors are Asia-Pac and European institutional clients. Source: Broadridge as-of 07/31/17 8

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