High Dividend Value Equity Q Commentary. Market Review:

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1 S C H A F E R C U L L E N High Dividend Value Equity Q Commentary Market Review: C A P I T A L M A N A G E M E N T In the third quarter of 2016, the S&P 500 and Russell 1000 Value returned 3.9% and 3.5%, respectively. Heading into the quarter, anxiety filled worldwide financial markets following the UK s decision to exit the European Union. Amid the flight to safety in early July, the 10-year U.S. Treasury yield reached an all-time low of 1.32%. However, after a strong June jobs report and the abatement of Brexit concerns, positive sentiment was quickly restored and stocks reached record highs by mid-july. Even with several consecutive solid monthly jobs reports, the Fed chose to leave interest rates unchanged following its July and September meetings. The Fed did acknowledge in their September statement the strengthened case for a rate increase before the end of 2016, conceding to the concerns about the potential negative consequences of keeping rates too low for too long. The third quarter was characterized by a risk-on appetite with significant outperformance of high beta vs. low beta, cyclicals vs. defensives, small-caps vs. large-caps, and low quality over high quality (Figure 1). This was in contrast to the strong performance of low beta, defensive high-dividend yielding equities in the first half of the year (Figure 2). Sector sentiment shifted, driven by both stabilizing global economic data aiding cyclical sectors and the anticipation of the Federal Reserve s action on interest rates. The prospect of Fed tightening caused investors to sell off the Utilities (-5.9%) and Telecom (-5.6%) sectors, as stocks in these high-yielding sectors are widely viewed as bond substitutes. In contrast, Financials gained 6.8% in the quarter, as banks and insurers stand to benefit from higher rates on their earning assets. Information Technology was the best-performing sector (+12.9%), driven by renewed market momentum and solid growth prospects in commercial and consumer end markets. The Energy sector (+2.3%) rallied late in the quarter when OPEC oil ministers tentatively agreed to a modest production cut, however the proposed plan will not be finalized until November. Figure 1: 3Q 2016 Market Factor Attribution 1 of 7 Source: Strategas Research, September 2016.

2 Figure 2: H vs. 2H Performance Source: Strategas Reseach, October Despite the dire forecasts predicted in the Leave outcome, the UK equity market surprisingly delivered one of the strongest developed market returns since the Brexit vote, +8.9%. The outcome of the U.S. Presidential election has similarly caused anxiety over U.S. markets, however companies and markets have historically adapted to the new market environment and we are likely to see the cloud of uncertainty lift post-election. Performance Analysis: The High Dividend Value Equity composite returned 1.1% net of fees in the third quarter of 2016 versus 3.9% for the S&P 500 and 3.5% for the Russell 1000 Value (Figure 3). The recent strength of cyclical, higher rate-benefitting sectors such as Financials and Information Technology over the more stable sectors of the market drove the relative underperformance in the quarter. Year-to-date, the strategy has returned 8.5% versus 7.8% for the S&P 500 and 10.0% for the Russell 1000 Value. Figure 3: High Dividend Value Equity Returns vs. Benchmark Q3 YTD 1 Yr 3 Yr 5Yr 10 Yr Since Incept* High Dividend Value Equity (net) S&P 500 Index Russell 1000 Value Index *December 31, Performance for periods greater than 1 year is annualized. 2 of 7

3 Portfolio Attribution: Attribution Effects High Dividend Value vs. Russell 1000 Value 6/30/2016 9/30/2016 Source: SCCM/Bloomberg, 9/30/2016 The following attribution analysis of the High Dividend Value Equity portfolio is compared to the Russell 1000 Value benchmark. The Utilities sector was the largest contributor to relative performance due to our underweight allocation in the worst performing sector for the benchmark. Stock selection was slightly positive as NextEra Energy, our only utility stock in the portfolio, declined 5.5% during the quarter and in-line with the sector, giving back some of its total year-to-date gains. Information Technology was the strongest performing sector for the benchmark during the quarter. Our strategy s overweight allocation and strong stock selection helped drive excess returns in the sector with Intel, Cisco, Microsoft and Corning each up double digits. Microsoft also raised its dividend by 8.3% during the quarter. Real Estate was recently separated from Financials and added as a new independent sector under the Global Industry Classification Standard (GICS). Our strategy had a slight underweight during the quarter with a 4.9% allocation versus 5.2% for the benchmark. Our exposure outperformed with HCP returning 8.9% while Welltower delivered in-line returns of -0.7% during the quarter. Within Health Care, superior stock selection helped 3 of 7

4 drive sector returns above the benchmark with AstraZeneca, Merck and Eli Lilly outperforming their peers during the quarter. The Materials sector added to positive absolute performance during the quarter as our sole position in DuPont delivered a near 4% gain during the quarter, which was slightly behind with the benchmark s average. The Telecommunication Services sector was the second worst performing sector for the benchmark. Our overweight allocation was a detractor from relative performance despite positive stock selection. The Consumer Discretionary sector was a detractor to relative performance due to our underweight allocation and weak stock performance during the quarter. The strategy s underweight allocation to the Energy sector aided relative performance during the quarter; however, our exposure to Integrated Oil & Gas companies hurt performance as the more oil price sensitive E&P stocks rallied near quarter-end. Industrials detracted from relative performance as the benchmark s allocation to commodity related businesses outperformed our global, blue-chip stocks. The strategy s Consumer Staples exposure gave back some of the year-to-date gains during the third quarter, with the exception of Diageo which performed well in the quarter. Philip Morris International and Altria raised their dividend payments by 2.0% and 8.0%, respectively, during the quarter. The Financials sector was the second strongest performing sector for the benchmark; the strategy s underweight exposure hurt performance in the quarter. Chubb, Travelers and Wells Fargo sold off in the quarter while HSBC, JP Morgan and MetLife performed well. Portfolio Changes: There were no portfolio changes during the quarter. Dividend Summary: In the quarter, three portfolio companies raised their dividend payments with an average increase of 6.1%: Microsoft (MSFT) raised its dividend payment by 8.3% Altria (MO) raised its dividend payment by 8.0% Philip Morris International (PM) raised its dividend payment by 2.0% Year-to-date, 24 out of 37 portfolio companies have raised their dividends with an average increase of 6.9%. Market Outlook: The extraordinarily accommodative monetary policies set forth by global central banks, from quantitative easing to zero interest rates (ZIRP) and even negative interest rates (NIRP), have pushed investors further into fixed income assets and complex structured products, raising the risk of overheated markets. While there has been some concern about flows into high dividend yielding equities, money has continued to pour into bond funds at the expense of equity funds (Figure 4). 4 of 7

5 Figure 4: Equity and Bond Flows including ETFs Year Net Flows into Mutual Funds + ETFs ($bn) Domestic Equity International Bond Money Mkt YTD TOTAL Source: Strategas Research, September 30, High dividend equities have outperformed the overall market over the long-term. Currently, an appeal of high dividend yielding equities is their attractive valuations and higher and growing dividend streams relative to Treasury s. The percentage of stocks in the S&P 500 with dividend yields greater than 10-year Treasury yields is at a 50-year high (Figure 5). Figure 5: Percentage of S&P 500 Stocks with Dividend Yields > 10-Year Treasury Yields Source: Ned Davis Research, 9/30/2016. While dividends are a key consideration of the High Dividend Value Equity strategy, the valuation discipline focused on investing in low Price/Earnings stocks with sustainable and growing dividends is the core tenet of the strategy. Figure 6 provides the current and historical valuation of each S&P 500 sector and the High Dividend Value equity exposure by sector. The strategy is currently underweight in 5 of 7

6 several of the most expensive sectors of the market, Energy, Utilities, and REITs and overweight to the least expensive sectors in the market Healthcare, Technology and Telecom. We believe the strategy remains well-positioned to deliver superior risk-adjusted returns over market cycles. Figure 6: S&P Current and Historical Valuations and SCCM Exposure Source: Strategas Research, SCCM Research, Bloomberg, September 30, 2016 The valuation, dividend yield and dividend growth of our portfolio remain attractive. At quarter-end: The strategy s P/E is 16.0x 2016 earnings versus 18.4x for the S&P 500 and 17.7x for the Russell 1000 Value. The strategy s dividend yield is 3.6% versus 2.1% for the S&P 500 and 2.7% for the Russell 1000 Value. Dividend growth: In Q3, 3 additional companies raised their dividends with the average increase being 6.1%. Year-to-date, 24 out of 37 portfolio companies have raised their dividends with an average increase of 6.9%. Best Regards, Schafer Cullen Capital Management, Inc. 6 of 7

7 Disclosure: Schafer Cullen Capital Management (SCCM or the Adviser ) is an independent investment advisor registered under the Investment Advisers Act of This information should not be used as the primary basis for any investment decision nor should it be considered as advice to meet your particular investment needs. The portfolio securities and sector weights may change at any time at the discretion of the Adviser. It should not be assumed that any security transactions, holdings or sectors discussed were or will be profitable, or that future recommendations or decisions will be profitable or equal the investment performance discussed herein. Investing in equity securities is speculative and involves substantial risk. Past performance is no guarantee of future results. Market conditions can vary widely over time and can result in a loss of portfolio value. Individual account performance results will vary and will not match that of the composite or model. This variance depends on factors such as market conditions at the time of investment, and / or investment restrictions imposed by a client which may cause an account to either outperform or underperform the composite or model s performance. A list of all recommendations made by SCCM within the immediately preceding period of not less than one year is available upon request. The strategy depicted in this report has been managed in accordance with the investment objectives of the strategy as determined by the Adviser. The Adviser has selected benchmarks, which in their opinion closely resemble the style of the securities held in the composite or model portfolio of the strategy (e.g. large cap value, small cap value, international, etc.). The securities held in the composite or model are actively managed while the benchmark index is not. Investors should be aware that the Adviser makes no attempt to match the portfolio securities, or the security weightings of the benchmark. The composite or model s performance will be affected greater by the price movements of individual securities as the composite or model is more concentrated, generally less than 100 securities, while a comparative benchmark will generally have between 500 and 2,500 securities where individual security price movements have a lesser affect. An individual cannot invest directly in an index. In the case where this report displays model results, please be aware that such results do not represent actual trading and that results may not reflect the impact that material economic and market factors might have had on the Adviser's decision-making if the Adviser were actually managing clients' money. Model and actual results reflect the deduction of advisory fees, brokerage or other commissions, and any other expenses that a client would have paid or actually paid (Net of Fee performance) and reflect the reinvestment of dividends and other earnings. Schafer Cullen Capital Management, Inc. makes no representation that the use of this material can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; SCCM makes no representation, either directly or indirectly, that any graph, chart, formula or other device being offered herein will assist any person in making their own decisions as to which securities to buy, sell, or when to buy or sell them. All opinions expressed constitute Schafer Cullen Capital Management s judgment as of the date of this report and are subject to change without notice. 7 of 7