Risk & Return History I Selected Asset Classes Key Considerations for Asset Allocation Decisions June 2017 KEPPLER ASSET MANAGEMENT INC. 350 WEST 57 STREET I NEW YORK, NY 10019 I WWW.KAMNY.COM
Contents Page Wealth Indices I U.S. Capital Markets (1926 2016) Wealth Indices (Nominal Returns)... 2 Wealth Indices (Inflation Adjusted)... 5 U.S. Large Stocks (Nominal Returns)... 6 U.S. Government Bonds (Nominal Returns)... 7 U.S. Treasury Bills (Nominal Returns)... 8 Probability of a Positive Return... 9 Probability of Highest Return... 10 The Dangers of Market Timing (1926 2016) Value at Year-End 2016 of $1 Invested at Year-End 1925... 11 The Folly of Stock Market Timing (Harvard Business Review 1984)... 12 Time is More Important than Timing I The Power of Compounding Value of Initial Investment of $1,000 after 45 Years (One-Time Investment)... 13 Value of Initial Investment of $1,000 after 45 Years (With Additional Investments)... 14 Years Required to Reach Previous High (Duration in Years) Dow Jones Industrial Average (Price Index)... 15 Dow Jones Industrial Average (Total Return Index)... 16 Dow Jones Industrial Average (Inflation-Adjusted Total Return Index)... 17 U.S. Large Stocks (Inflation-Adjusted Total Return Index)... 18 U.S. Government Bonds (Inflation-Adjusted Total Return Index )... 19 U.S. Treasury Bills (Inflation-Adjusted Total Return Index)... 20 Value versus Growth I U.S. Capital Markets (1928 2016) U.S. Large Value Stocks versus Large Growth Stocks... 21 U.S. Small Value Stocks versus Small Growth Stocks... 24 Value versus Growth I International Developed Markets (1975 2016) MSCI World Value Index versus MSCI World Growth Index (Standard)... 27 Value versus Growth I International Emerging Markets (2001 2016) MSCI EM Value Index versus MSCI EM Growth Index (Standard)... 30 Appendix Notes on Data Series... 33 1
Wealth Indices I U.S. Capital Markets Nominal Returns: 2016 and 91-year Average (%) 1926-2016 (91 years) 14 12 10 12.0 10.0 9.1 1-year Return (2016) 8 6 4 2 5.2 4.5 5.7 3.8 3.4 2.1 2.9 91-year Average Annual Return (1926-2016) 0 U.S. Large Stocks 0.6 U.S. Government Bonds Gold U.S. Home Prices 0.3 U.S. Treasury Bills U.S. Consumer Prices Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 2
Wealth Indices I U.S. Capital Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) 2007-2016 20 15 12.0 14.7 1-year Return (2016) 10 5 0-5 8.9 6.9 1.7 1.2 0.6 4.2 9.1-1.2 6.2 6.5 5.7 5.1 0.1 0.3 0.7 0.1 0.1 2.1 1.2 1.4 1.8 3-year Average Annual Return (2014-2016) 5-year Average Annual Return (2012-2016) 10-year Average Annual Return (2007-2016) -5.9-10 U.S. Large Stocks U.S. Government Bonds Gold U.S. Home Prices U.S. Treasury Bills U.S. Consumer Prices Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 3
Wealth Indices I U.S. Capital Markets Nominal Returns 1926-2016 (91 years) 10,000 1,000 100 10 1 U.S. Large Stocks $ 6,035 (10.0 % p.a.) U.S. Government Bonds $ 97.74 (5.2 % p.a.) Gold $ 56.08 (4.5 % p.a.) U.S. Home Prices $ 29.31 (3.8 % p.a.) U.S. Treasury Bills $ 20.65 (3.4 % p.a.) U.S. Consumer Prices $ 13.47 (2.9 % p.a.) 0.1 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 4
Wealth Indices I U.S. Capital Markets Inflation Adjusted Returns 1926-2016 (91 years) 1,000 100 U.S. Large Stocks $ 448 (7.0 % p.a.) U.S. Government Bonds $ 7.26 (2.2 % p.a.) 10 Gold $ 4.16 (1.6 % p.a.) U.S. Home Prices $ 2.18 (0.9 % p.a.) 1 U.S. Treasury Bills $ 1.53 (0.5 % p.a.) 0.1 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others. Based on total returns in U.S. dollars with net dividends reinvested. 5
U.S. Large Stocks I Performance over Different Holding Periods Nominal Returns 1926-2016 (91 years) 200% 150% 100% 50% 0% -50% -100% 1-year periods 5-year periods 10-year periods 20-year periods 25-year periods High Average Low +162.8 % (6/32-6/33) +12.3 % -67.5 % (6/31-6/32) +36.1 % (5/32-5/37) +11.3 % -17.4 % (8/29-8/34) +21.4 % (5/49-5/59) +11.6 % -4.9 % (8/29-8/39) +18.3 % (3/80-3/00) +12.1 % +1.9 % (8/29-8/49) +17.3 % (12/74-12/99) +11.8 % +5.6 % (8/29-8/54) Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Annualized total returns in U.S. dollars with net dividends reinvested; rolling periods based on month-end data. 6
U.S. Government Bonds I Performance over Different Holding Periods Nominal Returns 1926-2016 (91 years) 40% 30% 20% 10% 0% -10% 1-year periods 5-year periods 10-year periods 20-year periods 25-year periods High Average Low +32.7 % (9/81-9/82) +5.4 % -5.6 % (10/93-10/94) +19.5 % (8/81-8/86) +5.6 % +0.7 % (5/48-5/53) +13.7 % (9/81-9/91) +5.8 % +1.2 % (5/43-5/53) +10.5 % (9/81-9/01) +6.2 % +1.6 % (12/39-12/59) +9.4 % (2/80-2/05) +6.4 % +2.1 % (8/41-8/66) Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Annualized total returns in U.S. dollars; rolling periods based on month-end data. 7
U.S. Treasury Bills I Performance over Different Holding Periods Nominal Returns 1926-2016 (91 years) 20% 10% 0% -10% 1-year periods 5-year periods 10-year periods 20-year periods 25-year periods High Average Low +15.2 % (11/80-11/81) +11.1 % (10/79-10/84) +3.5 % +3.7 % -0.1 % (1/38-1/39) 0.0 % (11/10-11/15) +9.2 % (10/77-10/87) +4.0 % +0.1 % (6/33-6/43) +7.7 % (6/72-6/92) +4.5 % +0.4 % (3/31-3/51) +7.2 % (9/66-9/91) +4.7 % +0.6 % (7/30-7/55) Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Annualized total returns in U.S. dollars; rolling periods based on month-end data. 8
Probability of a Positive Return Based on 91 years of U.S. Capital Markets History (Nominal Returns) 1926-2016 Holding Period (Years) U.S. Large Stocks (%) U.S. Government Bonds (%) U.S. Treasury Bills (%) 1 75 91 97 2 82 99 98 3 83 100 99 5 87 100 100 10 94 100 100 15 or more 100 100 100 Compound Annual Return 10.0 5.2 3.4 Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on calendar year total returns in U.S. dollars with net dividends reinvested. 9
Probability of Highest Return Based on 91 years of U.S. Capital Markets History (Nominal Returns) 1926-2016 Holding Period (Years) U.S. Large Stocks (%) U.S. Government Bonds (%) U.S. Treasury Bills (%) 1 64 26 10 5 70 26 4 10 80 16 4 15 84 13 3 20 99 1 0 21 or more 100 0 0 Compound Annual Return 10.0 5.2 3.4 Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on calendar year total returns in U.S. dollars with net dividends reinvested. 10
The Dangers of Market Timing 1926-2016 (91 years) $ 6,035 Value at Year-End 2016 of $ 1 Invested at Year-End 1925 $ 21.00 $ 20.65 U.S. Stocks U.S. Stocks minus 46 best months (= 4 % of all months) U.S. Treasury Bills Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on total returns in U.S. dollars with net dividends reinvested. 11
The Folly of Stock Market Timing Robert Jeffrey s Example Based on Quarterly Decisions: Stocks or Treasury Bills (Before Transaction Costs & Taxes) 1926-2016 (91 years) Original Study 1926-1983 KAM Update 1984-2016 100,000,000 1,000,000 10,000 100 1 0.01 0.0001 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year ~1 ~1.5 100 % Correct Decisions $ 256.7 Million U.S. Stocks (Large Stocks) $ 6,035 59 % Correct Decisions $ 6,035 50 % Correct Decisions $ 582 U.S. Treasury Bills $ 20.65 100 % Wrong Decisions 0.05 U.S. Cents Source: The Folly of Stock Market Timing, Harvard Business Review, July/August 1984. Based on total returns in U.S. dollars with net dividends reinvested. 12
Time is More Important than Timing I The Power of Compounding Value of Initial Investment of $ 1,000 after 45 Years 50,000 48,327 40,000 Without Additional Investments ($) 30,000 20,000 10,000 3,782 8,985 0 U.S. Treasury Bills U.S. Bonds U.S. Stocks Initial Investment ($) 1,000 1,000 1,000 Annual Follow-up Investment ($) - - - Total Investment ($) 1,000 1,000 1,000 Expected Total Annual Return (%) 3.00 5.00 9.00 Value after 45 Years ($) 3,782 8,985 48,327 13
Time is More Important than Timing I The Power of Compounding Value of Initial Investment of $ 1,000 after 45 Years 600,000 573,186 500,000 With Additional Annual Investments of $1,000 ($) 400,000 300,000 200,000 100,000 95,501 167,685 0 U.S. Treasury Bills U.S. Bonds U.S. Stocks Initial Investment ($) 1,000 1,000 1,000 Annual Follow-up Investment ($) 1,000 1,000 1,000 Total Investment ($) 45,000 45,000 45,000 Expected Total Annual Return (%) 3.00 5.00 9.00 Value after 45 Years ($) 95,501 167,685 573,186 14
25 Years Required to Reach Previous High? Dow Jones Industrial Average (Price Index) 1920-1954 500 450 400 $ 380.33 (August 1929) $ 386.77 (November 1954) 350 300 250 200 150 100 50 25 years 0 1920 1925 1930 1935 1940 1945 1950 1955 1960 Beginning of Year Source: The Dow Jones Averages 1885-1990, Phyllis S. Pierce ed. 15
25 Years Required to Reach Previous High? Dow Jones Industrial Average (Total Return Index) 1920-1954 1,800 Total Return Index $ 1,735.78 (November 1954) 1,600 1,400 1,200 1,000 $ 380.33 (August 1929) $ 382.60 (January 1945) 800 600 400 15 ½ years Price Index $ 386.77 (November 1954) 200 0 1920 1925 1930 1935 1940 1945 1950 1955 1960 Beginning of Year Dow Jones Industrial Average Price Index = $ 380.33 August 1929. Total Return Index = $ 380.33 August 1929. 16
25 Years Required to Reach Previous High? Dow Jones Industrial Average (Inflation-Adjusted Total Return Index) 1920-1954 1,200 Inflation-Adjusted Total Return Index $ 1,121.20 (November 1954) 1,000 800 600 $ 380.33 (August 1929) $ 391,84 (January 1937) 400 7 ½ years Price Index $ 386.77 (November 1954) 200 0 1920 1925 1930 1935 1940 1945 1950 1955 1960 Beginning of Year Dow Jones Industrial Average Price Index = $ 380.33 August 1929. Inflation-Adjusted Total Return Index = $ 380.33 August 1929. 17
Number of Years Required to Reach Previous High U.S. Large Stocks (Inflation-Adjusted Total Return Index) 1926-2016 (91 years) 1000 $ 3.18 (February 1945) $ 35.78 (December 1972) $ 307.92 (August 2000) $ 313.63 (May 2013) $ 448.11 (December 2016) 100 10 $ 3.04 (November 1936) $ 3.04 (August 1929) $ 3.18 (February 1937) $ 35.81 (June 1983) 1 7 ¼ years 8 years 10 ½ years 12 ¾ years 0.1 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). 18
45 Years Required to Reach Previous High U.S. Government Bonds (Inflation-Adjusted Total Return Index) 1926-2016 (91 years) 10 8 $ 7.26 (December 2016) 6 4 $ 2.42 (November 1940) $ 2.42 (November 1985) 2 45 years 1 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). 19
68 Years Required to Reach Previous High U.S. Treasury Bills (Inflation-Adjusted Total Return Index) 1926-2016 (91 years) 1.8 $ 1.73 (April 1933) $ 1.73 (October 2001) 1.6 $ 1.53 (December 2016) 1.4 1.2 1.0 0.8 68 years 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). 20
Value versus Growth I U.S. Capital Markets U.S. Large Value Stocks versus U.S. Large Growth Stocks in U.S. Dollars 1928-2016 (89 years) $ 100,000 $ 10,000 $ 1,000 $ 100 U.S. Large Value Stocks $ 13,212 (11.3 % p.a.) U.S. Large Stocks $ 3,932 (9.7 % p.a.) U.S. Large Growth Stocks $ 2,189 (9.0 % p.a.) $ 10 $ 1 $ $ 0.1 0 10 5 Max: 8.1 December 31, 2006 Relative Strength (Value/Growth) 6.0 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 21
Value versus Growth I U.S. Capital Markets Risk & Return Characteristics in U.S. Dollars Large Caps 1928-2016 (89 years) U.S. Large Value Stocks U.S. Large Stocks U.S. Large Growth Stocks Number of Years 89 89 89 Average Annual Return (%) 14.7 11.7 10.9 Compound Annual Return (%) 11.3 9.7 9.0 $1 Grows to ($) 13,212 3,932 2,189 Number of Winning Years 61 65 67 Highest Annual Return (%) 116.9 53.9 48.1 Probability of Annual Gain (%) 68.5 73.0 75.3 Average Gain in Winning Years (%) 28.3 21.0 19.7 Expectation of Annual Gain (%) 19.4 15.3 14.8 Number of Losing Years 28 24 22 Lowest Annual Return (%) -58.2-43.3-37.0 Probability of Annual Loss (%) 31.5 27.0 24.7 Average Loss in Losing Years (%) 14.9 13.6 15.9 Expectation of Annual Loss (%) 4.7 3.7 3.9 Longest Losing Streak (# of years) 4 4 4 Largest Drawdown from Previous High (%) 77.9 64.2 66.3 Standard Deviation of Annual Returns (%) 27.3 19.9 19.8 Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss 3.14 3.18 2.79 Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation 0.54 0.59 0.55 Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on total returns in U.S. dollars with net dividends reinvested. 22
Value versus Growth I U.S. Capital Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) 2007-2016 35 32.6 30 1-year Return (2016) 25 20 15 10 5 10.4 18.3 5.5 12.0 8.9 14.7 14.3 7.9 6.9 6.3 8.6 3-year Average Annual Return (2014-2016) 5-year Average Annual Return (2012-2016) 10-year Average Annual Return (2007-2016) 0 U.S. Large Value Stocks U.S. Large Stocks U.S. Large Growth Stocks Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 23
Value versus Growth I U.S. Capital Markets U.S. Small Value Stocks versus U.S. Small Growth Stocks in U.S. Dollars 1928-2016 (89 years) $ 1,000,000 $ 100,000 $ 10,000 $ 1,000 $ 100 U.S. Small Value Stocks $ 115,615 (14.0 % p.a.) U.S. Small Stocks $ 25,805 (12.1 % p.a.) U.S. Small Growth Stocks $ 2,667 (9.3 % p.a.) $ 10 $ 1 $ $ 0.1 0 50 25 Max: 43 December 31, 2016 Relative Strength (Value/Growth) 43 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 24
Value versus Growth I U.S. Capital Markets Risk & Return Characteristics in U.S. Dollars Small Caps 1928-2016 (89 years) U.S. Small Value Stocks U.S. Small Stocks U.S. Small Growth Stocks Number of Years 89 89 89 Average Annual Return (%) 18.6 16.6 13.8 Compound Annual Return (%) 14.0 12.1 9.3 $1 Grows to ($) 115,615 25,805 2,667 Number of Winning Years 63 61 61 Highest Annual Return (%) 118.7 142.4 159.4 Probability of Annual Gain (%) 70.8 68.5 68.5 Average Gain in Winning Years (%) 33.7 32.1 29.1 Expectation of Annual Gain (%) 23.8 22.0 20.0 Number of Losing Years 26 28 28 Lowest Annual Return (%) -51.9-58.0-48.6 Probability of Annual Loss (%) 29.2 31.5 31.5 Average Loss in Losing Years (%) 17.9 17.1 19.8 Expectation of Annual Loss (%) 5.2 5.4 6.2 Longest Losing Streak (# of years) 3 4 4 Largest Drawdown from Previous High (%) 83.4 85.7 80.6 Standard Deviation of Annual Returns (%) 32.2 32.1 32.5 Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss 3.55 3.10 2.21 Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation 0.58 0.52 0.42 Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 25
Value versus Growth I U.S. Capital Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) 2007-2016 45 42.0 40 35 1-year Return (2016) 30 25 20 15 10 5 8.0 16.1 19.4 15.3 13.0 9.1 7.7 7.1 6.9 5.8 3.3 3-year Average Annual Return (2014-2016) 5-year Average Annual Return (2012-2016) 10-year Average Annual Return (2007-2016) 0 U.S. Small Value Stocks U.S. Small Stocks U.S. Small Growth Stocks Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 26
Value versus Growth I International Developed Markets MSCI World Value Index versus MSCI World Growth Index (Standard) 1975-2016 (42 years) LC 10,000 MSCI World Value Index LC 6,460 (10.4 % p.a.) LC 3,000 LC 1,000 MSCI World Index LC 4,579 (9.5 % p.a.) MSCI World Growth Index LC 3,088 (8.5 % p.a.) LC 300 LC 100 3 2 1 Max: 2.5 December 31, 2006 Relative Strength (Value/Growth) 2.1 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Beginning of Year Source: MSCI and Keppler Asset Management Inc. Based on total returns in local currencies (LC) with net dividends reinvested. 27
Value versus Growth I International Developed Markets Risk & Return Characteristics 1975-2016 (42 years) MSCI World Value Index LC Source: MSCI and Keppler Asset Management Inc. Based on total returns (calendar years) in local currencies (LC) with net dividends reinvested. 28 MSCI World Index LC MSCI World Growth Index LC Number of Years 42 42 42 Average Annual Return (%) 11.7 10.8 10.0 Compound Annual Return (%) 10.4 9.5 8.5 1 LC Unit Grows to (LC) 65 46 31 Number of Winning Years 34 33 31 Highest Annual Return (%) 39.6 36.3 35.6 Probability of Annual Gain (%) 81.0 78.6 73.8 Average Gain in Winning Years (%) 17.6 17.4 18.3 Expectation of Annual Gain (%) 14.2 13.7 13.5 Number of Losing Years 8 9 11 Lowest Annual Return (%) -38.2-38.7-39.3 Probability of Annual Loss (%) 19.0 21.4 26.2 Average Loss in Losing Years (%) 13.1 13.3 13.5 Expectation of Annual Loss (%) 2.5 2.9 3.5 Longest Losing Streak (# of years) 2 3 3 Largest Drawdown from Previous High (%) 37.9 40.2 43.3 Standard Deviation of Annual Returns (%) 16.1 16.1 17.1 Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss 4.71 3.80 2.83 Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation 0.73 0.67 0.58
Value versus Growth I International Developed Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) 2007-2016 16 14 14.2 12.5 12.7 12.9 1-year Return (2016) 12 10 9.0 3-year Average Annual Return (2014-2016) 8 6 4 6.7 6.9 7.0 4.3 4.0 3.3 5.3 5-year Average Annual Return (2012-2016) 10-year Average Annual Return (2007-2016) 2 0 MSCI World Value Index MSCI World Index MSCI World Growth Index Source: MSCI and Keppler Asset Management Inc. Based on total returns in local currencies with net dividends reinvested. 29
Value versus Growth I International Emerging Markets MSCI EM Value Index versus MSCI EM Growth Index (Standard) 2001-2016 (16 years) $ 1,000 $ 500 $ 300 $ 200 MSCI EM Value Index $ 438 (9.7 % p.a.) MSCI EM Index $ 380 (8.7 % p.a.) MSCI EM Growth Index $ 326 (7.7 % p.a.) $ 100 $ 50 2.0 Max: 1.6 January 31, 2012 1.5 1.0 0.5 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Beginning of Year Relative Strength (Value/Growth) 1.3 Source: MSCI and Keppler Asset Management Inc. Based on total returns in U.S. dollars with net dividends reinvested. 30
Value versus Growth I International Emerging Markets Risk & Return Characteristics 2001-2016 (16 years) MSCI EM Value Index USD Source: MSCI and Keppler Asset Management Inc. Based on total returns (calendar years) in U.S. dollars with net dividends reinvested. 31 MSCI EM Index USD MSCI EM Growth Index USD Number of Years 16 16 16 Average Annual Return (%) 14.3 13.3 12.4 Compound Annual Return (%) 9.7 8.7 7.7 $1 Grows to ($) 4.4 3.8 3.3 Number of Winning Years 10 9 9 Highest Annual Return (%) 79.1 78.5 77.9 Probability of Annual Gain (%) 62.5 56.3 56.3 Average Gain in Winning Years (%) 33.0 34.9 33.3 Expectation of Annual Gain (%) 20.6 19.6 18.7 Number of Losing Years 6 7 7 Lowest Annual Return (%) -50.3-53.3-56.3 Probability of Annual Loss (%) 37.5 43.8 43.8 Average Loss in Losing Years (%) 16.7 14.3 14.5 Expectation of Annual Loss (%) 6.3 6.3 6.3 Longest Losing Streak (# of years) 3 3 3 Largest Drawdown from Previous High (%) 50.3 53.3 56.3 Standard Deviation of Annual Returns (%) 32.4 31.7 31.3 Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss 2.28 2.13 1.95 Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation 0.44 0.42 0.40
Value versus Growth I International Emerging Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) 2007-2016 20 15 14.9 1-year Return (2016) 10 5 0-5 -3.5-0.3 MSCI EM Value Index 11.2 2.7 2.0 1.8 1.3 1.6-2.6 MSCI EM Index 7.6-1.7 MSCI EM Growth Index 3-year Average Annual Return (2014-2016) 5-year Average Annual Return (2012-2016) 10-year Average Annual Return (2007-2016) Source: MSCI and Keppler Asset Management Inc. Based on total returns in U.S. dollars with net dividends reinvested. 32
Appendix: Notes on Data Series U.S. Large Stocks Standard & Poor's 500 Index (with dividends reinvested) (S&P 500, 1957 Present; S&P 90, 1926 1956) U.S. Small Stocks U.S. Large Value Stocks U.S. Small Value Stocks U.S. Large Growth Stocks U.S. Small Growth Stocks MSCI World Index MSCI Emerging Markets Index MSCI Growth and Value Indices U.S. Government Bonds 1926 1981: Fifth capitalization quintile of stocks on the NYSE January 1982 March 2001: Performance of the Dimensional Fund Advisors (DFA) U.S. 9 10 Small Company Portfolio April 2001 Present: Performance of the Dimensional Fund Advisors (DFA) Micro Cap Portfolio All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio lower than the 30th percentile of NYSE stocks and a market-capitalization larger than the median of NYSE stocks All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio lower than the 30th percentile of NYSE stocks and a market-capitalization smaller than the median of NYSE stocks All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio higher than the 70th percentile of NYSE stocks and a market-capitalization larger than the median of NYSE stocks All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio higher than the 70th percentile of NYSE stocks and a market-capitalization smaller than the median of NYSE stocks The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets (currently 23): https://www.msci.com/world The MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets (currently 23): https://www.msci.com/emerging-markets Please see MSCI website for complete methodology description: http://msci.com/eqb/methodology/meth_docs/msci_dec07_gimivgmethod.pdf Maturity: 5 Years (1926 2014: Source = Ibbotson SBBI 2015 Classic Yearbook; 2016: S&P 5-year U.S. Treasury Note Futures Index) U.S. Treasury Bills Maturity: 30 Days (1926 2014: Source = Ibbotson SBBI 2015 Classic Yearbook; 2016: S&P/BGCantor 0-3 Month U.S. Treasury Bill Index) U.S. Inflation CPI All Urban Consumers, not seasonally adjusted Gold London Bullion Market Association; December 1925 = $1 U.S. Home Prices Robert J. Shiller, www.irrationalexuberance.com; Nominal Home Price Index 33