Wakefield Asset Management Large Cap Equity Quarterly Commentary Q3 2018 as of 9/30/2018 Gross Performance S&P 500 Q3 2018 YTD 1 Year 3 Years 5 Years 10 Years Since Incep on 2.72 6.01 16.33 18.41 16.46 14.77 12.06 7.71 10.56 17.91 17.31 13.95 11.97 8.23 Quarter In Review The S&P 500 reached new all me highs during the month of September as growth stocks con nued to outperform value. Health Care, Industrial and Informa on Technology sectors all posted double digit returns in the 3 ᵈ quarter. Every sector posted a posi ve return for the quarter. Economic data remained strong, supported by a sub 4% unemployment rate and accelera ng wage growth. 2 ᵈ quarter GDP came in at 4.2%, the highest growth rate since 2014. Stocks shrugged off escala ng trade war tensions as the U.S. levied addi onal tariffs on $200 billion of Chinese goods. During the quarter, there was a significant reclassifica on of the S&P 500 GICS sectors. The three members of the Telecom sector were joined by 13 media companies from the Consumer Discre onary sector and 6 companies from the Informa on Technology sector to form a new Communica on Services sector. This new sector comprises 10% of the index and includes companies like Facebook, Ne lix and Alphabet (Google). Informa on Technology remains the largest sector within the S&P 500 but saw its weight decline by almost 6% a er the reclassifica on. Third Quarter Performance Review The Por olio returned 2.72% for the quarter, trailing the S&P 500 return of 7.71%. Holdings in the Industrials (up 10.83% versus 9.99% for the S&P 500) and Materials (up 2.29% versus 0.35% for the S&P 500) were the lone sectors to outperform during the quarter. Health care stocks provided the greatest contribu on to returns this quarter despite trailing the benchmark slightly (up 12.77% versus 14.5% for the S&P 500). This also marked the second consecu ve quarter the strategy underperformed the index. Intui ve Surgical was the best performing posi on during the quarter, returning 19.96%. The Da Vinci surgical system maker posted be er than expected quarterly results with revenue expected to grow at over 30% year over year. NVIDIA advanced 18.69%, repor ng earnings of $1.94 versus a $1.85 es mate. The semiconductor company closed at an all me high at the end of September. Total System Services was up nearly 17% for the quarter a er delivering a small earnings beat and giving upbeat guidance for the rest of the year. The company provides merchant processing services as well as a variety of financial solu ons for individuals and businesses. Holdings in the Informa on Technology sector (up 6.62% versus up 12.46% for the S&P 500) contributed the most to the strategy s underperformance during the third quarter. The por olio s exposure to this sector remains significantly less than the overall market, especially when including the companies that joined the Communica on Services sector in September. Seagate Technology (down 12.84%) and Applied Materials (down 6.49%) both lagged sector returns. Posi ons in the Energy ( 6.77% versus up 0.65% for the S&P 500) and Health Care sectors also detracted from performance. Health Care stocks trailed the sector slightly (up 12.77 versus 14.5% for the S&P 500) but the por olio was nearly 5% underweight rela ve to the S&P 500. During the quarter, the por olio held 33 companies that reported earnings. 26 exceeded Wall Street es mates, while seven missed expecta ons. The por olio s earnings beat rate of 78.79% was below the 83.6% beat rate for all companies in the S&P 500. This marks the first quarter in quite some me that the strategy s beat rate was below the market. While companies within the por olio also saw a higher number of posi ve earnings es mate revisions than expected, there was also a higher number of nega ve earnings es mate revisions than expected. Intui ve Surgical Inc NVIDIA Corp Total System Services Inc Progressive Corp^ Align Technology Inc Motorola Solu ons Inc Lockheed Mar n Corp^ Tapestry Inc * United Rentals Inc Sysco Corp * Sold During the Quarter ^ Bought During the Quarter Top 10 Performers Symbol ISRG NVDA TSS PGR ALGN MSI LMT TPR URI SYY Contribu on 19.96 0.62 18.69 0.56 16.98 0.51 14.75 0.45 14.35 0.44 12.29 0.42 10.41 0.32 10.58 0.30 10.83 0.30 7.82 0.24 Seagate Technology PLC^ Phillips 66^ Wynn Resorts Ltd * SunTrust Banks Inc^ Na onal Oilwell Varco Inc^ Pioneer Natural Resources Co * State Street Corpora on * The Estee Lauder Companies Inc * Macy's Inc Applied Materials Inc * Bo om 10 Performers Symbol STX PSX WYNN STI NOV PXD STT EL M AMAT Contribu on 12.84 0.41 7.71 0.24 8.04 0.24 7.41 0.23 7.07 0.22 6.97 0.21 6.83 0.21 6.71 0.20 6.23 0.18 6.49 0.17
Earnings Surprise Beat Comparison Holdings Repor ng Earnings in Q3 Earnings Beats Earnings Misses Earnings Met Earnings Beat % S&P 500 33 26 7 0 78.79% 500 418 80 2 83.60% Year-to-Date Performance Review For the 9 months ended September 30, 2018, the por olio has advanced 6.01% versus 10.56% for the S&P 500. The Health Care sector (up 49.58% versus 16.50% for the S&P 500) led by Align Technologies (up 76.07%), Intui ve Surgical (up 57.29%) and Baxter Interna onal (up 20.18%) led all sectors in the strategy. Consumer Staples companies (up 11.87% versus 3.72% for the S&P 500) were posi ve in the por olio despite nega ve returns for the sector within the S&P 500 overall. U li es, Financials and Industrials sector returns were also above the benchmark through the end of the 3 ᵈ quarter. Time Period: 7/1/2018 to 9/30/2018 Communica on Services Sector Rela ve to S&P 500 0.4 Informa on Technology stocks (up 10.41% versus 25.11% for the S&P 500) were the largest detractor to overall returns through the first 9 months of the year due both in part to rela ve underweight posi oning and underperformance of stocks within the sector. Energy (down 11.5% versus up 7.55% for the S&P 500) and Consumer Discre onary (up 3.06% versus 21.8% for the S&P 500) stock also weighed on performance. Consumer Discre onary 1.2 Market Outlook Consumer Staples 0.5 There s li le doubt it is late in the economic cycle and yet, earnings are projected to grow at double digit rates through most of 2019. As of this wri ng, equity valua ons have retreated from their all me highs, due to earnings growth and price consolida on. The biggest risk to the economy is likely an overaggressive Fed, on pace for a fourth rate hike in 2018. Tightening beyond the neutral rate would lead to an inverted yield curve and wider credit spreads, bringing more vola lity to risk assets and the poten al for an economic recession. Reac ons were mostly subdued through the 3 ᵈ quarter, but we expect increased trade tensions may spill over into U.S. equity markets should rhetoric pick up. Material disrup ons to global growth could move the economy closer to a downturn which most economists forecast for some me in 2020. Any resolu on to escala ng trade tensions could provide momentum for further equity market gains. We remain disciplined with our investment strategy and our long running investment mandate. As a result, the por olio is underweight Informa on Technology, Communica on Services and Health Care stocks rela ve to the market cap weighted S&P 500. Our investment process calls for the strategy tobe in line with the sector weigh ngs of the Equal Weight S&P 500. Over me, this has been benefi cal. Essen ally, this discipline forces the por olio to be underweight what has gone up the most and overweight the sectors that have trailed. This year it has been a drag on perforrmance, but we expect this will add value over the full market cycle. We ve included an update to a research piece first published in the 3 ᵈ quarter of 2016 following quarters of consecu ve underperformance. This period marks the 12ᵗ me our strategy has trailed the S&P 500 two quarters in a row. Energy Financials Health Care Industrials Informa on Technology Materials 1.4 0.8 0.5 1.2 0.1 0.2 Analyst Earnings Es mates Comparison Real Estate 0.2 U li es 0.1 2.0 1.4 0.9 0.3 0.2 0.8 Past performance is not indica ve of future results. Holdings presented here represent a par al list of holdings in the Large Cap Equity model por olio during the me period indicated. Trades executed in actual accounts may differ from the model depending upon the size of the account, investment objec ves and restric ons, capital contribu ons and withdrawals, the amount of transac on and related costs, the incep on date of the account and other factors. It should not be assumed that investments in the securi es iden fied were or will be profitable or that recommenda ons made in the future will be profitable or will equal the performance of the securi es presented here. A complete list of securi es purchased and sold in the last 12 months in the Large Cap Equity por olio is available upon request. Top & Bo om performances are gross returns, with contribu on calculated on a asset weighted basis. Please send informa on requests to investorrela ons@wakefieldinc.com. This report is provided as general informa on only and should not be taken as investment advice. This report shall not be construed as a recommenda on to buy or sell any security or financial instrument, or to par cipate in any par cular trading or investment strategy. Some informa on in this report was generated based on informa on from a third party and is believed to be reliable. Wakefield makes no representa on as to the accuracy or completeness of the third party informa on provided in this report. Please refer to the a ached performance presenta on for net of fee composite returns, disclosures and further informa on about Wakefield Asset Management and our Large Cap Equity strategy. Forms ADV part 1 and 2 are available upon request. Data source: Morningstar Direct, Bloomberg.
3rd Quarter September 30, 2018 Update Year to date through September 30, 2018, the por olio returned 6.0%, trailing the S&P 500 return of 10.6%. Prior to 2018, there have been eleven mes where the por olio has trailed the S&P 500 for two consecu ve quarters. Following two consecu ve quarters of underperformance, the por olio has outperformed the S&P 500 ten mes out of eleven the following 12 months. The table below shows performance one year a er trailing for two consecu ve quarters. The chart below shows performance for the following three years a er trailing for two consecu ve quarters. In all nine periods the por olio outperformed the S&P 500. 3 Year Forward Cumulatuve Gross s When Trailing S&P 500 for 2 Consecu ve Quarters 82.5% 75.0% 67.5% 6 52.5% 45.0% 37.5% 3 22.5% 15.0% 7.5% 7.5% 15.0% 22.5% 18.6 6.2 10.5 9.1 3.1 2.1 32.6 8.5 59.7 41.6 3 10/1/98 9/30/011/1/99 12/31/01 7/1/01 6/30/04 4/1/02 3/31/05 10/1/03 9/30/06 10/1/06 9/30/09 10/1/07 9/30/10 7/1/09 6/30/12 4/1/10 3/31/13 1/1/15 12/31/17 0.9 15.4 10.5 20.0 74.0 57.7 68.0 43.0 16.4 11.4 This report shows gross of fee composite performance for the one and three year me periods following consecu ve quarters in which returns trailed the S&P 500. This analysis is for advisor use only or for one on one investor presenta ons when viewed in conjunc on with Large Cap Equity quarterly fact sheet which provides full detail on Wakefield s Gross and Net performance for all me periods. s used in this analysis are gross of fee returns which do not include the impact of advisory fees, but may be net of broker fees and commissions. The client s actual return will be reduced by such fees which are described in the detail in part 2 of the Form ADV and any other expenses that may be incurred in the management of its account. s are calculated on a trade date basis. Performance calcula ons are me weighted and include the reinvestment of dividends and other earnings, net of transac ons costs and do not reflect the effects of taxes. Actual results may differ from the composite results depending upon the size of the account, investment objec ves and restric ons, the amount of transac on and related costs, the incep on date of the account and other factors. Wakefield Asset Management is a registered investment advisor. Past performance is not indica ve of future results. Forms ADV part 1 and 2 are available upon request. The performance results of all of the firm's composites are available upon request. The informa on on this page is supplemental to the GIPS compliant disclosure on page 4 of the Large Cap Equity Quarterly update. Source: Morningstar Direct
While the overall market is efficient, pockets of inefficiency do exist. Wakefield Asset Management offers a unique investment strategy which we believe stands apart from the mainstream investment community. Focusing on proprietary investment techniques that not only iden fy market inefficiencies, but capture those inefficiencies over me. Wakefield uses a highly disciplined and technologically advanced process for research, security selec on, implementa on, and monitoring. The resul ng por olios exhibit a unique combina on of characteris cs with posi ve near term expecta ons that, in our view, will be rewarded by the market in the period ahead regardless of market direc on. In our management and research, our goals are Focus, Crea vity, Intellectual Honesty, and Con nuous Improvement. s (Gross of Fee) 2 18.0% 16.0% 14.0% 12.0% 1 8.0% 7.7 10.6 16.3 17.9 18.4 17.3 16.5 13.9 14.8 12.0 12.1 8.2 6.0% 6.0 4.0% 2.0% 2.7 Q3 2018 YTD 2018 1 Year 3 Years 5 Years 10 Years Since Incep on The informa on on this page is supplemental to the GIPS compliant disclosure presenta on on page 4 which also shows net performance returns. Page 1
Performance Rela ve to Peer Group Peer Group (5 95%): Separate Accounts/CITs U.S. Large Blend Calcula on Benchmark: Top Quar le 2nd Quar le 3rd Quar le Bo om Quar le 2 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 1 9.0% 8.0% 1 Year 3 Years 5 Years 10 Years 15 Years Top Holdings GICS Sector Weigh ngs Motorola Solu ons Inc Baxter Interna onal Inc Intui ve Surgical Inc NVIDIA Corp Progressive Corp Total System Services Inc Align Technology Inc Lockheed Mar n Corp Microso Corp Symbol Weight % MSI 3.6 BAX 3.4 ISRG 3.4 NVDA 3.4 PGR 3.4 TSS 3.4 ALGN 3.3 LMT 3.2 MSFT 3.2 Energy Materials Industrials Consumer Discre onary Consumer Staples Healthcare Financials Informa on Technology Communica on Services U li es Real Estate 2.4% 3.0% 2.8% 2.7% 6.0% 5.6% 6.7% 9.7% 8.9% 10.3% 10.1% 1 11.3% 12.1% 14.6% 15.0% 14.4% 13.3% 18.6% 21.0% Amazon.com Inc AMZN 3.1 Large Cap Equity Holdings as of September 30, 2018. Holdings are subject to change at any me. Posi ons, and posi on size, may vary from account to account. A full lis ng of investment decisions made in the past year is available upon request. It should not be assumed that recommenda ons made in the future will be profitable or will equal the preformance of the securi es presented here. This holdings list should not be considered a recommenda on to buy or sell any security. The informa on on this page is supplemental to the GIPS compliant disclosure presenta on on page 4 Page 2
Wakefield Large Cap Por olio Characteris cs # of Stock Holdings Wakefield LCE S&P 500 TR 33 505 Average Market Cap (mil) 97,107 51,068 Median Market Cap (mil) 28,138 21,452 P/E Ra o (TTM) 17.71 20.96 P/B Ra o (TTM) 3.55 3.34 % Giant 15.6 Large 55.0 Mid 29.4 Small 0.0 % Giant 56.1 Large 34.1 Mid 9.8 Small 0.0 Dividend Yield Ac ve Share 1.73 1.84 88.67 Informa on Sta s cs - 5 Year Alpha Beta Sharpe Ra o R Squared 2.59 0.98 1.49 82.73 Capture Ra o - 5 Year Calcula on Benchmark: 13 12 11 10 Informa on Ra o Tracking Error Standard Devia on 0.59 4.26 10.23 Up Capture Ra o 9 8 7 7 8 9 10 11 12 13 Ba ng Average 51.67 Down Capture Ra o Investment Growth Time Period: 5/1/1997 to 9/30/2018 1,300.0 1,100.0 900.0 700.0 500.0 300.0 100.0 1998 2003 2008 2013 2018 The informa on on this page is supplemental to the GIPS compliant disclosure presenta on on page 4 which also shows net performance returns. s Above Benchmark Excess 4.5 4.0 3.8 3.5 3.0 2.8 2.5 2.5 2.0 1.5 1.1 1.0 0.5 0.0 0.5 1.0 1.5 2.0 1.6 1 Year 3 Years 5 Years 10 Years Since Incep on Page 3
Wakefield Asset Management claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Wakefield Asset Management has been independently verified for the periods July 1, 2003 through June 30, 2018. Verifica on assesses whether (1) the firm has complied with all the composite construc on requirements of the GIPS standards on a firm wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The composite has been examined for the periods July 1, 2003 through June 30, 2018. The verifica on and performance examina on reports are available upon request. Page 4