The Equity Imperative

The Equity Imperative Factor-based Investment Strategies 2015 Northern Trust Corporation

Can You Define, or Better Yet, Decipher? 1

Spectrum of Equity Investing Techniques Alpha Beta Traditional Active e.g. Higher tracking error strategies Engineered Equities Quality Low Volatility Value Dividend Yield Size Gain/Loss Management ESG Considerations Cap-Weighted Index e.g. ACWI IMI + Frontier Markets 2

Are Investors Using Factors?? Do you employ factor tilt strategies in your listed equity portfolio?? If you use factor tilts which risk factor do you employ most frequently? 16.9% 16.9% 51.2% 48.9% 16.9% 13.9% 33.9% 1.5% Yes No Momentum Value Volatility Leverage Size Quality Source: Northern Trust Asset Management Investor Survey 2014 3

What the Research Reveals Equity Factors

Using and Combining Factor Tilts Q: What are Factor Tilts? A: The idea of using factor tilts is to create a portfolio designed to gain exposure to compensated risks through tilting towards chosen factors. Factor tilts provide more predictable risk and return patterns Most managers who are hired underperform their track record significantly (Goyal and Wahal, 2008) Managers who take factor tilts have some persistence in returns while those that make fundamental bets have no persistence in returns (Carhart, 1997) Increased risk and active share do not necessarily translate into long-term outperformance Our research shows a systematic approach with stable Sharpe and information ratios leads to long-term outperformance Investment objectives 1) Take risk explicitly Information Ratio 1.20 1.00 0.80 0.60 0.40 0.20 3 Year Pre and Post Hire IRs 2) Get paid for risk (0.20) Pre Hire Post Hire From Goyal, A. and Wahal, S., The Selection and Termination of Investment Managers by Plan Sponsors, Journal of Finance 63(4) 1805 1847, 2008 5

Financial Market Anomalies: An Analysis of the Value Factor Valuation Quintile Returns and Sharpe Ratios Action: Order index securities by quintile, based on value ranking Value Quintile Russell 3000 Average Annualized Equally Weighted Returns MSCI World ex US MSCI EM IMI 1979 - Jun 2014 1995 - Jun 2014 2007- Jun 2014 Index 13.4% 8.0% 4.8% Cheap Q1 18.4% 15.0% 14.6% Observation: Higher quintile securities outperform on an absolute and risk adjusted basis Q2 17.4% 11.4% 11.2% Q3 14.0% 7.6% 8.0% Q4 13.4% 7.5% 5.0% Expensive Q5 11.6% 6.3% -1.2% Average Return per unit of Risk Index 0.87 0.48 0.18 Cheap Q1 0.78 0.65 0.45 Q2 0.97 0.63 0.38 Q3 0.77 0.44 0.28 Q4 0.68 0.44 0.19 What explains these anomalies? Expensive Q5 0.49 0.33-0.04 Source: Northern Trust Quantitative Research 6

Similar Analysis Across Factors Confirms Approach Returns and Sharpe Ratios by Factor Quintile: Russell 3000 Returns 1979 to June 2014 Russell 3000 Value Size Momentum Volatility Dividend Yield* NT Quality High 1 18.4% 11.4% 17.8% 7.0% 16.6% 22.0% 2 17.4% 12.5% 16.5% 16.7% -- 18.6% 3 13.4% 14.0% 14.0% 14.6% 17.7% -- 14.5% 4 13.4% 14.3% 15.2% 16.7% -- 12.7% Low 5 11.6% 14.7% 10.7% 15.8% 12.9% 6.3% Sharpe Ratio 1979 to June 2014 Russell 3000 Value Size Momentum Volatility Dividend Yield NT Quality High 1 0.78 0.71 0.78 0.21 1.04 1.19 2 0.97 0.83 0.96 0.70 -- 1.04 3 0.77 0.77 0.88 0.87 0.96 -- 0.77 4 0.68 0.85 0.80 1.08 -- 0.63 Low 5 0.49 0.72 0.36 1.35 0.52 0.26 Compensated Factors include: Source: Northern Trust Quantitative Research High Value = Inexpensive Low Size = Small *The US market is classified as dividend payers vs. non-dividend payers High Momentum Low Volatility Dividend Payers High NT Quality 7

The Concept Of Quality Research by both academics and index providers has demonstrated that portfolios with a core holding of high-quality companies tend to outperform their benchmark and offer some downside protection over a full market cycle. Our internal analysis has shown that between 1979 and 2014, the stocks in the highest quintile of quality outperformed the lowest quintile of quality by close to 1500 basis points per year, and outperformed the Russell 3000 by more than 800 basis points per year. Correlations show a high degree of consistency between returns of high volatility and returns of low quality. Although quality is among the most overused terms in the investment vernacular, there are some quantifiable measures common to most quality approaches: A company s earnings patterns A company s cash flow A company s debt level A company s income stream A company s management team by examining capital expenditures and asset turnover rates Source: Northern Trust Quantitative Research These companies also are better positioned to deliver positive incremental returns than companies with more aggressive management teams that may be overleveraged or rely heavily on external financing. 8

Quality Score Our Current Signals Our factors are grouped into three sets of fundamental signals applied quantitatively: 1 2 3 Management Signals Profitability Cash / Earnings Our current factors are based on our beliefs about what constitutes a high-quality company, including the ability to: Convert assets into sales Convert equity into returns Convert invested capital into returns Remain solvent Self-finance Grow prudently without becoming over-extended Meet dividend obligations 9

Many Definitions of Quality Quality Definition Identifier Actual or Approximation Definition Northern Trust Asset Management s Quality Score Dimensional Fund Advisors Direct Profitability NT Quality Actual Quantitative analysis of management signals / profitability / cash & earnings DFA Approximation Operating income before depreciation and amortization minus interest expense scaled by book value AQR AQR Approximation Total profits/assets Gross margins Free cash flow/assets MSCI MSCI Approximation ROE Debt to equity Earnings variability: Standard deviation of YOY earnings per share growth over last five fiscal years Piotroski F-Score F-Score Actual Nine metrics including net income, operating cash flow, return on assets, quality of earnings, leverage, liquidity, equity issuance, gross margins and asset turnover S&P Quality Rankings S&P Actual Based on per-share earnings and dividend records for the most recent 10 years. Basic scores are computed for earnings and dividends and then adjusted by a set of predetermined modifiers for changes in the rate of growth, stability with long-term trends and cyclicality. Adjusted scores for earnings and dividends are then combined to yield a final ranking ROE ROE Actual Trailing twelve month income/average equity Sources AQR: A New Core Equity Paradigm, Using Value, Momentum, and Quality to Outperform Markets, AQR White Paper, March 2013 MSCI: MSCI Quality Indices Methodology, MSCI White Paper, December 2012 S&P: S&P 500 Quality Rankings Index, Index Methodology, S&P Indices White Paper, March 2011 DFA: Dimensional s Growth Portfolios, Dimensional Fund Advisors White Paper F-Score: Piotroski, J., Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, Journal of Accounting Research, Vol 38 Supplement, 2000 10

Performance of Quality Universe: S&P Quality Ranked Universe January 1985 to December 2014 Returns NT Quality AQR DFA MSCI F-Score ROE S&P Return 8.9% 1.9% 6.0% 2.4% 8.1% 4.0% -1.6% Stdev 6.8% 9.0% 12.0% 11.4% 10.9% 12.9% 28.9% Return/Stdev 1.32 0.22 0.51 0.22 0.75 0.32-0.06 Correlations NT Quality AQR DFA MSCI F-Score ROE S&P NT Quality 1.00 AQR 0.68 1.00 DFA 0.71 0.58 1.00 MSCI 0.68 0.69 0.65 1.00 F-Score 0.54 0.46 0.55 0.60 1.00 ROE 0.78 0.74 0.89 0.83 0.59 1.00 S&P 0.53 0.43 0.56 0.44 0.33 0.62 1.00 Source: Northern Trust Quantitative Research All figures reflect factor mimicking portfolios defined as the equally weighted first quintile minus the equally weighted fifth quintile. All stocks are scored monthly and reranked 11

Quality Scores in Action Evaluating an environmental services company that recycles industrial waste and chemicals, primarily used motor oil and other petroleum byproducts. Metric Value ROE 26.0% ROA 15.5% Net Profit Margin 4.4% Debt/Assets 13.2% 1 Year Revenue Increase 20.4% Basic profitability and quality measures are optimistic Northern Trust Quality Score AQR MSCI/Russell CFO/Total Liabilities 0.29 CFO/CapEx 0.12 1 2 3 DFA Long Term Debt Growth 267% Debt/Capital Growth 122% Management Signals Profitability Cash / Earnings Piotroski Equity Growth 618% Stop Go Caution ROE Based on scoring as of June 30, 2014. Stop is the bottom 40% ranking of the Russell 3000, Go is the top 40% and Caution is the middle 20% 12

Performance Results Company X -37.08% Russell 2000-8.03% Source: Bloomberg. Past performance is not indicative of future results. 13

Quality Scores in Action Examining a biotech firm focusing on early stage R&D. Metric Value ROE -22.0% ROA -2.2% Net Profit Margin -8.5% Debt/Assets 47.9% 1 Year Revenue Increase 111.1% As of June 2014, company financials were mixed Northern Trust Quality Score AQR MSCI/Russell CFO/Total Liabilities 0.15 CFO/CapEx 0.17 1 2 3 DFA Long Term Debt Growth 11.0% Debt/Capital Growth -16.4% Management Signals Profitability Cash / Earnings Piotroski Equity Growth 132.6% Go Caution Caution ROE Based on scoring as of June 30, 2014. Stop is the bottom 40% ranking of the Russell 3000, Go is the top 40% and Caution is the middle 20% 14

Performance Results Company Z 23.88% Russell 2000-8.03% Source: Bloomberg. Past performance is not indicative of future results. 15

Using Quality To Improve Performance Evidence suggests multi-factor tilts may perform even better than single factor tilts High Value and High Quality Small Size and High Quality Low Volatility and High Quality High Dividend Yield and High Quality Returns Value & Quality Russell 3000 Returns 1979 to 2014 Return per unit of risk Size & Quality Return per unit of risk Cheap Q2 Q3 Q4 Rich Cheap Q2 Q3 Q4 Rich Large Q2 Q3 Q4 Small Large Q2 Q3 Q4 Small High Quality 30% 24% 20% 19% 19% 1.3 1.3 1.1 1.0 0.9 High Quality 18% 21% 23% 23% 24% 1.1 1.2 1.1 1.2 1.0 Q2 24% 21% 17% 16% 16% 1.1 1.2 1.0 0.9 0.7 Q2 15% 18% 19% 19% 21% 1.0 1.0 1.0 1.0 0.9 Q3 19% 16% 13% 14% 12% 0.8 0.9 0.7 0.7 0.5 Q3 14% 14% 16% 16% 12% 0.8 0.8 0.8 0.8 0.5 Q4 14% 15% 11% 12% 11% 0.6 0.8 0.6 0.6 0.4 Q4 14% 14% 13% 12% 11% 0.8 0.7 0.6 0.5 0.4 Low Quality 8% 9% 4% 5% 4% 0.3 0.5 0.2 0.2 0.1 Low Quality 11% 10% 7% 5% 1% 0.6 0.5 0.3 0.2 0.0 Returns Volatility & Quality Returns Return per unit of risk High Q2 Q3 Q4 Low High Q2 Q3 Q4 Low Vol Vol Vol Vol High Quality 20% 25% 24% 21% 18% 0.6 1.1 1.3 1.3 1.5 High Quality Q2 17% 20% 20% 18% 17% 0.5 0.8 1.1 1.1 1.4 Q2 Q3 10% 16% 16% 15% 15% 0.3 0.7 0.9 1.0 1.2 Q3 Q4 7% 14% 15% 14% 14% 0.2 0.6 0.8 0.9 1.2 Q4 Low Quality -2% 9% 11% 13% 13% -0.1 0.4 0.6 0.8 1.1 Low Quality Dividend Payers 20% 18% 15% 14% 11% Returns Dividend Yield & Quality Non-Dividend Payers 22% 19% 14% 11% 4% Return per unit of risk Dividend Payers 1.5 1.3 1.1 0.9 0.7 Non-Dividend Payers 1.0 0.8 0.6 0.4 0.1 Source: Northern Trust Quantitative Research 16

NT Quality Smoothes Out Single Factor Cycles Russell 3000 Factor Mimicking Portfolio Returns (Q1 - Q5) and Sharpe Ratios 1979 to 2014 Period Value Size Momentum Low Dividend Volatility Yield Quality & Value Quality & Size Quality & Momentum Quality & Low Vol Quality & Dividend Annualized Average Returns 1979 to 1982 1.1% 8.3% 15.2% 1.7% -1.6% 8.9% 16.5% 22.2% 5.1% 5.2% 1983 to 1986 14.5% -4.0% 7.7% 28.7% 16.3% 27.9% 7.8% 19.5% 30.7% 28.2% 1987 to 1990-2.2% -9.0% 21.8% 25.9% 8.5% 14.4% 0.2% 27.1% 27.9% 19.8% 1991 to 1994 9.8% 5.0% 5.5% -2.2% -1.8% 16.1% 9.5% 12.2% 5.0% 7.5% 1995 to 1998 1.6% -7.4% 12.4% 13.0% 5.3% 10.7% 0.5% 17.8% 16.8% 13.7% 1999 to 2002 15.9% 6.4% 9.2% 22.3% 12.0% 38.7% 19.9% 23.8% 29.9% 28.1% 2003 to 2006 10.4% 4.4% -4.6% -5.7% -3.3% 11.6% 6.2% 1.0% -3.0% -0.9% 2007 to 2010 5.6% 4.5% -12.0% -10.2% -5.0% 9.7% 8.0% -3.9% -3.8% -2.1% 2011 to Jun 2014-1.3% -1.1% 6.6% 6.9% 0.7% 4.2% 3.4% 10.4% 7.9% 5.8% Return per unit of Risk 1979 to 1982 0.07 1.02 0.91 0.09-0.15 0.78 2.05 1.88 0.38 0.49 1983 to 1986 1.42-0.52 0.64 1.75 1.71 2.88 1.18 1.91 2.35 2.69 1987 to 1990-0.23-1.14 2.05 1.76 1.15 1.93 0.02 3.20 2.57 2.57 1991 to 1994 0.84 0.55 0.42-0.12-0.17 1.77 1.23 1.14 0.32 0.63 1995 to 1998 0.13-0.86 0.94 0.57 0.41 0.82 0.07 1.83 0.94 0.95 1999 to 2002 0.53 0.45 0.20 0.36 0.39 1.23 1.59 0.66 0.59 0.73 2003 to 2006 1.32 0.62-0.34-0.28-0.37 1.70 1.05 0.09-0.18-0.08 2007 to 2010 0.24 0.39-0.38-0.32-0.52 0.67 0.70-0.17-0.17-0.16 2011 to Jun 2014-0.18-0.17 0.77 0.40 0.09 0.54 0.48 1.39 0.64 0.62 Performance Summary Years with positive return 23 18 25 24 23 29 28 31 25 25 Years with negative return 12 17 10 11 12 6 7 4 10 10 % P osi ti ve 66% 51% 71% 69% 66% 83% 80% 89% 71% 71% % Nega ti ve 34% 49% 29% 31% 34% 17% 20% 11% 29% 29% Factor cycles are largely mitigated through the intelligent combination of factors with the NT Quality score. Source: Northern Trust Quantitative Research 17

Effectively Combining Factor Exposures Investing at the intersection of multiple compensated risk factors provides more targeted factor exposure. 50/50 Combination Multi-Factor Intersection High High Quality Low Achieves Quality / Includes Expensive Don t buy Optimal intersection Achieves inexpensive / Includes Low Quality Quality Low Don t buy Don t buy Optimal intersection Don t buy Expensive Value Inexpensive Expensive Value Inexpensive Includes many low quality and expensive stocks More market beta and less targeted factor exposure Includes only high quality and inexpensive stocks Targeted factor exposure 18

Intersection Portfolio Outperforms the Blend Portfolio January 1979 June 2013 Portfolio Returns and Volatilities Annual Return Annual Standard Deviation Annual Return Annual Standard Deviation Russell 3000 12.5% 20.1% Russell 3000 12.5% 20.1% Size Volatility Small Size 13.7% 22.8% Low Volatility 14.7% 13.5% High Quality 16.8% 19.2% High Quality 16.8% 19.2% Blend (50/50) 15.3% 20.8% Blend (50/50) 15.7% 16.0% T-Stat vs. Russell 3000 5.56** T-Stat vs. Russell 3000 2.61** Intersection 20.1% 21.1% Intersection 16.9% 13.7% T-Stat vs. Russell 3000 8.42** T-Stat vs. Russell 3000 3.12** T-Stat vs. Blend 9.25** T-Stat vs. Blend 1.70* Value Dividend Yield High Value 16.6% 20.5% High Dividend Yield 14.6% 15.6% High Quality 16.8% 19.2% High Quality 16.8% 19.2% Blend (50/50) 16.7% 19.6% Blend (50/50) 15.7% 17.1% T-Stat vs. Russell 3000 6.86** T-Stat vs. Russell 3000 3.49** Intersection 22.0% 19.7% Intersection 18.2% 15.1% T-Stat vs. Russell 3000 8.75** T-Stat vs. Russell 3000 3.77** T-Stat vs. Blend 9.40** T-Stat vs. Blend 3.76** * Significant at the 95% confidence level ** Significant at the 99% confidence level Source: Combining Risk Factors for Superior Returns. Northern Trust (2014) 19

Implementing a Factor-based Equity Strategy Quality Low Volatility

Engineered Equity: Quality Low Volatility Application Examples Reducing Volatility and Providing Downside Protection Preserving Pension Funded Status and Reducing Surplus Risk Capturing Characteristics of an Equity Hedge Program Risk Management in Asset Allocation Reducing Volatility: Capital Appreciation in Defined Contribution Plan 21

Preserving Pension Funded Status and Reducing Surplus Risk Quality Low Volatility as a core position creates a more effective return seeking allocation. 100% 90% 80% Funded Status 2004-2013 Sample Pension Plan Sample Pension Plan + Quality Low Volatility Return 8.4% 9.4% Risk* 11.8% 10.3% Correlation of Assets to Liabilities 10 Years 0.50 0.62 70% 60% 50% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sample Pension Plan Sample Pension Plan + Quality Low Volatility Data as of 12/31/13 Source: Northern Trust Quantitative Research *Risk reflects the surplus standard deviation. 1 Sample pension consists of 41% fixed income (BC Long Gov, BC Long Credit, BC HY, JPM EM Global Diversified), 33% developed market equities (MSCI World), 8% emerging market equities (MSCI EM), and 13% alternatives/real assets (HFRI Fund Composite, NAREIT, S&P GLI). 2 All Performance of the sample portfolio is represented by index returns. 3 Sample pension + Quality Low Volatility replaces the developed equity allocation (33%) with Northern Trust Quality Low Volatility simulated returns. Liability index is represented by the Merrill Lynch Average US Pension Liability Index (Duration 17 years). 22

Use Case U.S. Corporate Defined Benefit Plan - Portfolio Risk Summary At the aggregate level, replacing 25% of the current equity portfolio with the Northern Trust Quality Low Volatility strategy. (Global) Equity Manager Mix (50% Active- 50% Passive) Equity Manager Mix + QLV QLV Portfolio Total Risk Active Risk Sample Corporate DB Plan 14.0% 1.3% Sample Corporate DB Plan(25% QLV) 12.3% 1.5% MSCI ACWI IMI 13.3% N/A Maintained Acceptable Active Risk / Estimated Tracking Error About a 12% reduction in Total Risk Source: Northern Trust Quantitative Research, MSCI, Barra (USE3/GEM2 used for domestic/global, respectively), Russell. As of June 30, 2014. Please see important information on Hypothetical Illustrations at the end of this presentation. For illustrative purposes only. Past performance is not indicative of future results. 23

Use Case U.S. Corporate Defined Benefit Plan - Factor Exposures with 25% QLV Low / Expensive / Small Factor Exposures High / Inexpensive / Large Dividend Yield Momentum Value And the positive exposure to high volatility is reversed Size Volatility 0.3 0.2 0.1 0 0.1 0.2 0.3 Corporate DB Plan with 25% QLV Source: Northern Trust Quantitative Research, MSCI, Barra (USE3/GEM2 used for domestic/global, respectively), Russell. As of June 30, 2014. Note that Dividend Yield factor exposure calculated using historical dividend yield % (last 12 months). Please see important information on Hypothetical Returns at the end of this presentation. For illustrative purposes only. Past performance is not indicative of future results. Returns reflect the reinvestment of dividends and other earnings and are shown before the deduction of investment management fees Returns of the indexes also do not typically reflect the deduction of investment management fees, trading costs or other expenses. It is not possible to invest directly in an index. Indexes are the property of their respective owners, all rights reserved. 24

Use Case U.S. Corporate Defined Benefit Plan - Quality Quintile Analysis Adding a 25% allocation to the Northern Trust QLV ACWI strategy improves the overall quality distribution of the aggregate portfolio. Active Exposures by Quality Quintile (MSCI ACWI IMI) 1 High Quality Quintile 2 3 4 5 Low Corporate DB Plan Corporate DB Plan with 25% QLV ACWI Significantly reallocates away from the lowest quality. 5% 3% 1% 1% 3% 5% Note: Approximately 7% of the MSCI ACWI IMI and Investor A portfolio do not have quality scores. These stocks are typically international small cap or there is not enough data to accurately score them. Source: Northern Trust Quantitative Research, MSCI, Barra (USE3/GEM2 used for domestic/global, respectively), Russell. As of June 30, 2014. Please see important information on Hypothetical Returns at the end of this presentation. For illustrative purposes only. Past performance is not indicative of future results. 25

Capturing Characteristics of an Equity Hedge Program Downside protection with greater upside participation. NT Quality Low Volatility strategy has similar risk characteristics to Equity Hedge but with: Superior upside capture Lower fees Greater transparency Equity market liquidity Long-only implementation Ease of regulatory/board education Upside% 160 140 120 100 80 60 NT QLV MSCI AWI 40 HFRI Equity Hedge 20 40 60 80 100 120 140 160 Downside% July 2007 June 2014 # of Months Average Return (%) Market Benchmark (%) Up Down Up Market Down Market Up Capture Down Capture NT Quality Low Volatility (ACWI) 55 29 2.5-2.0 57.0 53.2 HFRI Equity Hedge Index 52 32 2.0-2.1 44.7 54.4 MSCI ACWI 48 36 4.1-4.3 100.0 100.0 Source: Northern Trust Quantitative Research, HFRI, and Zephyr StyleADVISOR 26

More Quality Efficient Low Volatility: Risk Budgeting: Risk Management Incorporating Asset Low Allocation Volatility Replacing equity exposure with a low volatility strategy can reduce overall portfolio risk while boosting portfolio return. Fixed Income, 20% Fixed Income, 40% Fixed Income, 40% Emerging Markets, 8% Emerging Markets, 6% Emerging Markets, 6% Developed International, 25% U.S. Equity, 29% Replace developed equities with Quality Low Volatility. QLV World ex US, 25% QLV Russell 1000, 29% Increase equity exposure to 80%. QLV World ex US, 33% QLV Russell 1000, 39% 60/40 Portfolio 60/40 Portfolio (with Quality Low Volatility) 80/20 Portfolio (with Quality Low Volatility) As of 12/31/2013 60/40 Portfolio 60/40 Portfolio (with Quality Low Volatility) 80/20 Portfolio (with Quality Low Volatility) 10 Year Return 7.35% 8.46% 9.59% 10 Year Risk 9.93% 7.49% 9.69% Source: Northern Trust Quantitative Research, FactSet. Portfolio backtests reflect semi-annual rebalancing to the stated allocation. Fixed income is the Barclays US Aggregate index, emerging markets is MSCI Emerging Markets, developed international is MSCI World ex USA, U.S. Equity is the Russell 1000. QLV Russell 1000 and QLV World ex US returns are backtested. 27

Quality Low Volatility Improves Return with Lower Volatility The combination of Quality and Low Volatility approach contributed additional return with lower volatility Note: Not actual portfolio results. Provided by Northern Trust Global Equity, Bloomberg. Please see important information on Hypothetical Returns at the end of this presentation. For illustrative purposes only. Past performance is not indicative of future results. Returns reflect the reinvestment of dividends and other earnings and are shown before the deduction of investment management fees Returns of the indexes also do not typically reflect the deduction of investment management fees, trading costs or other expenses. It is not possible to invest directly in an index. Indexes are the property of their respective owners, all rights reserved. 28

Northern Trust Quality: A Better Predictor of Volatility 25.0% Rolling 3 Year Ex Post Standard Deviation (Annualized) 20.0% 15.0% 10.0% 5.0% 0.0% 11/1/2001 5/1/2002 11/1/2002 5/1/2003 11/1/2003 5/1/2004 11/1/2004 5/1/2005 11/1/2005 5/1/2006 11/1/2006 5/1/2007 11/1/2007 5/1/2008 11/1/2008 5/1/2009 11/1/2009 5/1/2010 11/1/2010 5/1/2011 11/1/2011 5/1/2012 MSCI World MSCI World Min Vol Quality + Low Volatility Source: Northern Trust Quantitative Research Note: Not actual portfolio results. Provided by Northern Trust Quantitative Research, Bloomberg. Please see important information on Hypothetical Returns at the end of this presentation. For illustrative purposes only. Past performance is not indicative of future results. Returns reflect the reinvestment of dividends and other earnings and are shown before the deduction of investment management fees Returns of the indexes also do not typically reflect the deduction of investment management fees, trading costs or other expenses. It is not possible to invest directly in an index. Indexes are the property of their respective owners, all rights reserved. 29

Low Volatility Strategies: Sector Exposure Comparison Sector Weights vs. Russell 1000 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Northern Trust Quality Low Volatility S&P 500 Low Volatility MSCI USA Minimum Volatility FTSE RAFI Low Volatility US Source: Northern Trust. Data as of 3/31/2015. 30

Impact of Sector Biases: YTD 2015 The S&P 500 Low Volatility Index underperformed other strategies significantly, partly due to its bias towards Utilities. Source: Northern Trust Quantitative Research, Bloomberg 31

Recent Thought Leadership 32

Disclosures Past performance is no guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. There are risks involved in investing including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and models do not promise any level of performance or guarantee against loss of principal. This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions expressed are current as of the date appearing in this material only and are subject to change without notice. This report is provided for informational purposes only and does not constitute investment advice or a recommendation of any security or product described herein. Indices and trademarks are the property of their respective owners. All rights reserved. No information provided herein shall constitute, or be construed as, an offer to sell or a solicitation of an offer to acquire any security, investment product or service, nor shall any such security, product or service be offered or sold in any jurisdiction where such offer or solicitation is prohibited by law or regulation. Important Information Regarding Hypothetical Returns Where hypothetical portfolio data is presented, the portfolio analysis assumes the hypothetical portfolio maintained a consistent asset allocation (rebalanced monthly) for the entire time period shown. Hypothetical portfolio data is based on publicly available index information. All information is assumed to be accurate and complete but is not guaranteed. Hypothetical portfolio data contained herein does not represent the results of an actual investment portfolio but reflects the historical index performance of the strategy described which were selected with the benefit of hindsight. Components of the hypothetical portfolio were selected primarily utilizing actual historic market risk and return data. If the hypothetical portfolio would have been actively managed, it would have been subject to market conditions that could have materially impacted performance and possibly resulted in a significant decline in portfolio value. The preceding information is confidential and may not be duplicated in any form or disseminated without the express written consent of Northern Trust. Not FDIC Insured May Lose Value No Bank Guarantee 2015 Northern Trust Corporation 33

2015 Northern Trust Corporation