Market & Economic Update

May 2017 Market & Economic Update Market Commentary April was a month of two halves for global markets. The start of the month was dominated by news of rising geopolitical tensions, which weighed on market sentiment and saw volatility and gold prices rise. This gave way to a strong end to the month for global equity markets, which were driven higher by a positive start to the earnings season and a relief rally linked to Emmanuel Macron s victory in the first round of the French presidential elections. The result is the first time since the founding of the Fifth Republic in 1958 that no candidate from the major parties has made it to the second round. It s also likely that the winner will have limited support in the French Parliament. Despite this, the centrist/market friendly result helped the euro reach its highest level against the US dollar for five months. Sterling was also positive in April and up to its highest level in six months following Prime Minister Theresa May s announcement that there would be a snap general election in June. However, sterling strength weighed on UK large-caps, as did commodity prices, which were weak again particularly in the second half of the month, as oversupply concerns weighed on energy and industrial metals prices. Chris Godding Chief Investment Officer Louie French Senior Research Analyst In April s Chart of the Month we highlight the improved outlook for global earnings as we move out of a multi-year period of negative earnings revisions and the global economy shows signs of growth. Cyclical momentum and commodity price recovery have both played key roles in the improved outlook for company earnings, with the majority of companies who have so far reported Q1 2017 earnings beating analyst forecasts. Forward-looking business and consumer indicators have also recently reached multi-year highs, while monetary conditions remain supportive of borrowing and consumer spending. We believe that these factors, combined with cyclically adjusted valuations outside the US not looking expensive, support a neutral outlook on global equities. World Earnings Revisions Upwards/downwards ratio 0.10 0.05 0-0.05-0.10-0.15-0.20-0.25-0.30-0.35-0.40 0.45 31/12/13 30/4/14 29/8/14 31/12/14 30/4/15 31/8/15 31/12/15 29/4/16 31/8/16 30/12/16 28/4/17

General Summary y At its April meeting, the Asset Allocation Committee decided to upgrade equities from cautious to neutral in the centralised models. y There are coherent signs of a cyclical upswing in recent data suggesting an improvement in economic fundamentals as we move out of last year s earnings recession. However, the tailwind from consumerism seen in H2 2016 is abating. Outside of the US, cyclically adjusted valuations do not look expensive, supporting a neutral outlook for equities. y While monetary policy is no longer actively supportive, conditions remain very accommodative. A tipping point may ultimately occur where negative effects from tightening monetary policy will outweigh these positive factors and choke off growth, but that does not appear to be an immediate threat. y Valuations are relatively attractive in Emerging Markets, with protectionist rhetoric softening. While China has serious structural challenges in its banking system, it is increasingly feasible that the state can achieve a soft landing through debt nationalisation, limiting contagion to the wider Emerging Markets. We remain positive on European equities, though the recent rally makes the region slightly less compelling on valuation grounds. y Fixed Income remains broadly unappealing, with longer-dated sovereigns particularly vulnerable and most offering negative real returns. Asset Class Breakdown: Equities UK EU US Japan Asia-Pac (Dev) EM Fixed Income UK Gilts Foreign Sovereigns UK Index-linked Foreign IL Corporate Credit High Yield Absolute Return Property Commodities Cash -- - N + ++ y This table shows our house view with regard to each asset class and whether our view is: very negative, negative, neutral, positive or very positive. Arrows indicate a change in our view since the last meeting. Note that these are for information and qualitative guidance only. Source: Tilney as at April 2017

UK, US and Europe y European equities were the notable outperformers again in the month, with reduced political concerns, signals of an improving economic outlook, accommodative monetary conditions and a positive start to the earnings season driving indices to their highest levels since 2015. On a total return basis the MSCI Europe ex UK index was up +2.4% in local currency terms and up +0.8% for sterling investors, with financials a strong contributor to the positive returns. y US equities were positive overall in the month, despite softer first quarter GDP data and the Trump reflation trade continuing to show signs of fading, as concerns of a government shutdown and doubts over the deliverability of fiscal campaign pledges increased. These concerns were largely offset by a strong start to the earnings season and a weaker dollar, with the NASDAQ notably reaching a new all-time high and breaking the 6,000 mark for the first time towards the end of the month. The S&P 500 was also up and produced total returns of +1.0% in local currency and -2.4% in sterling terms respectively. y UK equities produced mixed results in April. UK large-caps experienced their biggest oneday loss since the referendum, following the snap general election announcement by Theresa May and the resulting bounce in sterling (markets are currently viewing the likely increased majority for the ruling Conservative Party as favourable for a cleaner and more orderly Brexit). A weaker month for commodities and the healthcare sector also weighed on the performance of UK large-caps, and despite the late Macron rally, UK large caps were down -1.3% overall in the month. Domestically focused UK mid and small-caps fared much better in April with them producing monthly total returns of +3.8% and +3.9% respectively. On the sector level, industrials and technology were towards the top of the performance charts. UK, US & Europe Markets, Percentage Growth, Total Return 125 120 115 Return % 110 105 100 95 Nov Dec Jan Feb Mar April S&P 500 MSCI Europe MSCI United Kingdom Source: FactSet

Asia, Japan & the Emerging Markets y April was another positive month for Asia Pacific and Emerging Market equities despite various geopolitical concerns. The headline MSCI Asia Pacific excluding Japan and MSCI Emerging Markets indices generated total returns of +1.6% and +2.2% respectively in local currency terms. For sterling investors this resulted in returns of -1.8% and -1.2% respectively. y The key contributors to the positive returns in the emerging markets alongside US dollar weakness were Indian and Russian equities, which were up +1.4% and +1.1% respectively in local currency terms over the month. Returns from Chinese equities were mixed again in April in local currency terms, with the mainland Shanghai Composite index returning -2.1%, while Hong Kong s Hang Seng index was up +2.1%. y Japanese equities were the laggards again in April despite a positive second half of the month linked to the yen weakening and the Bank of Japan reaffirming its commitment to accommodative monetary policy as it fights deflationary pressures. The TOPIX generated total returns of +1.3% overall in the month in local currency terms. For sterling investors this resulted in returns of -2.2%. Asian & Emerging Markets, Percentage Growth, Total Return 120 115 110 Return % 105 100 95 90 Nov Dec Jan Feb Mar April TOPIX TR MSCI AC Asia ex Japan TR MSCI Emerging Markets TR Source: FactSet

Fixed income y Overall, April was also a positive month for global bond market returns, with solid returns in Sovereign bond markets feeding through into a decent month for credit. y In Sovereign bond markets, French OATs (+1.5%) were the notable outperformer following the first round of the French presidential elections. The spread between French and German debt closed significantly after the result. US Treasuries were also positive performers returning +0.7%, as fears of a government shutdown and comments from President Trump supporting a low-rate environment led the 10-year yield down to the November lows. UK gilts and German bunds were also positive, returning +0.3% and +0.1% respectively in local currency terms. Fixed Income Markets, Percentage Growth Return % 107 106 105 104 103 102 101 100 99 98 97 Nov BofA Merrill Lynch Global High Yield TR y In credit markets, corporate and high yield bonds also produced solid returns overall in April. The Bank of America (BofA) Merrill Lynch Sterling Corporate Bond index returned +0.6% on a total Dec Jan Feb Mar Apr BofA Merrill Lynch Sterling Corporate Bond TR Source: FactSet return basis over the month, while the BofA Merrill Lynch Global High Yield index returned +1.6% in local currency terms (USD), but was down -1.8% in sterling terms.

Currencies y April was another weak month for the US dollar, with geopolitical tensions, doubts over the deliverability of President Trump s key fiscal campaign pledges and comments about dollar strength by President Trump weighing on the dollar. The US dollar index ended the month at five-month lows and was down -1.3% overall in the month. y Elsewhere, sterling experienced a bounce in April, as markets reacted positively to Prime Minister Theresa May s announcement that a snap general election will be held in June. Sterling was up to its highest level in six months and produced monthly returns of +3.4% against the Japanese yen, +3.3% against the US dollar and +1.6% against the euro. y With the exception of performance against sterling, the euro was also positive in April. Following the first round results of the French presidential elections the euro was up to its highest level in five months against the US dollar. Currency Returns relative to GBP, Percentage Growth Return % 104 102 100 98 96 94 92 90 88 86 84 Nov Dec Jan Feb Mar Apr US dollar Euro Japanese yen Source: FactSet

Commodities y April was another negative month for commodity market returns. The two headline indices, the Bloomberg Commodity Total Return and the S&P GSCI Total Return returned -1.5% and -2.1% respectively in US dollar terms over the month. In sterling terms, this resulted in returns of -4.8% and -5.4%. y The performances of the two headline indices tend to differ because of the S&P GSCI index having a higher weighting to the energy sector. The GSCI Energy subsector was among the worst performers again in April, returning -3.0%, as oversupply fears from US shale producers and ample inventories kept pressure on energy prices. While OPEC output has been broadly in line with the supply reduction agreements, the above factors have renewed pressure on OPEC and non-opec producers to extend production cuts into the second half of 2017. y Industrial Metals (-2.9%) were also notably weak in April, with oversupply fears, predominantly linked to China, weighing on a variety of individual metal prices. News of the US launching an investigation into whether aluminium imports from China compromised national security also weighed on aluminium prices. y Livestock (+8.7%) and Precious Metals (+0.6%) were the notable positive exceptions in April, with Precious Metals experiencing a divergence of individual commodity returns. While gold prices were positive overall against a backdrop of geopolitical tensions and US dollar weakness, silver prices weakened over the month mainly due to its industrial properties and higher output from miner Fresnillo in Mexico. Commodities Performance 1-30 April 2017 S&P GSCI Feeder S&P GSCI Live Cattle S&P GSCI Gold S&P GSCI Kansas Wheat S&P GSCI Natural Gas S&P GSCI Lean Hogs S&P GSCI Cotton S&P GSCI Soybeans S&P GSCI Platinum S&P GSCI Com Bloomberg Commodity Index S&P GSCI Wheat S&P GSCI Copper S&P GSCI S&P GSCI Aluminum S&P GSCI Crude Oil S&P GSCI Brent Crude S&P GSCI GasOil S&P GSCI Sugar S&P GSCI Lead S&P GSCI Heating Oil S&P GSCI Zinc S&P GSCI Coffee S&P GSCI Silver S&P GSCI ickel S&P GSCI Unleaded Gasoline S&P GSCI Cocoa -15-10 -5 0 5 10 15 20 Index Total Return Level % Change Source: FactSet

Hedge funds Hedge Fund Returns, Total Returns y April was a marginally positive month for the HFRX Global Hedge Fund index, which was up +0.3% in local currency terms over the month. 105 104 103 y Returns for the HFRX sub-indices were also mainly positive in April, with the HFRX Equity Hedge topping the performance chart at +0.7%. y HFRX Market Directional was the laggard over the month, returning -0.7%. Return % 102 101 100 99 Nov Dec Jan Feb Mar Apr HFRX Global Hedge Fund GBR TR Source: FactSet Property Monthly IPD Returns* y March was another positive month for the IPD UK Property Monthly Total Return index. Following returns of +0.6% in February, the index returned +0.9% overall in March. y While income returns remained stable at +0.5%, capital growth was up slightly from +0.1% in February to +0.4% in March. y Income returns were a consistent positive contributor to returns in 2016 and this trend has continued in the first quarter of 2017. The IPD UK Property Monthly index produced total returns of +2.3% overall in the first quarter, which consisted of +1.4% from income and +0.9% from capital growth. 1.50 0.75 0-0.75-1.50-2.25-3.00 May 16 July 16 Sept 16 Nov 16 Jan 17 Mar 17 Capital growth Income return Source: FactSet *Index data is released mid-month and therefore figures are only available with a one month lag.

Datasheet latest market returns to the 30 April 2017 percentage returns for major asset class indices. Assets 1 month 3 month 6 month 2016-17 2015-16 2014-15 2013-14 2012-13 3 Year 5 Year MSCI United Kingdom TR -1.3 3.0 5.8 20.1-7.4 6.2 9.2 16.6 18.1 50.4 Numis Smaller Companies TR 3.9 9.2 16.6 22.0 1.8 6.0 23.0 24.3 31.7 101.3 S&P 500 TR -2.4 2.3 6.9 33.5 6.2 24.1 11.0 22.0 76.0 138.2 MSCI Europe ex UK TR 0.8 7.6 9.4 28.9-4.1 7.2 15.4 28.2 32.5 96.0 Topix TR -2.2-0.2-1.1 26.9 0.9 30.9-10.6 26.7 67.5 89.8 MSCI Asia Pacific ex Japan TR -1.8 5.3 4.6 36.4-12.2 22.7-6.8 18.3 47.0 62.1 MSCI Emerging Markets TR -1.2 5.1 2.9 35.4-13.5 18.9-9.2 8.9 39.2 37.6 BofA Merrill Lynch Global High Yield TR -1.8-0.1-0.6 26.3 5.2 8.7-0.9 20.1 44.5 71.9 BofA Merrill Lynch Sterling Corporates TR 0.6 3.6 3.5 10.8 2.7 10.1 0.4 17.1 25.2 47.1 Bloomberg Commodity TR -4.8-6.6-6.3 11.7-13.4-17.3-4.9-1.2-19.9-24.8 S&P GSCI TR -5.4-8.3-5.8 9.1-25.8-27.7-1.4-5.0-41.4-45.2 HFRX Global Hedge Fund GBP 0.3 1.2 3.2 5.0-7.7 1.3 3.4 4.0-1.7 5.6 US Dollar -3.3-2.8-5.6 13.2 4.9 9.9-7.8 4.3 30.5 25.5 Japanese Yen -3.4-1.8-11.0 8.7 17.3-6.2-12.1-14.5 19.6-10.1 Euro -1.6-2.0-6.3 7.7 7.2-11.2-3.1 3.9 2.5 3.3 Source: Lipper 1 Year ending 30 April. Source: Lipper (to 30 April in GBP. Currency movements are vs. sterling).

Important information The value of your investments, and the income derived from them, can go down as well as up, and you can get back less than you originally invested. Any indication of past performance or quoted yields is not an indicator of future returns. Before investing in funds, please check the specific risk factors on the key features document or refer to our risk warning notice, as some funds can be high-risk or complex, or can be susceptible to risks particular to the geographical area or industry sector in which they invest. Gold, technology and other focused funds can suffer as the underlying stocks can be more volatile and less liquid. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. The property market can be illiquid; consequently, there can be times when investors will be unable to sell their holdings. Property valuations are subjective and a matter of judgement. Any research or analysis contained in this document has been undertaken by us for our own use and may be acted on in that connection. The contents of the document are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. The document may include forwardlooking statements which are based on our current opinions, expectations and projections. It is provided to you only incidentally, and should not be considered a personal recommendation or advice to invest. Any opinions expressed are subject to change without notice. Issued by Tilney Investment Management Services Limited (Reg. No: 02830297), which is authorised and regulated by the Financial Conduct Authority. Financial services are provided by Tilney Investment Management Services Limited and other companies in the Tilney Group, further details of which are available at www.tilney.co.uk. Tilney Group Ltd 2017. 17053400