EFTA01459024.pdf

tbrul Pcdttitql, Faro ax'pt Pt lull Irrrattincitt vuWC iionts Asse...ltss paspxtios favtir..^ Hsi. >rovicwn KlioaS Long or short, Larry Adam? Six markt,: ,...,sWs from our Chief Investment Officer for Wealth Management in the Americas and Chief Investment Strategist for Deutsche AWM Americas Can you usefully quantify and qualify risks to portfolios? Are we now in an "end-cycle" market phase? t0 Risks to portfolios can come from a number of different SNerrt he first interest-rate increase by the Fed is an important sources - from central-bank-policy surprises to geopolitical development in the market cycle. However, it does not constitute developments. Any assessment of such risks cannot be precise, the end of the cycle- instead, the first rate hike has typically in part because many risks are wholly unpredictable. But we still marked the middle of the cycle in previous decades. In the sixth think that It is useful to look at the risks that we can foresee and year of the global recovery, this may sound strange. Keep in then consider not just how likely an event is to occur but also the mind, though, that the recovery has remained lackluster and probable portfolio impact. Some risks may not seem particularly slow. That is why we have described it in the past as the "turtle likely to materialize, but would be very disruptive if they did. cycle", slow but long-lived. So we expect the cycle to continue These are the ones to watch and, if possible, prepare for. on its steady upward path, supporting some further market gains. Are central-bank-policy surprises on this risk list? BESI There is still an enormous amount of uncertainty around Will positive returns be possible on fixed income too? central-bank monetary policy At the top level, this is focused gEn Returns on core government bonds are likely to be on the "when" and "what" questions - e.g. the timing and modest but generally positive. Higher returns are possible on extent of the forthcoming Fed rate-hiking cycle. But there are investment grade (U.S. and euro). High-yield bonds remain other dimensions to this uncertainty for example, around the interesting in both regions, but less so in the United States. management of market expectations of policy action. Skepticism where default rates are likely to start rising from current relatively may also increase about the effectiveness of QE. All this will low levels Emerging-market debt should offer some interesting maintain an environment where policy surprises good and bad opportunities but you will need to be selective. - are possible and could have a major impact on portfolios. Are currencies likely to be an important driver of returns? Can the likely impact of geopolitical events be overemphasized? isa In recent months we have seen periods of euro strength ECU Geopolitical events -- often unforeseen will continue to but the fundamentals underpinning a strong U.S. dollar are likely hog the headlines. But it is always worth asking to what extent to win out. These include stronger U.S. economic growth and they will have an immediate impact on portfolios. In previous - perhaps more importantly - expectations of further monetary decades, their main impact has been via increased oil prices easing by the ECB and the BOJ. So we expect the U.S. dollar due to the threat of supply disruption. This transmission process to make further gains against the euro and, to a lesser extent, may be less important now given new sources of oil supply. Of the Japanese yen and pound sterling. Currency risk must course, many geopolitical events - for example, the European also remain an important consideration for emerging-market refugee crisis may have a long-term impact on economies and investments. investment. But their immediate effects may be more limited ....... ....... than first appears. r.1)retaNIIS a pOtaltv4M1Whette ftrgeSt(tIS fl rdwyllEVONISWPS Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or expected returns will be achieved. Allocations are subject to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. *VOW taioncalEctvonI Onat-eix 2015 2=tr...... 0 15 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0119224 CONFIDENTIAL SDNY_GM_00265408 EFTA01459024