EFTA01377064.pdf

CIO Insights —August 2016 Multi Asset 7 Figure 2. Correlations change over time Portfolio diversification has become implementation, i.e. selection. The Unstable correlation an important issue in this cycle. The way in which they are implemented natural diversifiers, fixed-income and their relative importance will 1.0 60% sovereigns, are now zero-yield, change over time. negative-convexity assets. Inter- Our current approach can be asset-class correlation (looking characterized as follows. With beyond bonds) has also increased the largest contribution to overall 0.0 0% substantially over the last few portfolio risk coming from equities it years and - as we know - tends to may be warranted taking on slightly increase to one in larger risk-aversion less strategic risk than usual. This events. could allow a portfolio to better -1.0 -603,6 Augmenting strategic asset allocation cope with and also to provide a 1943 1968 As a result, multi-asset investors sufficient risk budget to buy into may need to recalibrate their larger sell-offs. Across a strategic Predominantly positive correlation strategy. Over the last 5.10 years, base portfolio, a "carry-and-income" 1.0 60% strategic asset allocation might have strategy can offer the ability to add accounted for 80% or more of a tactically when market dislocations portfolio's performance. This is no occur longer the case. Effective tactical Diversification across styles can 0.0 0% asset allocation, individual security add value selection and risk management may Within the equities exposure, now account for 50% or more of limited expected upside to index performance. targets, together with high expected -1.0 -60% In this new, active, multi-asset- volatility, suggests focusing on 1968 2000 management world, key concepts getting the right equity style include contrarian trading, risk (i.e. investing criteria). Income- Predominantly negative correlation premia or style investing and smart generating dividend stocks and 1.0 60% strategies designed to minimize volatility/variance may be important Correlations and returns considerations. ■ Correlation S&P 500 vs. 10Y UST Ohs) Fixed-income "carry" assets (i.e. those offering appreciable yield) Annual return of a U.S. based multi asset portfolio (60% bonds, 40% look set to be more interesting equities, rhs) than equities for the next couple of — Average annual return, 2030-2015 of a months. U.S. investment grade, euro -1.0 -60% U.S. based multi asset portfolio high yield and emerging-market (EM) 2000 2015 030% bonds. 4173b equities. rhs) hard-currency debt may appeal. Past performance is net indicative of helms fiatIlfTS. Sources: Thomson Reuters Datastream, Global Financial Data Robert Shiller, Goldman Sachs Global Investment Research. Data as of December 2015. Past performance is not indicative of future returns. Readers should refer to the explanatory notes at the end of this document. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0073600 CONFIDENTIAL SONY GM_00219784 EFTA01377064