1.What expectations should investors have for portfolio returns?

After a long positive period for equities, we believe we are now in the later phases of this bull market and investors should reset expectations for more moderate returns.

While we would not consider equity valuations expensive, they do appear full and fair, and further stock gains will likely be driven by earnings growth rather than multiple expansion.

Our outlook for modest economic and earnings growth supports a total return for equities of 5%-6% over the next 12 months.

Combined with expected returns for traditional fixed income of between 2%-3%, and 5%-7% for opportunistic fixed income, a balanced portfolio can therefore be expected to earn approximately 4%-5%.

While not as impressive as the double digit gains experienced earlier in the cycle, we believe these nominal returns should still be viewed slightly more favorably than they otherwise would be in a higher inflation environment.

2.What’s behind the disconnect between strong job growth and slow economic growth over this expansion?

An economy’s long-term growth is a product not only of gains in its workforce, but increases in productivity (or output per worker) as well.

Unfortunately, labor productivity has barely increased over the last five years, falling to a 0.5% annual rate, the lowest level since the early 1980s.

Despite the strength in hiring, this means that even with GDP growth of 2.0%, the economy is likely operating close to its economic potential.

The question of why productivity growth is stalling is a source of some debate, but output per worker has been trending lower since it peaked at more than 3% in the early 2000s and this declining trend can be self-reinforcing.

More workers, plus static output, drives labor costs up and profits down, limiting the ability of businesses to invest in the capital equipment needed to make workers more efficient and the economy grow faster.

3.Is the worst now over for the manufacturing sector?

Manufacturing output has barely made any progress since the middle of 2014 when the dollar began to climb, and remains well below its pre-recession peak in 2007.

However, recent survey evidence has been generally more positive and there are signs of a bottoming in output.

Manufacturers are finding ways to remain resilient amid weaker demand, and the dollar’s pullback from the recent highs appears to be improving sentiment among externally exposed industries.

Yet, while the drag on GDP growth from the manufacturing slump may fade in the second half of this year, the sector is unlikely to make any major positive contribution to the economy for some time.

Nevertheless, with activity in the larger service sector still solid, GDP growth should still be around 2% in 2016.

4.Why is City National Rochdale overweight High Yield Taxable/High Yield Muni?

There is a yield advantage of higher credit risk assets versus investment grade assets.  Both High Yield Taxable and High Yield Muni may provide diversification benefits as well as potential return enhancements to core strategies.

High Yield Muni:

  • Historically lower default rates and higher recovery rates compared to corporate high yield bonds
  • Widespread inefficiencies can be found
  • The asset class is underfollowed by many analysts
  • Low correlation profile relative to high yield corporate bonds and other fixed income asset classes, offering investors exposure to a diversified income stream within a broader fixed income allocation

 High Yield Taxable:

  • Low correlation to traditional fixed income sectors, slightly higher correlation to equities
  • Higher levels of income than traditional core fixed income sectors

5.What has caused oil prices to increase from the lows earlier in the year?

Oil is a dollar-denominated commodity and the value of the dollar has fallen since late January.

Supply concerns from Canadian oil sands are due to a massive fire in Ft. McMurrry, Alberta.

Globally, there has been a steady increase in planned and unplanned oil production outages since January.


Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Investing in international markets carries risks such as currency fluctuation, regulatory risks, and economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems, than developed markets.

There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall.

High yield bonds offer a higher yield and carry a greater risk of loss of principal and interest and an increased risk of default or downgrade than investment grade securities.

The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar income bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax (AMT), and taxable gains are also possible.

Investments in the municipal securities of a particular state or territory may be subject to the risk that changes in the economic conditions of that state or territory will negatively impact performance. These events may include severe financial difficulties and continued budget deficits, economic or political policy changes, tax base erosion, state constitutional limits on tax increases, and changes in the credit ratings.

Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets.

Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.

Returns include the reinvestment of interest and dividends.

Investing involves risk, including the loss of principal.

As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money.

Past performance is no guarantee of future performance.

Index Definitions

The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

The Barclays Capital U.S. Intermediate Government/Credit Bond Index measures the performance of U.S. Dollar denominated U.S.Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.

The Barclays U.S. High Yield Bond Index covers the universe of fixed rate, non-investment grade debt, including corporate and noncorporate sectors. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets are excluded, but Canadian and global bonds (SEC registered) of issuers in non-emerging market countries are included. Original issue zero coupon bonds, step-up coupon structures, and 144-As are also included. Please note an investor cannot invest directly in an index.

The Barclays U.S. High Yield Loan Index is an unmanaged index that provides broad and comprehensive total return metrics of the universe of U.S.-dollar denominated syndicated term loans. The index is shown as a broad measure of market performance. Performance between a fund and an index will differ. You cannot invest directly in an index.

The JP Morgan Corporate Emerging Market Bond Index (CEMBI) Broad High Yield is the below investment-grade portion of the CEMBI Broad index. The CEMBI tracks total returns of US dollar-denominated debt instruments issued by corporate entities in Emerging Markets Countries.

Non-deposit Investment Products: ▪ are not FDIC insured ▪ are not Bank guaranteed ▪ may lose value