Capital Market Outlook and Opportunities...2020/09/30 · Dividend Yield Book to Price Revenue Stability Beta EBITDA Margin Share Buyback Analyst Sentiment Prior 1-Month Return ROE

© 2021 Columbia Management Investment Advisers, LLC. All rights reserved.

Global fixed incomeGlobal equityMacroeconomicReview and outlook

Capital Markets Outlook and Opportunities

Latest insights as of 03/31/21

(12/20 CT-MK/2081802 P 3510949)

Multi-asset

© 2021 Columbia Management Investment Advisers, LLC. All rights reserved. 2

How to use this resource

Tip: Click or tap on the

tabs at the top of

every page to jump to

the beginning of each

section.

This capital markets review and outlook is designed

to help you stay up to date on the economic

influences affecting portfolios, as well as specific

challenges and opportunities across global asset

classes.

As always, please reach out to your Columbia

Threadneedle regional consultant with any

questions. Your success is our priority.

Global fixed incomeGlobal equityMacroeconomicReview and outlook Multi-asset


Overview

Source: Columbia Threadneedle Investments.


REVIEW Coronavirus relief programs, aggressive fiscal stimulus and vaccination initiatives have

fueled a positive outlook for GDP, earnings and credit risk, while inflation fears have fueled

higher nominal and real interest rates.

In Q1 equities posted gains, led by the U.S. +6.2%. Most fixed-income markets posted

losses with emerging market bonds lagging -4.7% and high yield bonds leading +0.9%.

OUTLOOK Economy

Interest rates

Equity valuations

We believe U.S. GDP will grow significantly above trend in 2021,

and perhaps in 2022, given the prospect of large fiscal stimulus

(COVID relief and a proposed infrastructure plan). Sustained high

inflation is unlikely, though it is expected to rise in 2021 largely due

to comparison to low inflation in 2020.

The Fed has been clear: Fed funds stay at zero. While bond yields

have risen, they are still low when compared to inflation. But

subdued wage pressure and the Fed balance sheet flows should

limit any sharp yield moves to the upside.

2020 was about interest rates. 2021 likely will be about earnings.

P/Es on forward earnings are significantly above historical

averages. Stocks are no longer undervalued versus bonds. Stock

market gains are likely to be dependent on the strength of the post-

coronavirus 2021 - 22 consensus profit surge coming through.


6.2%4.0%

2.3%

-4.3% -3.4%

-0.4%

-4.5%

-1.1%

-4.6%

0.9%

-4.7%-3.4%

6.9%8.3%

4

► Q1 2021 asset class returns (12/31/20–03/31/21)

Past performance does not guarantee future results. It is not possible to invest directly in an index. Source: Bloomberg and Columbia Management Investment Advisers, LLC. See

disclosure for full index descriptions.

Review: Q1 2021 and 2020 returns

Developed

international

stocks

Emerging

market

stocks

U.S.

Treasuries

U.S.

aggregate

bond

Global

aggregate

bond

Mortgage-

backed

securities

Investment-

grade

corporate

bond

High-

yield

corporate

bond

Emerging

market

debt

Global

inflation-

linked

bond

Comm-

odities

REITsU.S.

stocks


Municipal

bonds

18.4%

7.6%

18.3%

8.0% 7.5%5.2%

9.2%

3.9%

9.9%

6.1% 5.9%

12.7%

-3.1%-5.1%

► 2020 asset class returns (12/31/19–12/31/20)


Source: Columbia Threadneedle Investments as of 03/31/21. Returns have been compounded and are expressed as the difference between the top and bottom 20th percentiles (Benchmark

Weighted: GICS sector neutral). Past performance does not guarantee future results. It is not possible to invest directly in an index.


► S&P 500 Index factor leaders Q1 2021 Year 2020 (as of 12/31/20)

20% 10% 0% 10% 20%

Price Momentum

LT Growth Rate

EBITDA Margin

Size

ROE

OCF Surprise

Analyst Sentiment

Prior 1-Month Return

Revenue Stability

Debt to Assets

Share Buyback

Beta

Earnings Quality

Dividend Yield

FCF to EV

Book to Price

Forward E/P

60% 40% 20% 0% 20% 40%

Dividend Yield

FCF to EV

Forward E/P

Book to Price

Revenue Stability

Debt to Assets

EBITDA Margin

Share Buyback

Prior 1-Month Return

Beta

Size

Analyst Sentiment

Price Momentum

ROE

OCF Surprise

Earnings Quality

LT Growth Rate

Review: What’s working


► 5-year forecasted returns from the Global Asset Allocation Team (as of December 2020, %)

Outlook: 5-year forecasted returns

Source: Columbia Threadneedle Investments. See disclosure for full index descriptions and methodology. It is not possible to invest directly in an index.

7.2%

8.5%

7.4%

9.2%

0.1%0.6%

1.7%

0.1%

2.0%

4.7%

4.0%

2.1%2.7%

0

1

2

3

4

5

6

7

8

9

10

U.S.

large-

cap

stocks

U.S.

small-

cap

stocks

Developed

international

stocks USD

Emerging

market

stocks

USD

Cash U.S.

Treasuries

Municipal

bonds

Global

sovereign

bonds

USD

Investment

-grade

corporate

bonds

High-yield

corporate

bonds

Emerging

market

debt

USD

Absolute

return

Commodities

Previously forecasted returns (June 2020)



► Monetary policy – Money supply, % change, yearly after recession start

Recessions in perspective

Global fixed incomeGlobal equityReview and outlook Multi-asset

Source: Federal Reserve Bank of St. Louis, National Bureau of Economic Research 03/31/21, U.S. Government Spending and Columbia Management Investment Advisers, LLC. * Data is for the

recessionary period during the calendar year. The current (latest), for the money supply, is considered as the percentage change on 12/20 from 02/20 for Year 1 and percentage change on 02/21

from 12/20 for Year 2 (data available on a monthly basis). The current, for fiscal deficit, is 2020 deficit for Year 1 and estimated 2021 deficit for Year 2 released by Congress Budget Office as of

03/04/21. Past performance does not guarantee future results.

► Monetary and fiscal stimulus

in the current recession is

significantly greater than

during the Depression, Great

Recession and the average

of prior recessions.

► Fiscal policy – Fiscal deficit, % of GDP, yearly after recession start

12/20-02/213%

-20

-10

0

10

20

30

Year 1 Year 2 Year 3 Year 4

-18

-15

-12

-9

-6

-3

0

3

Year 1 Year 2 Year 3 Year 4

Depression Great Recession8 recessions since 1960 (average) Current (Latest*)

Macroeconomic


Global growth

8

► GDP growth (%)

Source: IMF as of 04/21 and updated every six months.

► The global economy is expected to

have two years of rapid growth in

2021 and 2022 of 6.0% and 4.4%,

according to the IMF’s updated

forecast.

► The IMF also revised down the

estimated scale of the contraction

in global output caused by the

advent of the pandemic last year.

► The IMF revised upwards its

forecast for U.S. growth in 2021 by

1.3% from its previous projections

in January, noting “The U.S. is

really the only large economy

whose [economic output] for 2022

is projected to exceed what it would

have been in the absence of this

pandemic.”


-8

-6

-4

-2

0

2

4

6

8

U.S. Euro area Japan Emergingmarkets

2019 2020 2021 estimate 2022 estimate

2023 estimate 2024 estimate 2025 estimate 2026 estimate


U.S. growth

9

► Implied GDP growth (%) - NY Fed Weekly Economic Index (WEI)

Source: Federal Reserve Bank of New York, Federal Reserve Bank of St. Louis and Columbia Management Investment Advisers, LLC, data as of 03/27/21.

*The WEI is an index of ten daily and weekly indicators of real economic activity, scaled to align with the four-quarter GDP growth rate. It includes as inputs initial and continued unemployment

insurance claims, federal taxes withheld, railroad traffic, Redbook same-store sales, Rasmussen Consumer Confidence, The American Staffing Association Staffing Index, steel production,

wholesale sales of gasoline, diesel and jet fuel, and weekly average U.S. electricity load.

► The Weekly Economic Index (WEI)

provides timely information on the state

of the U.S. economy. The latest strong

increase reflects base effects from the

sharp deterioration in economic

conditions during the pandemic this

time last year.

► Traditional economic indicators, such

as GDP growth, are typically only

available after a considerable lag and

can pose challenges when assessing

rapidly evolving conditions.

► To address this issue, the WEI

(introduced by the N.Y. Fed in April

2020) leverages a range of timely

metrics, including same-store retail

sales, consumer sentiment,

unemployment insurance claims,

temporary and contract employment,

tax withholdings, steel production, fuel

sales, electricity output, and railroad

traffic, to offer a “real-time” gauge of

U.S. economic activity in 2020.


03/27/21+4.6%

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

2008 2010 2012 2014 2016 2018 2020

Actual GDP (YoY)

Weekly economic index (WEI), Implied GDP (YoY)*


Fed rate cuts / Yield curve steepening suggests probability of

a U.S. recession has declined substantially

10

► U.S. Treasury 10-year bond yield and 3-month bill rate (%)

Source: Federal Reserve Bank of New York, Bloomberg, as of 03/31/21. *Parameters estimated using data from January 1959 to December 2009, recession probabilities predicted using data

through March 2021. 1The Yield Curve as a Predictor of U.S. Recessions, The Federal Reserve Bank of New York, June 1996. Grey-shaded periods indicate recessions.

► Research by the NY Fed

found that the spread

between the interest rates on

the ten-year Treasury bond

and the three-month Treasury

bill significantly outperforms

other financial and

macroeconomic indicators in

predicting recessions two to

six quarters ahead.1

► The current spread at +159

basis points suggests a 6%

probability of a recession 12

months from now.

► In the forecasting model,

probabilities of recession are

typically below 10% in non-

recession periods.


► Probability of U.S. recession 12 months ahead predicted by Treasury spread (%)

► Treasury spread: U.S. Treasury 10-year bond yield – 3-month bill rate (%)

0

10

2010-year Treasury yield3-month Treasury yield

-5

-3

0

3

5

0

50

100

1960 1970 1980 1990 2000 2010 2020

Probability of U.S.

recession = 6%


Source: Columbia Threadneedle Investments, as of 03/12/21.

Return to Normal Index

► We constructed an index to

track return to normal life as

the U.S. prepares for

vaccinations. The index

tracks activities including

travel, returning to work and

school, brick & mortar

shopping and eating out. It’s

focused on measuring

components of daily life

rather than lagging economic

indicators such as GDP

growth.

► The percentage will move

closer to 100% as daily life

normalizes. At the component

level, return to in-person

schooling is rising as many

counties move away from

remote learning and back to

in-person schooling. The

component with the lowest

level in our index is return to

travel/entertainment, running

61% below pre-COVID.


► Return to normal index over time (estimated level as of April 1: 66%)

11

0

10

20

30

40

50

60

70

80

90

100

02/2

0

03/2

0

04/2

0

05/2

0

06/2

0

07/2

0

08/2

0

09/2

0

10/2

0

11/2

0

12/2

0

01/2

1

02/2

1

03/2

1

04/2

1

05/2

1

06/2

1

07/2

1

08/2

1

09/2

1

10/2

1

11/2

1

Upside case Base case Downside case

Estimated path

"Normal range"


► Inflation rate (%)

Source: IMF as of 04/21 and updated every six months.

Moderate levels of inflation

► In their latest update the IMF

was particularly bullish about

prospects of a rapid U.S.

recovery without inflationary

pressures.

► The IMF said, “there was little

cause for immediate concern

about the unprecedented

levels of fiscal stimulus on

both sides of the Atlantic

driving a rise in inflation,

because global forces are

likely to keep a lid on price

rises and there is no sign, yet

that central banks or

governments would lose

control.”


-1

0

1

2

3

4

5

6

U.S. Euro area Japan Emerging markets

2019 2020 2021 estimate 2022 estimate

2023 estimate 2024 estimate 2025 estimate 2026 estimate


► Wholesale prices in the U.S. (rolling 10-yr average, annually, %)

Source: Historical Statistics of United States, Bureau of Labor Statistics, Columbia Management Investment Advisers, LLC, data as of 12/31/20, updated annually.

Return to normal: Moderate levels of inflation are typical

► Since 1750, inflation has

averaged 1.6% with prices no

higher in 1940 than in 1795.

► The typical pattern has been

for inflation to rise during

wars and during economic

expansions, but then decline

during short financial panics.

► With this historical context,

the Fed’s inflation target of

2% is in line with overall

average inflation in the U.S.

We would say the Fed is

targeting normal inflation.


-10

-5

0

5

10

15

1750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000

Revolutionary

war

War of 1812

Civil

warWWI WWII

Vietnam war

Average =

+1.6%


► Standard deviations from maximum employment

Source: Macrobond, Columbia Threadneedle Investments as of 03/01/21. Grey-shaded periods indicate recessions.

Inflation: Distance from maximum employment


► The Fed has said that it would

not raise rates until “labor

market conditions have reached

levels consistent with the

Committee's assessments of

“maximum employment”.

► This measure estimates how far

we are from the best level of

maximum employment in the

past 30 years. We call this

“Distance from maximum

employment”. We are currently

1.46 standard deviations from

the best level reached in 2000.

Pre-COVID, this measure was

at 0.35.

► Historically, this measure

moves about 0.15 to 0.28 p.a.,

which means that if this pace

prevails, it will take several (5-9)

years before Fed raises rates or

we see sustained inflation.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

04/00, 0.0

09/03, 1.38

08/07, 0.65

12/09, 2.58

10/20, 0.35

04/20, 4.59

Current, 1.46


► Government 10-year bond yields (%)

Source: Bloomberg, data as of 03/31/21. Past performance does not guarantee future results. It is not possible to invest directly in an index.

Global bond yields


► Central bank actions in the

face of coronavirus economic

uncertainty saw all sovereign

yields plunge last year.

► Since the 2020 lows, rates

have risen driven by

coronavirus relief programs,

aggressive fiscal stimulus and

vaccination initiatives.

► The current rate for 10-year

government bonds is 1.74%

in the U.S., 0.85% in the

U.K., -0.29% in Germany,

-0.05% in France and 0.10%

in Japan.-2

-1

0

1

2

3

4

5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S. UK Japan Germany France


Source: Bloomberg, data as of 03/31/21. Past performance does not guarantee future results. It is not possible to invest directly in an index. Note that Bloomberg Barclays U.S. Treasury

Index and Bloomberg Barclays Global Treasury ex-U.S. Index are used to calculate the yield-to-maturity spreads.

The U.S. dollar

► The perception is that the

dollar tends to be driven by

three themes. One is the

growth differential between

the U.S. and the rest of the

world. The second is the

interest-rate differential. And

the third is the risk climate: in

periods of risk aversion,

people tend to crowd into the

dollar versus other

currencies.

► The spread between the U.S.

Treasury Index and the

Global Treasury ex-U.S.

Index currently is +32 basis

points, below the +67 basis

points average. However,

there is only a modest 55%

correlation between the

spread and the U.S. Dollar

Index.


► U.S. dollar vs. Treasury spreads (2001-2021)

16

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

70

80

90

100

110

120

130

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

The U.S. Dollar Index

Yield spread - U.S. Treasury over Global Treasury (ex-U.S.) (rhs)


Equity outlook: Key takeaways

Aggressive fiscal stimulus and coronavirus vaccinations have fueled a positive outlook for earnings,

while inflation fears have fueled higher nominal and real interest rates, which have raised concerns on

high P/E levels.


U.S. EQUITY

INTERNATIONAL

EMERGING

MARKETS

► P/Es on forward earnings are significantly above historical averages. Stocks

are no longer undervalued versus bonds. Stock market gains are likely to be

dependent on the strength of the post-coronavirus 2021 - 22 consensus

profit surge coming through.

► We expect a cyclical rotation over 2021 with increasing market breadth.

► Dividends are an important source for total return investing; free cash flow

strength and quality of balance sheet are the primary focus now more than

ever.

► Equity valuations are attractive relative to U.S.; however, continuous fiscal

and monetary support and faster and better coordinated vaccine roll out will

determine the winners and losers in the international markets.

► Positive long-term outlook for emerging markets given secular growth

prospects supported by strong demographics and productivity trends.

International equity portfolios are also able to increase efficiency through

allocations to emerging markets.



Earnings growth

18

► Global earnings growth (%)

Source: Bloomberg, FactSet, MSCI, data as of 03/31/21. 2020 – 2022 estimates are from FactSet. Past performance does not guarantee future results. It is not possible to invest directly

in an index.

► Bottom-up consensus 2020

earnings were down, with a

sharp rebound expected in

2021 and double-digit growth

continuing in 2022.

-40

-30

-20

-10

0

10

20

30

40

50

MSCI U.S. Index MSCI EuropeIndex

MSCI JapanIndex

MSCI EmergingMarkets Index

2018 2019 2020 2021 estimate 2022 estimate



► Global valuations (12-month forward P/E ratio)► The P/E of the MSCI U.S.

Index is 44% above average

-- very close to its peak;

Europe is 29% above

average and also near to its

peak P/E; Japan is 14%

above average; EM is 32%

above average and is at its

peak P/E.

► P/E on forward earnings are

not “normalized,” i.e., may

not reflect true underlying

earnings levels. The P/E may

be overstated if earnings

recover rapidly or

understated if the earnings

recovery is prolonged.

Source: Bloomberg, MSCI, data as of 03/31/21. The data series starts from June 2003. Past performance does not guarantee future results. It is not possible to invest directly in an index.

Equity P/E valuations

22.6

16.9 17.5

14.915.613.1

15.4

11.3

0

5

10

15

20

25

30

35

MSCI U.S. Index MSCI EuropeIndex

MSCI JapanIndex

MSCI EM Index

Current Average



► S&P 500 P/E levels vs. bond yields

► Lower interest rates support a

higher stock market P/E,

reflecting a lower discounting

rate for future earnings.

► Conversely rising interest rates

could present a risk to stock

market P/E levels.

Source: Bloomberg, as of 03/31/21. The calculation for P/E ratio takes into consideration the average spread (from June 2003) of 267 basis points between the S&P 500 Index earnings yield and

U.S. 10-year bonds. A basis point is 1/100th of a percent. Past performance does not guarantee future results. It is not possible to invest directly in an index.

U.S. equity: Bond yields vs. P/E levels

0

5

10

15

20

25

30

35

40

0.00.51.01.52.02.53.03.54.04.55.0

S&

P 5

00

P/E

ratio

(on

tra

iling e

arn

ings)

Bond yield (10-year U.S. Treasury, %)



► S&P 500 Index earnings yield and U.S. Treasury 10-year bond yield (%)► The spread between the S&P

500 Index earnings yield and

U.S. 10-year bonds is at 134

basis points (bps), versus the

267 bps average spread.

► Stocks are no longer

undervalued versus bonds; as

stock prices gained, earnings

declined and recently interest

rates rose. The earnings yield

imbalance can be corrected in

three ways: 1) bond yields fall

133 bps or earnings yield rises

133 bps in one of two ways –

2) stock prices fall by 30% or 3)

earnings rise by 43% -- or a

combination of the three.

►Equities gains are likely to be

dependent on the strength of

the post-coronavirus 2021e-22e

consensus profit surge coming

through.

Source: Bloomberg, as of 03/31/21. The data series starts from June 2003. A basis point is 1/100th of a percent. Past performance does not guarantee future results. It is not possible to

invest directly in an index.

U.S. equity: No longer undervalued versus bonds

► S&P 500 Index earnings yield - U.S. Treasury 10-year bond yield spread (%)

0

2

4

6

8

10 S&P 500 Index - earnings yield

U.S.Treasury 10-yr yield

0

1

2

3

4

5

6

7

2003 2005 2007 2009 2011 2013 2015 2017 2019

Average



► Percent of benchmark beaters (outperformers) in the S&P 500 Index (%)

► The rally in equities since March

2020 has been impressive, but

until recently it was driven by a

small number of stocks.

► In Q1 2020, just 37% of the

stocks in the S&P 500

outperformed the index. By Q1

2021, that had broadened to

59%.

Source: Columbia Threadneedle Investments, as of 03/31/21. Based on annual returns. Past performance does not guarantee future results. It is not possible to invest directly in an index.

U.S. equity: Market leadership has broadened

58%

29%

67%

45%

58%

1Q2037%

1Q2159%

0

10

20

30

40

50

60

70

80

1990 1994 1998 2002 2006 2010 2014 2018 2020

Average

= 50%


Source: Bloomberg and Columbia Management Investment Advisers, LLC. Past performance does not guarantee future results. It is not possible to invest directly in an index.

Growth represented by Russell 3000 Growth Index; value by Russell 3000 Value Index; small-cap by Russell 2000 Index; large-cap by Russell 1000 Index; small growth by Russell 2000 Growth

Index; large growth by Russell 1000 Growth Index; small value by Russell 2000 Value Index; large value by Russell 1000 Value Index; international growth by MSCI ACWI ex USA Growth Index;

and international value by MSCI ACWI ex USA Value Index.

U.S. equity: Style performance


1.2%

11.9% 12.7%

5.9% 4.9%0.9%

21.2%

11.2%

-0.1%

7.2%

► Q1 2021 asset class returns (12/31/20–03/31/21)

Value Small-cap Large-cap Small

Growth

Large

Growth

Small

ValueLarge

Value

International

GrowthGrowth

38.3%

2.9%

19.9% 21.0%

34.6%38.5%

4.6%2.8%

22.6%

-0.2%

► 2020 asset class returns (12/31/19–12/31/20)

International

Value


Source: Bloomberg as of 03/31/21. Growth represented by Russell 1000 Growth Index; value by Russell 1000 Value Index. Past performance does not guarantee future results. It is not

possible to invest directly in an index.

U.S. equity: Growth vs. value

► Forward P/E ratio: U.S. growth relative to value (%)

-40

-20

0

20

40

60

80

100

120

140

160

180

1995 2000 2005 2010 2015 2020

Average =

35%

Current =

56%

Average since

2002 = 27%

► Growth stocks significantly

outperformed value stocks in

2020, but in Q1 2021 value

stocks outperformed growth

stocks by 10.7%.

► For the same reason that low

interest rates support a higher

aggregate stock market P/E (a

lower discounting rate of

future earnings), low interest

rates also support a higher

relative P/E for higher growth

stocks. Conversely rising

interest rates could present a

risk to growth stocks relative

P/E levels.



Source: Bloomberg as of 03/31/21. Small-cap represented by Russell 2000 Index; large-cap by Russell 1000 Index. Past performance does not guarantee future results. It is not possible to

invest directly in an index.

U.S. equity: Small-cap vs. large-cap

► Forward P/E ratio: U.S. small-cap relative to large-cap (%)

► Large-cap stocks

outperformed small-cap

stocks marginally in 2020, but

in Q1 2021 small-cap stocks

outperformed large-cap stocks

by +6.8%.

► The forward P/E ratio rose

sharply as consensus 2020

earnings for small-cap stocks

collapsed in Q1 (from +53%

on 03/23/20 to -83% on

06/30/20), while large-cap

stocks held up substantially

better (from +7% on 03/23/20

to -18% on 06/30/20). That

gap decreased significantly as

the year progressed (small-

cap -28%, large-cap -6% on

12/31/20).

► Current forward P/Es reflect

consensus 2021 earnings

growth, which is 36% for

small-cap and 15% for large-

cap.


-100

0

100

200

300

400

500

600

700

800

900

1995 2000 2005 2010 2015 2020

Average =

60%

Current =

53%


Source: Russell Indexes, Bloomberg as of 03/31/21. Small-cap represented by Russell 2000 Index. Past performance does not guarantee future results. It is not possible to invest directly

in an index.

U.S. equity: Small-cap sector concentration

► U.S. small-cap sector weights


► The small-cap index has

significantly changed sector

weights over time (e.g.,

health care increased

markedly, materials and

energy decreased), so

regression to historical mean

P/E relationships for the

aggregate index probably

may have limited predictive

information.

0% 5% 10% 15% 20% 25%

Health care

Discretionary

Industrials

Financials

Technology

Real Estate

Materials

Energy

Utilities

Staples

Telecom 1980 2013 2021

N/AN/A

N/AN/A


► Russell 2000 Index vs. Russell 1000 Index relative performance (%)

Source: FTSE Russell, Columbia Threadneedle Investments. Cumulative returns were used for all time periods shown. Dot-com bubble implosion and Global financial crisis calculations are

based on monthly returns, while COVID-19 calculation is based on daily returns. Coronavirus dates based on the 2020 market bottom for the Russell 2000 index. Past performance is not a

guarantee of future results. It is not possible to invest directly in an index.

U.S. equity: Small-cap stocks do well in post-crisis recoveries

► From trough to peak, small-

cap stocks significantly

outperformed large-cap

stocks after both the 2000

dot-com bubble and the 2009

global financial crisis.

► Similarly, since the

coronavirus pandemic trough,

small-cap stocks have

outperformed large-cap

stocks.

► Notably during the

coronavirus pandemic, small-

cap stocks underperformed

large-cap stocks from peak to

trough significantly more than

seen in the dot-com bubble

and the global financial crisis.


-2.9

56.8

-6.2

23.1

-11.0

52.4

-20

-10

0

10

20

30

40

50

60

70

2/00-4/00 5/00-1/06 2/06-3/09 4/09-2/11 2/19/20-3/18/20

3/19/20-3/31/21

Dot-com

bubble

Coronavirus

pandemic

Global financial

crisis


5.6 6.0 5.63.3 4.1 4.8

2.8 1.8 2.2 2.24.0

-5.3

3.0

13.6

4.4 1.6

12.6 15.3

-2.7

11.2

16.2

5.8

-10

-5

0

5

10

15

20

25

S&P 500 Index income return S&P 500 Index capital appreciation

2010s

► S&P 500 Index returns by dividend and capital appreciation

(average annual return, %)

1930s 1940s 1950s1960s 1970s1980s 1990s 2000s 20201930 -

2020

Source: Ned Davis Research as of 12/31/20. Updated annually. Dividend payments are not guaranteed and the amount, if any, can vary over time. Past performance is not a guarantee of

future results. It is not possible to invest directly in an index.

Dividend investing: An important part of total return

► Going back to 1930, more

than 40% of S&P 500 Index

returns have come from

dividend income.

► This fell to 16% from 2010-

2020 resulting from the long

bull market and strong price

appreciation from stocks.



► S&P 500 Index stock returns by dividend policy

Source: Ned Davis Research, data as of 03/31/21. Past performance is not a guarantee of future results. It is not possible to invest directly in an index. There is no guarantee that these

trends will continue. This information is intended for illustrative purposes only. It is not intended to be representative of specific portfolio holdings. Dividend growers and initiators represents those

companies in the S&P 500 Index that have either grown their cash dividend or initiated one over the last 12 months. Non-dividend-paying stocks are those in the Index that have not paid

dividends in the last 12 months.

Dividend investing: Sustainable dividends drive long-term

growth

► Over the long term,

companies that grow and

initiate dividends have

outperformed the S&P 500

Index annual average gain of

8.0%.

► Dividend growers and

initiators (those that have

either grown or initiated a

dividend in the prior 12

months) have had an annual

average gain of 10.5%.

► Non-dividend-paying stocks

have had an average annual

return of only 4.7%.


25

50

100

200

400

800

1600

3200

6400

12800

'73 '79 '85 '91 '97 '03 '09 '15 '21

Mo

nth

ly r

etu

rn (

log s

ca

le)

Dividend growers & initiators

S&P 500 geometric equal-weighted total return index

Non-dividend paying stocks

‘20


► Convertible vs. other asset classes (% cumulative total return)

Source: Bloomberg, Columbia Threadneedle Investments as of 03/31/21. Past performance does not guarantee future results. It is not possible to invest directly in an index.

Convertible securities: Attractive long-term risk/reward profile

Other

countries

European

Union

United

States

Japan

Other Asian

countries

India

China

► Over time and through

different market conditions,

convertible securities have

offered attractive absolute

and relative returns.

►Compared to the broader

equity market, convertibles

have historically

outperformed and done so

with less overall volatility.

Index comparison: 06/30/98–03/31/21

Annualized

Return (%)

Standard

Deviation (%)

▀▀ ICE BofA ML All Convertibles, All Qualities Index 8.89 13.37

▀▀ S&P 500 Index 7.68 15.42

▀▀ Bloomberg Barclays U.S. Aggregate Index 4.75 3.42


0

100

200

300

400

500

600

700

800

1998 2002 2006 2010 2014 2018

ICE BofA Merrill Lynch U.S. ConvertiblesS&P 500Bloomberg Barclays U.S. Aggregate


Source: Bloomberg as of 03/31/21. Growth represented by MSCI ACWI ex USA Growth Index; value by MSCI ACWI ex USA Value Index. Past performance does not guarantee future results.

It is not possible to invest directly in an index.

International equity: Growth vs. value

► Forward P/E ratio: International growth relative to value (%)

-20

0

20

40

60

80

100

120

2005 2007 2009 2011 2013 2015 2017 2019 2021

Current =

100%

Average =

46%

► International growth stocks

significantly outperformed

value stocks in 2020, but in

Q1 2021 international value

stocks outperformed growth

stocks by 7.2%.

► International value looks very

attractive versus growth; but

international value is

dominated by financials (29%

of the index), which are

challenged by negative

interest rates.



► Efficient frontier (ex ante)

Source: Columbia Management Investment Advisers, LLC, updated semi-annually. The efficient frontier is based on the five-year capital market forecast for major asset classes provided by the

Columbia Threadneedle Global Asset Allocation team (see page 7). International developed stocks are represented by the MSCI ACWI-ex U.S. index; emerging markets are represented by the

MSCI EM index. Ex ante volatilities are derived from BlackRock Aladdin® using its weekly long-term risk model as of 12/31/20. Historical asset correlations are based on monthly returns from Jan

1995 to Dec 2020. Past performance does not guarantee future results.

► Emerging markets can be an

important part of international

equity allocations.

► The maximum Sharpe ratio

(the return-to-risk ratio) is

projected at an international

equity allocation of 14%

international developed

markets (DM ex U.S.) and

86% emerging markets (EM).

► International equity portfolios

are also able to increase

efficiency through allocations

to emerging markets.

International portfolio with

less than 30% emerging

markets forgo the opportunity

to increase return without

increasing risk.


International equity: Rethinking allocations

Min. risk portfolio:International developed 70%

Emerging markets 30%

Max. Sharpe ratio portfolio:International developed 14%

Emerging markets 86%

International developed 0%Emerging markets 100%

International developed 100%Emerging markets 0%

7.0

7.5

8.0

8.5

9.0

9.5

16.0 16.5 17.0 17.5 18.0

Retu

rn (

%)

Risk (%)


► Population growth rate (2009–2019)

Sources: Population growth rate sourced from World Bank, 02/21. Labor productivity growth rate represented by output per worker using GDP constant, USD; sourced from ILO (11/19), World

Bank, Columbia Threadneedle as of 02/21. Past performance does not guarantee future results.

Emerging markets equity: Strong demographics

1.0%

0.7%0.4%

0.2%

-0.1%Emergingmarkets

U.S. Developedmarkets (ex-

U.S.)

Euro area Japan

3.3%

1.6%1.3% 1.4%

1.0%

Emergingmarkets


U.S.)

Euro area Japan

► Labor productivity growth rate (%, 2019–2024 estimate)

Emerging

marketsU.S. Developed markets

(ex-U.S.)

Euro

areaJapan

► Population growth of

emerging markets has been

more than two times that of

developed markets outside of

the U.S.

►Labor productivity growth is

projected to be higher in

emerging markets than

developed markets; this is

influenced by the fact that

productivity is already so high

in developed markets.

► Developed markets

productivity is $105,218 per

worker, compared with only

$21,678 in emerging

markets.



► Emerging markets’ share of

global gross domestic

product (GDP) has almost

doubled over the past 25

years.

►Emerging markets’ GDP is

now the largest part of global

GDP and growing most

rapidly. In 1995, emerging

markets’ GDP was less than

20% of the global economy;

by 2025, it is projected to

reach 43%, as the U.S.

declines to 23%.

► Emerging markets’ GDP

growth is estimated to be

three times developed

markets, excluding the U.S.

34

► GDP growth rate (2020 – estimated 2025, %)

Source: IMF as of 04/21, updated every six months. Developed markets (excluding U.S.) reflect those countries classified as “advanced economies” by the IMF, minus the United States;

emerging markets reflect those countries classified as emerging market and developing economies.

Emerging markets equity: Too big to ignore

3.9%

1.8%1.3% 1.1%

0.6%0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Emergingmarkets


U.S.)

Euro area Japan



► The composition of the MSCI

Emerging Market Index has

changed meaningfully, with

energy and materials

decreasing and consumer

discretionary and information

technology increasing.

35

► Changes in sector weights over the past 13 years

Source: Columbia Threadneedle Investments. Chart shows the variation in sector weight in the MSCI Emerging Markets Index between 01/31/08 and 01/31/20. Real Estate, which was not

included in the index in 2008, is excluded.

Emerging markets equity: How the composition has changed


ENERGY

Weight

2008 18%

2020 5%

MATERIALS

Weight

2008 15%

2020 8%

CONSUMER

DISCRETIONARY

Weight

2008 5%

2020 18%

INFORMATION

TECHNOLOGY

Weight

2008 10%

2020 20%


Fixed-income outlook: Key takeaways


Aggressive fiscal stimulus and coronavirus vaccinations have fueled a positive outlook for GDP and

credit risk, while inflation fears have fueled higher nominal and real interest rates, even as the Fed has

kept fed funds at zero.

CREDIT AND

INTEREST RATE

FACTORS

MUNICIPAL

BONDS

► The Fed has been exceptionally clear: the fed funds rate will be anchored at

zero for a long time. The Central Bank’s goals now include addressing

structural as well as cyclical imbalances, seeking an inflation rate that

averages 2% over time and “maximum employment”.

► While bond yields have risen, they are still low when compared to inflation.

But subdued wage pressure and the Fed balance sheet flows should limit any

sharp yield moves to the upside. Fed Chairman Powell has acknowledged the

rapid rise in yields but said the Fed would need to see a broader increase

across the rate spectrum before considering any action.

► After reaching historically wide levels in 2020, credit spreads narrowed as

investors hunted for yield, and are now near historical lows. With tighter

credit spreads, we believe that credit selection will be the dominant

determinant of performance in 2021.

► Direct aid for cities and states in economic stimulus package supports credit

spread tightening. Democratic control is constructive for munis, with higher

taxes a possibility, creating conditions for muni outperformance. Revenue

bonds historically have offered attractive yields without meaningfully adding

to portfolio risk.


► Risk factor returns by calendar year (%)

Taxable fixed income: Four risk factors

* Credit factor returns were -34.84% in 2008 and 59.85% in 2009. These data points were truncated to fit on the chart. Sources: Bloomberg Barclays and Columbia Threadneedle, as of 12/31/20.

Updated annually. Duration factor returns are represented by excess return of 7- to-10-year U.S. Treasury securities relative to 3-month Treasury bills. Credit factor returns are represented by excess

return of high-yield corporate bonds relative to similar duration U.S. Treasury securities. Inflation factor returns are represented by excess return of 10-year Treasury inflation-protected securities

relative to 10-year nominal U.S. Treasury securities. Currency factor returns are represented by the equal-weighted average of G10 currency spot market returns.

-30

-20

-10

0

10

20

30

1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Duration Credit Inflation Currency

*

*


► Interest rates (i.e., duration)

are just one part of fixed-

income investing.

► There are four risk factors

that create opportunity in

fixed income: duration, credit,

inflation and currency.

► These risk factors aren’t

highly correlated. It isn’t an

all-or-nothing game, and

investors don’t need to be in,

or out, of the bond market

completely.


► U.S. Treasury yields (%)

Taxable fixed income: The yield curve

► Yields remain low by historical

standards, especially at the

front end of the yield curve.

► Even when growth picks up, the

Fed has stated that it will not

proactively react to positive

growth. The Central Bank will

now seek an inflation rate that

averages to 2% over time and

“maximum employment”,

suggesting yields may remain

low for a long time.


Source: Bloomberg, Columbia Threadneedle Investments as of 03/31/21.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 10 Yr 30 Yr

Current 10-yr. avg. 20-yr. avg.


► U.S. real yields* – 10-year U.S. treasury bond (%)

Taxable fixed income: Real yields

► 10-year U.S. treasury bond real

yields are at 0.0%, below the

average of 1.5% (since 2000);

(30-year real bond yields are

0.7% versus 2.2% average).

Long-term (1926-2019) the real

return on U.S. government

bonds has been 2.6%.**

► The disinflationary impact that

followed the bursting of the dot-

com bubble, the Great

Recession, and the coronavirus

pandemic pushed real rates

successively lower over the

past 20 years.

► Arguably any eventual post-

coronavirus return to normal

could eventually see an end to

disinflationary forces and see

real rates rise.


Source: * Real yields = 10-year U.S. government bonds minus PCE core inflation. Bloomberg, data as of 02/26/21. Note that PCE core inflation data is released with a month lag. **20-year U.S.

government bonds, SBBBI 1926-2019. Past performance does not guarantee future results. It is not possible to invest directly in an index.

-2

-1

0

1

2

3

4

5

6

2000 2004 2008 2012 2016 2020

Average


► 10-year bond returns (assuming change in yield)

Taxable fixed income: Risk of a modest uptick in yields

► Very low absolute level of

longer maturity bond yields may

not compensate investors for

price risk should rates rise even

modestly.


Source: Columbia Threadneedle Investments. Past performance does not guarantee future results. These hypothetical results were achieved by means of a mathematical formula using

the assumptions shown and do not reflect the effect of other factors that could impact returns. A basis point is 1/100th of a percent.

10-year bond

starting yield

(%)

1-year return (%) assuming change in yield of . . .

+25 bps +50 bps +75 bps +100 bps

0.00 -2.1 -4.2 -6.3 -8.3

0.50 -1.6 -3.7 -5.8 -7.8

1.00 -0.2 -2.3 -4.3 -6.3

1.50 0.4 -1.7 -3.7 -5.6

2.00 0.9 -1.1 -3.1 -5.0

2.50 1.4 -0.5 -2.4 -4.3

3.00 2.0 0.0 -1.8 -3.7

3.50 2.5 0.6 -1.2 -3.0

4.00 3.0 1.2 -0.6 -2.3

4.50 3.6 1.8 0.2 -1.7

5.00 4.1 2.3 0.6 -1.0


► Sector exposure in the Bloomberg Barclays U.S. Aggregate Bond Index

Taxable fixed income: The Agg is overexposed to

government sectors

Source: Bloomberg, data as of 03/31/21. It is not possible to invest directly in an index.

Treasuries (37.1%)

Agency MBS (27.5%)

Agencies (2.6%)

Supranational (1.5%)

Local authorities (1.0%)

Industrial (16.5%)

Financial (8.1%)

CMBS (2.2%)

Utility (2.1%)

Sovereign (1.2%)

ABS (0.3%)

Government-affiliated

sectors (70%)

Other sectors (30%)

► The Agg is heavily

concentrated in exposure to

government-related fixed-

income asset classes. Total

government exposure in the

Agg is almost 70%.

► The Agg was 22% U.S.

Treasuries in 2007. That has

increased to about 37%

today.

► There is a logical

inconsistency in using a

market-cap weighted bond

benchmark as an investment

vehicle. It means there is

greatest exposure to those

that issue the most debt.



► Correlations across fixed-income sectors (2006–2021)

Taxable fixed income: The Agg is not diversified

Source: Bloomberg, as of 03/31/21. See disclosure for indices. It is not possible to invest directly in an index.

U.S.

Treasury

U.S.

Agency

MBS

Global

Treasury

(ex-U.S.)

Emerging

market

Investment

-grade

corporate

U.S.

corporate

high yield

U.S. Treasury 1.00

U.S. Agency MBS 0.82 1.00

Global Treasury

(ex-U.S.)0.48 0.48 1.00

Emerging market 0.11 0.36 0.48 1.00

Investment-grade

corporate0.41 0.50 0.54 0.79 1.00

U.S. corporate

high yield-0.27 -0.01 0.28 0.81 0.64 1.00

► The Agg does not include

sectors with lower correlation,

such as U.S. corporate high

yield, global treasuries or

emerging market debt.

► The correlation of U.S.

Treasuries to high yield is

negative (-0.27) and non-U.S.

Treasuries and emerging

market correlation is low at

0.48.



► Bloomberg Barclays U.S. Aggregate Index

Source: Bloomberg, data as of 03/31/21. It is not possible to invest directly in an index.

► The Agg changed its

complexion after the Global

Financial Crisis because the

government issued more

debt; the index extended

duration and lowered yield

because government bonds

crowded out corporate

bonds.

► We could see a similar trend

in the future as the

government issues low

yielding longer-term debt to

support the economic

rebound.


3

4

5

6

7

0

2

4

6

8

10

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Mo

difie

d d

ura

tio

n (

ye

ars

)

Yie

ld t

o w

ors

t (%

)

Yield to worst Modified duration

Taxable fixed income: The Agg now has more duration

with less yield


► Fixed-income spread

Taxable fixed income: Credit spreads

Source: Bloomberg, as of 03/31/21. Daily spreads since 2001. See disclosure for index details. It is not possible to invest directly in an index. A basis point is 1/100th of a percent. Note:

Spread is the difference in quoted rates of return for a security with credit risk over a risk-free security (e.g., Treasuries or 3-month LIBOR).

► Before the coronavirus, credit

spreads began 2020 with

near historic lows.

► The coronavirus risk-off trade

pushed spreads to historically

wide levels in March 2020.

But the combination of

monetary and fiscal policy

and gradual reopening of the

global economy spurred a

reversal in risk sentiment.

Aided by direct Fed

purchases, spreads

narrowed. Now, credit

spreads are near historical

lows.

► As investors seek yield in a

“lower for longer”

environment, spreads may

grind even tighter in the

riskier parts of the fixed-

income market, such as high

yield and emerging market

debt.


2% /129% /91 6% /310

21% /279 22% /71

77% /60

94% /272 94% /880 91% /65777% /188

43% /39

11% /93 14% /336

36% /301

24% /72

-13bp7/27/10

76bp3/8/05

233bp5/22/07

139bp5/23/07

13bp8/21/03

03/31/21 percentile / Spread level (bps)



12/3/08

192 bps

12/3/08

618 bps

12/16/08

1971 bps10/27/08

1087 bps

11/21/08

1581 bps

C

H

E

A

P

R

I

C

H

Agency

MBSInvestment

gradeEmerging

market

High yield CMBS

50th

Percentile


► AAA Muni to U.S. Treasury yield ratio (10 years, %)

Source: MMD Thomson Reuters, Columbia Management Investment Advisers, LLC as of 03/31/21. It is not possible to invest directly in an index.


► In the early days of the

coronavirus crisis, largely due

to market illiquidity, the yield

ratio between AAA muni

bonds and U.S. treasury

bonds surged to 370%,

significantly above the 91%

average.

► As liquidity returned to the

markets, that spread

narrowed -- currently at 64%

-- below the historical 91%

average.

Tax-exempt fixed income: AAA muni to U.S. Treasuries yield

ratio narrows after a huge spike

0

50

100

150

200

250

300

350

400

2000 2004 2008 2012 2016 2020

Average =

91%


►AAA Muni curve,* current, 2019-end, flattest (Feb ‘07)

Sources: *MMD AAA GO Muni curve, Thomson Reuters Refinitiv company. Barclays Live, Columbia Management Investment Advisers, LLC as of 03/31/21. It is not possible to invest directly

in an index.

Tax-exempt fixed income: AAA muni curve remains steep


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0.0

0.5

1.0

1.5

2.0

2.5

1 5 9 13 17 21 25 29

20

07

sca

le: yie

ld t

o w

ors

t (%

)

20

19

/20

21

sca

le: yie

ld t

o w

ors

t (%

)

Years to maturity

03/31/21 (spread 30yr-1yr: 166bps)

12/31/19 (spread 30yr-1yr: 105bps)

02/27/07 (spread 30yr-1yr: 39bps)

► The muni curve has

steepened versus year-end

2019.

► Possible flattening of the long

end makes that portion of the

curve more attractive from a

relative value perspective.

► While the muni curve has

been essentially flat before

(2007), the muni curve has

never inverted.


► Muni credit spreads to AAA muni (bps)

Source: Barclays Live, Columbia Management Investment Advisers, LLC as of 03/31/21. Note: Data from Index provider was only monthly data until April of 2006; from that point on, data is daily.

*Average starts from 2000. It is not possible to invest directly in an index.


► Credit spreads generally

continued to decline in Q1

2021 from their recent 2020

peak levels.

-100

0

100

200

300

400

500

600

700

800

2000 2004 2008 2012 2016 2020

AA A BBB HY

Tax-exempt fixed income: Credit spreads

Current 2020 peak 5-yr avg 10-yr avg Average* Min Date Max Date

AA 8 31 12 28 35 -27 08/29/2003 109 12/15/2008

A 38 122 57 86 92 4 08/31/2001 196 03/27/2009

BBB 88 280 131 172 184 46 01/22/2007 417 01/21/2009

HY 267 441 324 394 384 114 06/11/2007 746 01/13/2009


► What’s inside the municipal benchmarks (%)?

Source: *Bloomberg, as of 03/31/21. Past performance is not a guarantee of future results. It is not possible to invest directly in an index.


Tax-exempt fixed income: Municipal benchmarks are narrow

yet fragmented

► Against this changing muni

landscape, investors are

increasingly turning to

benchmark-indexed portfolios.

The municipal bond market is

composed of $3.9 trillion in

market value spread over

80,000 issuers and roughly one

million individual bonds.*

► This high degree of

fragmentation makes it nearly

impossible for indexers to

replicate the full market

opportunity. Further, the

traditional benchmarks give

more exposure to low yielding

sectors (like govt. obligations)

and hence offer fewer

diversification benefits.

22%

6% 8%

22%

11%

7%

25%

19%

5%

22%20%

0

10

20

30

40

50

60

70

80

90

100

Beta AdvantageMulti-Sector

Municipal Bond Index

Bloomberg BarclaysMunicipal Managed

Money Index

Bloomberg BarclaysAMT-Free

IntermediateContinuous Municipal

Index

Other

Special Tax

IndustrialDevelopmentEducation

Housing

State

Local

Utilities

Lease

Transportation

Health Care


► Comparative sector metrics*

Source: Bloomberg as of 03/31/21. Sharpe ratios represents 10-year analytics. Sharpe Ratio incorporates the 3-month T-bill as the risk-free rate. Past performance is not a guarantee of future

results. *The following sectors are based on sub-indices of the Bloomberg Barclays Municipal Bond Index as follows: State GO−Bloomberg Barclays State GO Index, an index of state general

obligation bonds; Local GO−Bloomberg Barclays Local GO Index, an index of local general obligation bonds; Hospital−Bloomberg Barclays Municipal Hospital Index, an index of municipal

hospital bonds; Housing−Bloomberg Barclays Municipal Housing Index, an index of municipal housing bonds; AMT-Bloomberg Barclays AMT Index, an index of municipal AMT bonds; High yield

ex-PR is represented by Bloomberg Barclays High yield Municipal Bond ex-PR Index.

Tax-exempt fixed income: The broader opportunity set


► Exclusion of certain

revenue sectors reduces

diversification by clustering

investments into a narrower

range of sector baskets

while simultaneously

limiting performance

potential.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

State GO Local GO Hospital AMT Housing High Yield(excl PR)

Sh

arp

e ra

tioYie

ld t

o w

ors

t

Yield to worst Sharpe ratio


Multi-asset overview


► With correlations between equities and fixed income rising on inflation fears, we may see new

dynamics for multi-asset investors in the months ahead.

► In the current market, we believe that tilts toward risky assets will continue to be rewarded as

global growth reaccelerates. For multi-asset investors, equities appear to be a more enticing

area than fixed income at the current time.

► While we see opportunities for alpha in some areas of the alternatives market, traditional

markets are providing a more attractive opportunity to spend a risk budget in the current

environment.

► Low cash rates for the foreseeable future make other investment opportunities more

compelling.

We continue to advocate for asset allocation that considers asset classes, style and size, as well as

approach (e.g., alpha and beta).

Source: Columbia Threadneedle Investments, as of 03/3120. Diversification does not guarantee a profit or protect against loss.


► Rolling three-year returns annualized (%)

Multi-asset: Traditional asset allocation is not as diversified

as it appears

Sources: Bloomberg, Barclays, Columbia Threadneedle Investments. As of 03/31/21. Equity is represented by S&P 500 Index, and fixed income is represented by the Bloomberg Barclays U.S.

Aggregate Bond Index. Past performance is not a guarantee of future results. It is not possible to invest directly in an index.

► Investors traditionally buy

stocks for return and bonds

to reduce risk and bring them

together in a balanced

portfolio.

►However, returns from a

traditional 60% equity and

40% fixed-income portfolio

have been highly correlated

with equity markets.

► A portfolio allocated based on

risk (risk allocation) rather

than traditional capital

allocation may provide more

downside protection and

mitigate volatility.

-20

-10

0

10

20

30

40

1979 1984 1989 1994 1999 2004 2009 2014 2019

100% equity 60% equity / 40% fixed income



► Current yield and 10-year max drawdown across asset classes

Multi-asset: Seeking income across asset classes

Sources: Bloomberg, FactSet, Barclays, Columbia Threadneedle Investments, as of 03/31/21. Current yield represented as yield to worst for fixed income and current dividend yield for equity. Using

weekly data. See disclosure for indices used to represent asset classes. Drawdown represents a peak-to-trough decline in values during a specified time period.

-3.7% -2.8%

-6.0%-7.1%

-13.3% -12.7%

-21.3% -21.5%

-29.0%

-16.0%-13.6%

1.6% 1.8%1.0%

2.3%5.0% 4.2%

5.6%

3.0% 3.4%1.7%

5.2%

Mortgage-

backed

securities

U.S.

TreasuryPreferred

securities

Dividend

-paying

stocks

U.S.

aggregate

bond

Investment-

grade

corporate

Emerging

marketHigh

-yield

corporate

REITs Floating

rate

loans

Convertible

securities

Yield

Drawdown

► With interest rates and yields

low around the world,

investors who have cash to

invest may be investing in

riskier sectors for additional

yield.

► Higher yielding assets can

have bigger losses,

measured by drawdowns.

► Balancing the trade-off

between higher yield and

higher risk is important in this

environment where investors

are stretching for yield.



Key data points

Global fixed incomeGlobal equityMacroeconomic

► For equities 2020 was about interest rates. 2021 likely will be about earnings. P/Es

on forward earnings are significantly above historical averages. Stocks are no

longer undervalued versus bonds. Stock market gains are likely to be dependent

on the strength of the post-coronavirus 2021 - 22 consensus profit surge coming

through.

► Expect a cyclical rotation over 2021 with increasing market breadth.

► Dividends are an important source for total return investing; free cash flow

strength and quality of balance sheet are now more than ever the primary focus.

► The Fed has been exceptionally clear: the fed funds rate will be anchored at zero

for a long time. The Central Bank’s goals now include addressing structural as well

as cyclical imbalances, seeking an inflation rate that averages 2% over time and

“maximum employment”.

► While bond yields have risen, they are still low when compared to inflation. But

subdued wage pressure and the Fed balance sheet flows should limit any sharp

yield moves to the upside.

► After reaching historically wide levels in 2020, credit spreads narrowed, as

investors hunted for yield. Credit spreads are near historical lows.


Disclosures


Index definitions

55

It is not possible to invest directly in an index.The Bank of America Merrill Lynch All Convertibles All Qualities Index is a widely used index that measures convertible securities’ performance. It measures the performance ofU.S. dollar denominated convertible securities not currently in bankruptcy with a total market value greater than $50 million at issuance.The Bloomberg Barclays Emerging Markets Bond Index includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.The Bloomberg Barclays Global Aggregate Bond Index is an unmanaged, broad-based, market-capitalization-weighted index that is designed to measure the broad global marketsfor U.S. and non-U.S. corporate, government, governmental agency, supranational, mortgage-backed and asset-backed fixed-income securities.The Bloomberg Barclays Global Inflation Linked Bond Index is designed to include those markets in which a global government linked fund is likely and able to invest.The Bloomberg Barclays Global Treasury Index ex-U.S. tracks fixed-rate, local currency government debt of investment grade countries, including both developed and emerging markets but excluding the U.S.The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed-income bond market. The index represents the union of the Global Aggregate Index and the Global High-Yield Index and captures investment grade and high yield securities in all eligible currencies. The Bloomberg Barclays Municipal Bond Index is an unmanaged index that is considered representative of the broad market for investment grade, tax-exempt bonds with amaturity of at least one year.The Bloomberg Barclays Muni BBB rated index is an unmanaged index of tax-exempt bonds with a BBB credit rating.The Bloomberg Barclays U.S. Aggregate Corporate Bond Index consists of publicly issued, fixed-rate, nonconvertible, investment-grade debt securities.The Bloomberg Barclays U.S. Corporate Investment Grade Index measures the investment grade, taxable corporate bond market.The Bloomberg Barclays U.S. High Yield Corporate Bond Index represents the universe of fixed rate, non-investment grade debt. The Bloomberg Barclays U.S. Mortgage-Backed Securities Index includes 15- and 30-year fixed-rate securities backed by mortgage pools of Government National MortgageAssociation (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA).The Bloomberg Barclays U.S. Treasury Index (“U.S. Treasuries”) measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury.The Bloomberg Commodity Index (formerly DJ UBS Commodity Index) is a broadly diversified index composed of commodities traded on U.S. exchanges, with the exception ofaluminum, nickel and zinc, which trade on the London Metal Exchange (LME).The BCOM is a highly liquid and diversified benchmark for commodity investments. It provides broad-based exposure to commodities, and no single commodity or commoditysector dominates the Index.The BofA Merrill Lynch 10-Year T-Bill Index is an unmanaged market index of U.S. Treasury securities that assumes reinvestment of all income.The ICE BofA Merrill Lynch U.S. High Yield Constrained Bond index is a commonly used benchmark index for high-yield corporate bonds.The Bloomberg Barclays Treasury Index tracks the total return of U.S. Treasury notes.Floating rate loans are represented by the Credit Suisse Leveraged Loan Index, also known as the Bank Loan Index, which provides broad and comprehensive total return metricsof the universe of syndicated term loans.Th FTSE Broad Investment-Grade (BIG) Index tracks the performance of U.S. dollar-denominated bonds issued in the U.S. investment-grade bond market.The FTSE National Association of Real Estate Investment Trusts (NAREIT) Index is an index that reflects performance of all publicly traded equity real estate investment trusts.The FTSE U.S. Domestic 3-month T-Bill Index is intended to track the daily performance of 3-month U.S. treasury bills.The FTSE World Government Bond Index measures the performance of fixed-rate, local currency, investment-grade sovereign bonds.The JPMorgan Emerging Market Bond Index tracks total returns for traded external debt instruments in emerging markets and is an expanded version of the JPMorgan EMBI+. Aswith the EMBI+,the EMBI Global includes U.S.-dollar-denominated Brady bonds, loans and Eurobonds with an outstanding face value of at least $500 million. It covers more of theeligible instruments than the EMBI+ by relaxing somewhat the strict EMBI+ limits on secondary market trading liquidity.The JPMorgan Leveraged Loan Index is designed to mirror the investable universe of U.S. dollar institutional leveraged loans.


Index definitions

56

The MSCI ACWI Index is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world.The MSCI Europe, Australasia, Far East (EAFE) Index captures large and mid-cap stocks across developed markets countries around the world, excluding the U.S. and Canada.The MSCI Emerging Markets Index, an unmanaged market-capitalization weighted index, is compiled from a composite of securities markets of 27 emerging market countries.The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese markets.The MSCI U.S. Index is designed to measure the performance of the large and mid-cap segments; aims to represent ~85% of the U.S. market.The MSCI USA High Dividend Yield Index is based on the MSCI USA Index, its parent index, and is designed to reflect the performance of equities with higher dividend income andquality characteristics.The MSCI World ex-U.S. Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries--excluding the United States.The Russell 1000 Value Index is a stock market index that represents stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates.The Russell 1000 Growth Index is a market-capitalization weighted index of those firms in the Russell 1000 with higher price-to-book ratios and higher forecasted growth values.The Russell 2000 Index is comprised of the smallest 2,000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization.The Russell 3000 Index measures the performance of the 3,000 largest publicly held companies incorporated in America as measured by total market capitalization.The S&P 500 Index tracks the performance of 500 widely held, large capitalization U.S. stocks. Index returns assume the reinvestment of all distributions unless otherwiseindicated.The S&P 500 Geometric Equal-Weighted Total Return Index is the returns based on monthly equal-weighted geometric average of total returns of the S&P 500 component stocks,with components reconstituted monthly.The S&P GSCI is a composite index of commodity sector returns that represents a broadly diversified, unleveraged, long-only position in commodity futures. The index'scomponents qualify for inclusion in the index based on liquidity measures and are weighted in relation to their global production levels.The S&P GSCI Light Energy Index differs only with regards to a lesser energy weighting.The S&P U.S. Preferred Stock Index is designed to serve the investment community’s need for an investable benchmark representing the U.S. preferred stock market.The U.S. Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar's value relative tofollowing select currencies: Euro (EUR) 57.6%, Japanese yen (JPY) 13.6%, Pound sterling (GBP) 11.9%,Canadian dollar (CAD) 9.1%, Swedish krona (SEK) 4.2%, Swiss franc (CHF) 3.6%.


Disclosure

57

YTD asset class returns slides: The shown asset class descriptors reference the following indices: S&P 500 Index (U.S. stocks), MSCI World ex-U.S. Index (International developed

equity), MSCI Emerging Markets Index (Emerging market equity), Bloomberg Barclays Treasury Index (Treasuries), Bloomberg Barclays US Aggregate Bond Index (U.S. aggregate

bond), Bloomberg Barclays Municipal Bond Index (U.S. municipal bond), Bloomberg Barclays Global Aggregate TR USD (Global Aggregate Bond), Bloomberg Barclays US MBS TR

USD (Mortgage-backed securities), FTSE Broad Investment-Grade (BIG) Index (Investment grade corporate bond), Merrill Lynch US High Yield Constrained Index (High yield

corporate bond), JP Morgan EM Bond Index (Emerging market bond), Bloomberg Barclays Global Infl Linked TR USD (unhedged) (Global Inflation-linked bond), Bloomberg

Commodity Index (Commodities), FTSE All Equity NAREIT Index (REITs).

Factor performance slide: Book to price – book equity divided by market cap; Forward E/P – forward 12-month earnings divided by price; FCF to EV – Trailing 12-month free cash flow

divided by enterprise value; Share buyback – year-over-year percentage change in common shares outstanding; Dividend yield – indicated annual dividends divided by price; ROE –

trailing 12-month net income divided by common equity; Earnings quality – balance sheet accruals; Debt to assets – Total debt divided by total assets; EBITDA margin – trailing 12-

month EBITDA divided by sales; Revenue stability – Revenue growth stability over the past 12 quarters; Price momentum – total stock returns from month t-12 to t-1; Prior 1-month

return – total stock returns in prior month; Analyst sentiment – net analyst upward revisions on forward 12-month earnings; OCF surprise – weighted quarterly operating cash flow

growth; Beta – Barra beta; Size – Barra size; LT growth rate – estimated long-term growth rate.

Five-year forecast slide: Equity forecasts are based on three components: expected dividend payments, expected earnings growth and change in valuation levels (price-to-earnings

ratios). Expected earnings growth is driven by expected economic growth, input cost changes and pricing power. Fixed-income forecasts are based on the shape of the yield curve,

direction of interest rates, increase/decrease in yield spreads and timing of those changes. To calculate the five-year forecast, we consider three scenarios and calculate a weighted

average based on the likelihood of each: 1) Most likely (50%): Fiscal Fade. In this scenario, the boost to growth provided by fiscal policy changes implemented in 2018 are exhausted

by year end. Trend growth resumes. However, with little room for error, the economy becomes susceptible to recessions if shocks occur. 2) Slightly Less likely (45%): Trade Disputes

and Protectionism. In this scenario, positive U.S. growth is derailed by tariffs on imports. Protectionism elicits retaliatory response from China and other key global trade partners. Fed

pauses, but damage from stronger dollar and current rate levels begins to impact weakening economy. Ultimately a deflationary shock to the economy. 3) Least likely (5%): Business

Friendly. Supply-side benefits resulting from the corporate tax cuts could improve productivity and result in higher growth than trend for a sustained period of time. The Fed is able to

raise rates significantly without a recession as “neutral” rate moves up. The major asset classes are based on the following indices: U.S. large-cap stocks (S&P 500 Index), U.S. small-

cap stocks (Russell 2000 Index), Developed market stocks USD (MSCI EAFE Index), Emerging market stocks USD (MSCI EM Index), Cash (FTSE U.S. Domestic 3-Month T-Bill

Index), U.S. Treasuries (Bloomberg Barclays U.S. Treasury Index), Municipal Bonds (Bloomberg Barclays Municipal Bond Index), Global sovereign bonds USD (Bloomberg Barclays

Global Treasury Index (excl. U.S.), Investment-grade corporate bonds (Bloomberg Barclays U.S. Aggregate Credit Index), High-yield corporate bonds (Bloomberg Barclays Corporate

High Yield Index), Emerging market debt USD (JPMorgan EMBI Global Diversified Index), Absolute return (FTSE U.S. Domestic 3-Month T-Bill Index, Commodities (Bloomberg

Commodity Index).

The Agg is not diversified slide: Bloomberg Barclays U.S. Treasury Index (U.S. Treasuries), Bloomberg Barclays Global Treasury x-U.S. Index (Global Treasury ex-U.S.), Bloomberg

Barclays U.S. Mortgage-Backed Securities Index (Agency MBS), Bloomberg Barclays Emerging Markets Bond Index (Emerging market), Bloomberg Barclays U.S. Corporate Index

(Investment grade corporate), Bloomberg Barclays U.S. High Yield Index (U.S. Corporate high yield). Data starts from January 2006.

Fixed-income spread slide: Bloomberg Barclays US MBS Fixed Rate (Agency MBS); Bloomberg Barclays US Agg Corporate Index (Investment Grade); Bloomberg Barclays US

Corporate High Yield Index (High Yield); Bloomberg Barclays EM USD Agg Index (Emerging Markets); Bloomberg Barclays US Agg CMBS (CMBS).

Multi-asset annual return slide: The chart represents returns of an equally weighted portfolio comprising the following asset class (with their proxy): US Equity (S&P 500 Index); Non US

Developed Equity (MSCI EAFE); Emerging Markets (MSCI EM Equity Index); US Treasuries (Bloomberg Barclays US Treasury Total Return Unhedged USD Index); Global Bonds

(FTSE World Government Bond Index); Emerging Market Bonds (J.P. Morgan EM Bond Index Global Index); Investment Grade Bonds (Bloomberg Barclays US Corporate Total

Return Index); High Yield (Bloomberg Barclays US Corporate High Yield Total Return Index); Mortgage-backed Securities (Bloomberg Barclays US MBS Index); TIPS (Bloomberg

Barclays Global Inflation-Linked Total Return index); REITs (FTSE NAREIT ALL Equity REITs Index); Commodities (Bloomberg Commodity Index).

Multi-asset drawdown slide: The shown asset class descriptors reference the following indices: Bloomberg Barclays U.S. Aggregate Bond Index (U.S. Aggregate Bond), Bloomberg

Barclays U.S. Mortgage-Backed Securities Index (Mortgage-backed securities), Bloomberg Barclays U.S. Treasury index (U.S. Treasury Bonds), Bloomberg Barclays U.S. Investment

Grade Corporate Index (Investment Grade Corporate), JP Morgan Emerging Markets Bond Index Global (Emerging Market Bonds), Bloomberg Barclays U.S. High Yield Index (High

yield), S&P U.S. Preferred Stock Index (Preferred stocks), MSCI USA High Dividend Yield Index (Dividend paying stocks), MSCI U.S. REIT Index (Real estate investment trusts),

BofAML All Convertible All Qualities Index (Convertible securities), Credit Suisse Leveraged Loan Index (Floating rate loans).


Disclosure

58

Bloomberg Index Services Limited BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”).

BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s

licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this

material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained

therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.

Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia

Management Investment Advisers, LLC.

The views expressed in this material are the views of Columbia Threadneedle Investments through the period ended 03/31/21 and are subject to change

without notice at any time based upon market and other factors. All information has been obtained from sources believed to be reliable, but its accuracy is not

guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such

information and it should not be relied on as such. This information may contain certain statements that may be deemed forward-looking statements. Please

note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those discussed.

There is no guarantee that investment objectives will be achieved or that any particular investment will be profitable. Past performance does not guarantee

future results. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions

should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance.

Diversification does not ensure a profit or protect against loss. Investing involves risk, including the risk of loss.

Documents

Capital Market Outlook and Opportunities...2020/09/30 · Dividend Yield Book to Price Revenue Stability Beta EBITDA Margin Share Buyback Analyst Sentiment Prior 1-Month Return ROE