Baird Equity Asset Management Specialized Asset Management Why the Market is Ignoring the News Prepared for: The Ogard Boh Group October 4, 2017 Portfolio Manager: J. Randall McLaughlin, CFA, Managing Director Baird Equity Asset Management 777 E. Wisconsin Avenue Milwaukee, WI 53202
Specialized Asset Management An experienced team focused on building multi-asset investment portfolios for Baird's high-net-worth clients. Our easy to understand Who We Are solutions are customizable, tax efficient and designed to weather tough markets. We believe in establishing clear investment objectives, promoting a long- term perspective, and encouraging realistic risk and return expectations. A Philosophy disciplined approach to asset allocation is critical to meeting client objectives. We emphasize high quality investments across asset classes. • Clients come first and integrity is irreplaceable. What We Believe… • Teamwork fosters prudent investment decisions. • Experience and focus drive quality results. SPECI ALI ZED ASSET MANAGEMENT 2 2 2
Direct Access to Tenured Professionals Team Highlights All Team Members Have Equity Ownership Average Years of Experience: 20 yrs Deep Sector Expertise Average Years with Baird: 13 years Supported By An Experienced Investment Team Randy Brenda Max Mann, BAI RD RESOURCE PARTNERS McLaughlin, Hutchinson, CFA, CMT CFA CFA Our investment team is supported by: SAM Portfolio SAM Portfolio Manager SAM Portfolio Manager • Research – Equity and Credit (130+ Manager Professionals) 25 Years of Experience 28 Years of Experience 9 Years of Experience • Legal and Compliance (60+ ) 25 Years with Baird 28 Years with Baird 9 Years with Baird • I nformation Technology (170+ ) BA – Economics BAA – Finance BA – Economics (University of Colorado) (University of Wisconsin – (Northwestern University) • Human Resources (50+ ) Milwaukee) • Finance (60+ ) SPECI ALI ZED ASSET MANAGEMENT 3 3 3
Research Driven Wide breadth of resources and market research driven investment decisions Senior portfolio managers contribute to research driven process Access to leading Wall Street equity research Access to Baird equity and credit analysts Investment Conferences: Wall Street and industry conferences Cornerstone Macro: Economic and market strategy Renaissance Macro: Technical analysis Evercore ISI: Economic and market strategy Morningstar Direct: Company and fund analytics Market Trend Investors Inc: Market and sector analysis Bloomberg/ Factset: Security analysis, company research SPECI ALI ZED ASSET MANAGEMENT 4 4 4
Client Focus Asset Allocation – Asset Class Components W e com bine asset classes w ith our core equity portfolio to help reduce portfolio risk and increase the potential for consistency of returns. Mid Core Equity Portfolio Drivers Profitability Revenue Growth Industry Fixed Small Management Income Expectations CORE Benefits of Com plem entary Asset Classes Combines low correlated asset classes to help smooth returns Participation in asset class in favor Helps enhance the ability to attain financial goals Specialty Int’l SPECI ALI ZED ASSET MANAGEMENT 5 5 5
Macro news continues to dominate the headlines Source: DaveGranlund.com SPECI ALI ZED ASSET MANAGEMENT 6 6 6
S&P 500: Strong performance despite Macro “headwinds” 2,600.00 Trump elected President 2,500.00 Recession Fears and 2,400.00 Oil Price Collapse 2,300.00 2,200.00 Tensions with 2,100.00 North Korea 2,000.00 BREXIT Collapse & 1,900.00 Recovery 1,800.00 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 S&P 500 Source: FactSet SPECI ALI ZED ASSET MANAGEMENT 7 7 7
Why is the market not paying attention to the headlines? Hint: Economic data has improved! 59.00 2,600.00 Trump elected President 2,500.00 57.00 Recession Fears and Oil Price Collapse 2,400.00 55.00 2,300.00 53.00 2,200.00 Tensions with North Korea 2,100.00 51.00 2,000.00 49.00 BREXIT Collapse & 1,900.00 Recovery 47.00 1,800.00 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 ISM Manufacturing Index (3mma) S&P 500 Source: FactSet SPECI ALI ZED ASSET MANAGEMENT 8 8 8
Solid Economic Footing U.S Employment is Strong Monthly Nonfarm Payroll ( Thousands of Jobs ) Unem ploym ent Rate % ( U-3 ) 12 550 350 10 150 8 -50 6 -250 4 -450 2 -650 0 -850 Underem ploym ent Rate % ( U-6 ) Labor Force Participation Rate % 18 68 16 66 14 64 12 62 10 60 8 58 6 56 Source: Bloomberg SPECI ALI ZED ASSET MANAGEMENT 9 9 9 Data as of: 8/ 31/ 17
U.S. Consumer Feeling More Confident Source: B.Rich/ Hedgeye SPECI ALI ZED ASSET MANAGEMENT 1 0 1 0 1 0
Consumer and Small Business Confidence Strong Consum er Confidence 160 140 120 100 80 60 40 20 1974 1979 1984 1989 1994 1999 2004 2009 2014 Sm all Business Optim ism 1 110 105 100 95 90 85 80 75 1974 1979 1984 1989 1994 1999 2004 2009 2014 1 Small Business Optimism as of 7/ 31/ 17 (Next Release: 9/ 12/ 17) SPECI ALI ZED ASSET MANAGEMENT 1 1 1 1 1 1 Source: Bloomberg Data as of: 8/ 31/ 17
Lower, Longer Slow But Steady Growth Length and Average Grow th Rate of Expansion 160 1 0 6 Mos. 1954-1957 Post W W I I Avg. Expansion 4 .9 % 1958-1960 Length: 61 Months 150 1961-1969 Growth Rate: 4.7% 1970-1973 1 2 0 Mos. Real GDP ( Prior Trough = 1 0 0 ) 3 .6 % 9 2 Mos. 1975-1981 4 .3 % 140 1982-1990 1991-2000 2001-2007 130 2009-Present 9 8 Mos., 2 .1 % 120 ( Less than half of the Historical Average Grow th Rate) 110 100 0 15 30 45 60 75 90 105 120 135 Months Since Prior Trough Source: Bloomberg, US Bureau of Economic Analysis, Commerce Department Data as of: 8/ 31/ 17 SPECI ALI ZED ASSET MANAGEMENT 1 2 1 2 1 2
U.S. Growth Looks Strong vs. Other Developed Countries Com parison of Global Business Cycles Real GDP 114 112 US UK Eurozone Japan 110 108 106 1 2 / 3 1 / 0 7 = 1 0 0 104 102 100 98 96 94 92 90 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg Data as of: 6/ 30/ 17 SPECI ALI ZED ASSET MANAGEMENT 1 3 1 3 1 3
Synchronized Global Growth Better Growth Globally Across Developed and Emerging Economies Econom ies Grow ing / Contracting 45 40 35 Num ber of Countries 30 Accelerating Growth 25 Slowing Growth Contraction 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Est. Note: 2017 is a forecast based off first and second quarter data for most countries. Source: Organization for Economic Cooperation and Development, The Wall Street Journal Data as of: 6/ 30/ 17 SPECI ALI ZED ASSET MANAGEMENT 1 4 1 4 1 4
S&P Earnings Expectations are Strong Source: Evercore SPECI ALI ZED ASSET MANAGEMENT 1 5 1 5 1 5
Why do earnings matter? They drive the market! 142.00 2,600.00 140.00 2,500.00 138.00 2,400.00 136.00 2,300.00 134.00 2,200.00 132.00 2,100.00 130.00 2,000.00 128.00 1,900.00 126.00 124.00 1,800.00 S&P 500 - Earnings - NTM (1m lag) S&P 500 - Price Source: FactSet SPECI ALI ZED ASSET MANAGEMENT 1 6 1 6 1 6
SAM believes some companies are better than others Source: Factset SPECI ALI ZED ASSET MANAGEMENT 1 7 1 7 1 7
Source: Factset SPECI ALI ZED ASSET MANAGEMENT 1 8 1 8 1 8
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Q&A SPECI ALI ZED ASSET MANAGEMENT 2 6 2 6 2 6
U.S. Treasury Yields Look Attractive to Global Investors Strong Base Level of Demand for U.S. Bonds 1 0 Yr. Global Yields 4% U.S. Germany Japan Switzerland 3% 2 .1 2 % 2% 1% 0 .3 6 % 0% 0 .0 1 % -0 .1 4 % -1% Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Source: Bloomberg Data as of: 8/ 31/ 17 SPECI ALI ZED ASSET MANAGEMENT 2 7 2 7 2 7
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