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In 2015, an emphasis on robust portfolio construction through targeted diversification along with relative value opportunities within and across asset classes will be critical in asset allocation investing.

Investors already weary of a persistent low yield environment complicated by uncertainties – geopolitical tensions, plummeting oil prices, volatile currencies, to name a few – may need to prepare for another challenging year in 2015. From an asset allocation perspective, achieving target returns may be difficult. Not only do we anticipate a tug-of-war escalating between divergent monetary policies and uneven global economic growth, we also observe that 2015 begins with fuller asset valuations than in the recent past and a persisting low yield environment.

Yet, the picture is not entirely bleak: We anticipate a more extended business cycle through the combination of a slow-moving Fed willing to chase inflation rather than impede robust U.S. growth and increased policy stimulus from the European Central Bank (ECB) along with a continuation of the Bank of Japan’s (BOJ) asset purchases. As long as the odds of a recession remain low, it should be possible to find certain risk assets that will deliver attractive returns.

Bottom line: We believe an overweight to equity risk is still warranted and see pockets of opportunity across credit sectors. In contrast, we are modestly negative interest rate risk, and we have a neutral stance on commodities. In 2015, an emphasis on robust portfolio construction through targeted diversification and a focus on exploiting relative value opportunities within and across asset classes will be more important than the bold “beta bets” that have been sufficient over the past few years.



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All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. REITs are subject to risk, such as poor performance by the manager, adverse changes to tax laws or failure to qualify for tax-free pass-through of income. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. The S&P 500 Index is an unmanaged market index generally considered representative of the stock market as a whole. The index focuses on the Large-Cap segment of the U.S. equities market. The EURO STOXX 50 Index, Europe's leading blue-chip index for the Eurozone, provides a blue-chip representation of supersector leaders in the Eurozone. The index covers 50 stocks from 12 Eurozone countries. The Nikkei Stock Average is an index of 225 leading stocks traded on the Tokyo Stock Exchange. Similar to the Dow Jones Industrial Average, it is composed of representative “blue chip” companies (termed first-section companies in Japan) and is a price-weighted index, whereby the movement of each stock, in yen or dollars respectively, is weighed equally regardless of its market capitalization. The MSCI China Index is a market capitalization weighted index composed that was originally designed as a benchmark representing People's Republic of China (PRC) companies that are freely available only to non-PRC domestic investors. The Index is free-float adjusted, calculated in Hong Kong dollars and published in real time. The index is made up primarily of H-shares and red chips trading in Hong Kong and selected B-shares. The MSCI Korea Index is designed to measure the performance of the large and mid cap segments of the South Korean market. With 106 constituents, the index covers about 85% of the Korean equity universe. The MSCI India Index is a market capitalization weighted index composed of approximately 70 issues, and is generally representative of the market structure of India. The index is calculated separately; without dividends, with gross dividends reinvested and estimated tax withheld, and with gross dividends reinvested, in both U.S. Dollars and local currency. The MSCI Taiwan Index is a free-float adjusted market capitalization weighted index that is designed to track the equity market performance of Taiwanese securities listed on Taiwan Stock Exchange and GreTai Securities Market. The MSCI Taiwan Total Return Index takes into account both price performance and income from dividend payments. The MSCI Taiwan Index is constructed based on the MSCI Global Investable Market Indexes Methodology, targeting a free-float market capitalization coverage of 85%. It is not possible to invest directly in an unmanaged index.

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