Table of Contents
EQUITIES ECONOMY FIXED INCOME INTERNATIONAL ASSET CLASS U.S. Market Strategy Team
Dr. David P. Kelly, CFA Joseph S. Tanious, CFA Andrs D D. Garcia-Amaya Garcia Amaya Anastasia V. Amoroso, CFA Brandon D. Odenath David M. Lebovitz Gabriela D. Santos Anthony M. M Wile david.p.kelly@jpmorgan.com joseph.s.tanious@jpmorgan.com andres d garcia@jpmorgan com andres.d.garcia@jpmorgan.com anastasia.v.amoroso@jpmorgan.com brandon.d.odenath@jpmorgan.com david.m.lebovitz@jpmorgan.com gabriela.d.santos@jpmorgan.com anthony m wile@jpmorgan com anthony.m.wile@jpmorgan.com
4 17 31 39 56
Page Reference
Equities
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 3 14. 15. 16. Returns by Style Returns by Sector S&P 500 Index at Inflection Points Stock Valuation Measures: S&P 500 Index Earnings Estimates and Valuations by Style Corporate Profits Sources of Earnings per Share Growth Confidence and the Capital Markets Interest Rates and Equities Deploying ep oy g Corporate Co po ate Cas Cash Broad Market Lagged Price to Earnings Ratio P/E Ratios and Equity Returns Equity Correlations and Volatility 35. 36. 37. 38. Credit Conditions High Yield Bonds Municipal Finance Emerging Market Debt
International
39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51 51. 52. 53. 54. 55. Global Equity Markets: Returns Global Equity Markets: Composition Global Economic Growth The Importance of Exports The Impact of Global Consumers Sovereign g Debt Stresses Global Manufacturing Wages Global Monetary Policy Europe: Economic Growth Europe: Inflation and Unemployment Eurozone: Sovereign Bond Yields China: Growth and Economic Policy China: Cyclical Indicators Japan: Economic Snapshot Global Equity Valuations Developed Markets Global Equity Valuations Emerging Markets Emerging Market Equity Composition
Economy
17. 18 18. 19. 20. 21. 22. 23. 24. 25 25. 26. 27. 28. 29. 30. Economic Growth and the Composition of GDP Cyclical Sectors The Aftermath of the Housing Bubble Consumer Finances Corporate Finances Federal Finances: Outlays and Revenues Federal Finances: Deficits and Debt Trade and the U.S. Dollar Employment Employment and Income by Educational Attainment Consumer Price Index Oil and the Economy Global Energy Supply Consumer Confidence and the Stock Market
Asset Class
56. 56 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. Asset Class Returns Correlations: 10-Years Mutual Fund Flows Yield Alternatives: Domestic and Global Global Commodities Gold Historical Returns by Holding Period Diversification f and the Average Investor Annual Returns and Intra-year Declines Cash Accounts Corporate DB Plans and Endowments Stock Market Since 1900
Fixed Income
31. 32. 33. 34. Fixed Income Sector Returns Interest Rates and Inflation Fixed Income Yields and Returns The Fed and the Money Supply
Returns by Style
Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.
S&P 500 Index
1,600 ,
1Q 2013
Large
2012
Blend Growth Value Large Blend Growth
Equities
1Q13: +10.6%
Value
12.3%
10.6%
9.5%
17.5%
16.0%
15.3%
Mid
1,400 1,350
14.2%
13.0%
11.5%
Mid
18.5%
17.3%
15.8%
Small
11.6%
12.4%
13.2%
Small
1,300
2012: +16.0%
18.1%
16.3%
14.6%
6.2%
13.2%
23.5%
Mid
25.6%
25.9%
24.5%
Mid Small
Small
17.9%
21.6%
24.7%
Mar-08
Jun-09
Sep-10 Dec-11
Mar-13
Source: Russell Investment Group, Standard & Poors, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return return, including dividends reinvested for the stated period period. Since Market Peak represents period 10/9/07 3/31/13, 3/31/13 illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 3/31/13, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with the exception of the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns. Data are as of 3/31/13.
Returns by Sector
Di sc r. St ap le s og y ar e In d S& P
100.0% 100.0% 100.0% 10.6 16.0 13.2 153.0 1.00 13 8x 13.8x 16.4x 19.5x 2.0% 1.7% Div P/E 16.6x Return (%)
du st ria ls
na nc ia ls
Te le co m
ia ls
He al th
Te ch n
er g
s.
s.
Co n
Co n
Ut il
En
In
Fi
Equities
11.4 28.8 -42.7 212.8 1.44 11 7x 11.7x 12.8x 15.0x 15.9x 1.9% 2.1%
4.6 14.8 21.1 153.7 1.13 12 8x 12.8x 23.7x 15.0x 26.5x 1.7% 0.6%
15.8 17.9 42.8 130.3 0.66 14 4x 14.4x 18.2x 18.9x 24.0x 2.0% 1.5%
10.7 15.3 9.2 200.1 1.20 14 0x 14.0x 16.8x 16.6x 20.3x 2.3% 1.8%
10.2 4.6 11.7 104.5 0.97 12 1x 12.1x 14.6x 12.1x 18.0x 2.2% 1.8%
12.2 23.9 54.2 256.9 1.13 16 4x 16.4x 18.6x 17.8x 19.3x 1.7% 1.0%
14.6 10.8 66.3 133.2 0.55 16 6x 16.6x 18.0x 19.3x 21.0x 2.7% 2.1%
9.5 18.3 16.8 123.0 0.68 17 4x 17.4x 17.4x 42.3x 20.0x 4.4% 3.8%
13.0 1.3 19.2 108.6 0.52 15 9x 15.9x 13.6x 19.0x 14.4x 4.0% 4.4%
4.8 15.0 4.1 148.1 1.29 13 4x 13.4x 16.1x 18.7x 19.4x 2.6% 2.1%
S Source: Standard S d d&P Poors, R Russell ll I Investment G Group, F FactSet, S J J.P. P M Morgan A Asset M Management. All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 3/31/13. Since Market Low represents period 3/9/09 3/31/13. Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up calculation of constituent earnings (as described) rather than a top-down calculation. This methodology is used to allow proper comparison of sector level data to broad index level data data. Dividend yields are bottom-up bottom up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices. Past performance is not indicative of future returns. Data are as of 3/31/13.
Weight
S&P Weight
at er
iti
50 0
ol
es
ex
Characteristic Index level P/E ratio (fwd.) Dividend yield 10-yr. Treasury
Equities
1,527
1 565 1,565
1,569
1,400
+101%
1,200
1,000
800
Dec 31 Dec. 31, 1996 P/E (fwd.) = 16.0x O t 9, Oct. 9 2002 P/E (fwd.) = 14.1x Mar. 9, 2009 P/E (fwd.) = 10.3x
741
600 '97 '98 '99 '00 '01
777
'02 '03 '04 '05 '06
677
'07 '08 '09 '10 '11 '12 '13
Source: Standard & Poors, First Call, Compustat, FactSet, J.P. Morgan Asset Management. Dividend Di idend yield ield is calc calculated lated as the ann annualized ali ed di dividend idend rate di divided ided b by price price, as pro provided ided b by Compustat. Comp stat Forward For ard Price to Earnings Ratio is a bottom bottom-up p calc calculation lation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Data are as of 3/31/13.
Latest*
13.8x 2.4 9.4 1.4 1.5 2.2%
10-year avg.
14.2x 2.5 9.7 1.3 1.7 2.1%
15-year avg.
16.6x 3.0 11.0 1.5 1.7 1.9%
Equities
8%
7% 6% 5% 4%
'55
'60
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
3%
Source: (Top) Standard & Poors, FactSet, Robert Shiller Data, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data post-1992 post 1992 include intangibles and are provided by Standard & Poors Poor s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 3/31/2013. (Bottom right) Standard & Poors, Moodys, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/13.
Equities
Average: 16.2x
Mid
Small
Mid
100.7%
95.2%
80.5%
Small
$20 $0
99.5%
91.4%
81.6%
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: (Top and bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Right) Russell Investment Group, IBES, FactSet. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. P/E ratios are calculated and provided by Russell based on IBES consensus estimates of earnings over the next 12 months except for large blend, which is the S&P 500. Data are as of 3/31/13.
Corporate Profits
S&P 500 Earnings Per Share
$26
2Q07: $24.06
Equities
4Q12: 9 9% 9.9%
$23
10%
$20
9%
$5
$2
4%
3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: Standard & Poors, Compustat, BEA, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Most recently available data is 3Q12 as 4Q12 are Standard & Poors estimates with 99.8% of companies reported. Past performance is not indicative of future returns.
Equities
30%
20%
10%
0%
-10%
-20%
-30%
-40% 4Q94 4Q96 4Q98 4Q00 4Q02 4Q04 4Q06 4Q08 4Q10 4Q12
Source: Standard & Poors, Compustat, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Most recently available data is 3Q12 as 4Q12 are Standard & Poors estimates with 99.8% of companies reported. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart. Data are as of 3/31/13.
10
Est. impact of a 10pt. rise in sentiment: +2.0 multiple points* Consumer Sentiment
120 110 100 90 80 70
Forward P/E
Equities
22x 20x 18x 16x 14x 12x 10x '93 '94 '95 '96
60 50
Real yield based on nominal 10-yr. yield minus year-over-year core CPI
Real 10-year Yield
Est impact of a 10pt. Est. 10pt rise in sentiment: +54 basis points* Consumer Sentiment
120 110 100 90 80 70
60 50
11
Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Real 10year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month. *Estimated impact based on coefficients from regression analysis. Data are as of 3/31/13.
Equities
0.6
Positive relationship between yield movements and stock returns
0.4
0.2
-0.2
-0.4
-0.6
-0.8 0% 2% 4% 6% 8%
10-Year Treasury y Yield Source: Standard & Poors, US Treasury, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Data are as of 3/31/13.
10%
12%
14%
16%
12
Corporate Growth
$1,300 $1 200 $1,200 $1,100 $1,000 $900 $800 $700 $600
Equities
50%
$27
40%
30%
$18
$60
Share Buybacks
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
$40 $20
20%
$15
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: Standard & Poors, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. (Top left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poors, Compustat, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/13.
13
Ratio of market value of all U.S. corporations to adjusted after-tax corporate profits for prior four quarters
Equities
30x
25x
20x
15x
10x
5x
0x 52 '52 '55 55 '58 58 '61 61 '64 64 '67 67 '70 70 '73 73 '76 76 '79 79 '82 82 '85 85 '88 88 '91 91 '94 94 '97 97 '00 00 '03 03 '06 06 '09 09 '12 12
Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management. *The March 31, 2013 price is a J.P. Morgan Asset Management estimate based on the daily value of the Wilshire 5000 Total Market Index. Data are as of 3/31/13.
14
Equities
40%
40%
20%
20%
-20%
-20% 20%
-40%
-40%
Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterly dividends. Valuation based on long-term P/E ratio. Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (left) and 0.35 for 5-yr. returns (right). Data are as of 3/31/13.
15
Equities
Great Depression / World War II Cuban Missile Crisis OPEC Oil Crisis
1987 Crash
Average: 26.7%
90 75 60 45
1.5% 1.0% 0.5% 0.0% '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 Mar. 31, 2013. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average. Charts shown for illustrative purposes only. Data are as of 3/31/13. '10 30 15 0
16
Components of GDP
20-yr avg. 4Q12 Real GDP: 2.5% 0.4%
$16,000 $14,000
$625 bn of output p lost
8% 6%
Econom my
70.9% 70 9% Consumption
-$2,000
Source: BEA, FactSet, J.P. Morgan Asset Management. GDP values l shown h i in l legend d are % change h vs. prior i quarter t annualized li d and d reflect fl t 4Q12 GDP. GDP Data are as of 3/31/13.
17
Cyclical Sectors
Light Vehicle Sales
24 22 20 18 16
Econom my
Average: 28.7
'02
'04
'06
'08
'10
'12
'95
'00
'05
'10
Housing Starts
Non defense capital goods orders ex. Non-defense ex aircraft, aircraft $ bn bn, seasonally adjusted
Average: 57.2
'05 05
'10 10
'00
'02
'04
'06
'08
'10
'12
Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management. Capital goods orders deflated using the producer price index for capital goods. Data are as of 3/31/13.
18
1Q13*: $726
Econom my
140
$500 $350
Monthly Rent
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06
1Q13*: $507
130
Home Inventories
120
110
3.5 30 3.0
100
2.5 2.0
90 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
1.5
Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management. Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment based on asking price. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. *1Q13 rent and mortgage payment values are J.P. Morgan Asset Management estimates.
19
Consumer Finances
Consumer Balance Sheet
Trillions of dollars outstanding, not seasonally adjusted
$80
Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted
15% 14%
3Q07: 14 1% 14.1%
$70
Homes: 25%
13% 12%
Econom my
$60
Other Tangible: 7%
$50
Deposits: 10%
$40
3Q07: $67,413
1Q13*: $69,210
$30
Revolving (e.g.: credit cards): 6% Non-revolving: 14% Other Liabilities: 8% Other Financial Assets: 41% Total Liabilities: $13.5tn
$20
$10
Mortgages: 71%
$0
$20,000 $10,000
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *1Q13 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding. Data are as of 3/31/13.
20
Corporate Finances
Corporate Financing Gap
Nonfarm nonfinancial corporate business, billions USD
$1,600 $1,400 $1,200 $1,000
Total Leverage
S&P 500, ratio of total debt to total equity, quarterly
240%
Total Internal Funds Total Capital Expenditures Companies must borrow Companies can fund internally
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12
220%
Econom my
200%
180%
Average: 173%
3Q12: 7.2x
160%
140%
120%
4Q12 : 108%
'10 '12
Source: Federal Reserve, Compustat, Standard & Poors, FactSet, J.P. Morgan Asset Management. (Top Left): All data is from the Feds Flow of Funds tables report Z.1, F.102 lines 9 and 11. Total internal funds equals retained earnings plus depreciation.
21
Other $448bn (13%) Net Int.: $224bn (6%) Non-defense Non defense Disc Disc.: : $461bn (13%) Defense: $751bn (21%)
$3.0
24%
Econom my
$2.5
22%
2013: 23.3%
$2.0
20%
Average: 20.6%
$1.5
18%
$0.5
16%
Revenues Outlays
$0.0 Total Government Spending Sources of Financing S Source: U.S. US T Treasury, BEA, BEA OMB, OMB CBO, CBO J.P. J P Morgan M Asset A M Management. 2013 Federal Budget is based on the CBOs February 2013 Baseline Scenario. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Data are as of 3/31/13.
14% 1960
1970
1980
1990
2000
2010
22
Forecast
Econom my
2022: 58.3%
-4% 40% -2%
0% 20% 2%
1990 1994 1998 2002 2006 2010 2014 1990 1994 1998 2002 2006 2010 2014 2018 2022 Source: U.S. Treasury, BEA, CBO, J.P. Morgan Asset Management. 2012 numbers are actuals. actuals Note: Years shown are fiscal years (Oct (Oct. 1 through Sep. Sep 30). 30) Chart on the left displays federal surplus/deficit (revenues outlays). Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets. Deficit and debt scenarios are based on CBO budget forecasts from August 2012 and February 2013, which include the American Taxpayer Relief Acts cost estimates. Data are as of 3/31/13.
4%
0% 2018 2022
23
Econom my
-4%
-2%
4Q12: -2.8%
0%
70 65 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '94 94 '96 96 '98 98 '00 00 '02 02
'04 04
'06 06
'08 08
'10 10
'12 12
Source: BEA, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/13.
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/13.
24
Employment
Civilian Unemployment Rate
Seasonally adjusted
12%
11%
400
Econom my
10%
200
9%
0
8%
-200
-400
6%
-600
5% %
4%
3% '70 '80 '90 Source: BLS, FactSet, J.P. Morgan Asset Management.
Data are as of 3/31/13.
-1,000 1,000
'00
'10
'03 '04 '05 '06 '07 '08 '09 Source: BLS, FactSet, J.P. Morgan Asset Management.
'10
'11
'12
25
16%
14%
Less than High School Degree High School No College Some College College or Greater Feb. 2013: 11 2% 11.2%
$80,000
+29K
$70,000
$59,415
Econom my
12%
$60,000
10%
$50,000
+24K
% 8% $40,000
$32,493
6%
$30,000
4%
0% '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: BLS, FactSet, J.P. Morgan Asset Management. Unemployment rates shown are for civilians aged 25 and older. Data are as of 3/31/13.
26
Weight in CPI 15.3% 41.0% 3.6% 16.8% 7.2% 6.0% 6.8% 3 4% 3.4% 100.0%
12-month Change 1.7% 2.0% 2.0% 3.7% 3.3% 0.8% 2.0% 1 7% 1.7% 2.0%
4.2% 4.1%
2.0% 2.0%
12%
Econom my
9%
6%
3%
0%
Energy Food
-3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: BLS, FactSet, J.P. Morgan Asset Management.
Core CPI
CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect February 2013 CPI data. CPI component weights are as of December 2012 and 12-month change reflects non-seasonally adjusted data through February 2013. Core CPI is defined as CPI excluding food and energy prices. Data are as of 3/31/13.
27
Oil
Oil Gas
$140
3Q08: 3.8%
$4.00
3%
$120
$3.50
2%
Econom my
$100
$3.00
1%
1Q13*: 2.7%
$80
$2.50
0% '70
'75
'80
'85
'90
'95
'00
'05
'10
$60
$2.00
Total U.S. Energy Net Imports % of total energy consumption Energy Spending by Income Level 35%
% of after-tax income
30% 25%
EIA forecast
$40
$1.50
20% 15%
$20
$1.00
10% 5%
$0 $0.50 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. Price of gas based on U.S. retail national average of all formulations and WTI for crude. Imports are mostly crude oil, petroleum and natural gas while consumption includes oil, gas, coal, nuclear, hydropower and bio-fuels.
0% '90 '95 '00 '05 '10 Source: (Top) BEA, FactSet, J.P. Morgan Asset Management. (Bottom) EIA, J.P. Morgan Asset Management. *1Q12 drag on growth is a J.P. Morgan Asset Management estimate. '15 '20
28
EIA forecast
Shale Gas
Econom my
Iran 4.9%
15 10
Other
Egypt 0.8%
5 0 1990
1995
2000
2005
2010
2015
2020
2025
Sudan S d 0.5%
$10 $8 $6 $4 $2 $0 $4.03
$10.11
United States United Kingdom China Source: EIA, J.P. Morgan Asset Management. Forecasts are from the EIA Annual Energy Outlook 2013. *mmBTU represents 10,000 million British thermal units. Natural gas prices are as of June 2012.
Japan
29
120
Econom my
Average: 85.3
80
70
Mar. 2003 +32.8% Oct. 2005 +14.2% Oct. 1990 +29.1% May 1980 +19.2%
'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04
60
50
30
2004
EMD 11.9% % High Yield 11.1% TIPS 8.5% Asset Alloc. 6.3% Corp. 5.4% MBS 4.7% Muni 4.5% Barclays Agg 4.3% Treas. 3.5%
2005
EMD 12.3% % Asset Alloc. 3.6% Muni 3.5% TIPS 2.8% Treas. 2.8% High Yield 2.7% MBS 2.6% Barclays Agg 2.4% Corp. 1.7%
2006
High Yield 11.8% % EMD 10.0% MBS 5.2% Asset Alloc. 5.1% Muni 4.8% Barclays B l Agg 4.3% Corp. 4.3% Treas. 3.1% TIPS 0.4%
2007
TIPS 11.6% % Treas. 9.0% Barclays Agg 7.0% MBS 6.9% Asset Alloc. 6.2% EMD 5.2% Corp. 4.6% Muni 3.4%
2008
Treas. 13.7% % MBS 8.3% Barclays Agg 5.2% Asset Alloc. -1.4% TIPS -2.4% Muni -2.5% Corp. -4.9% EMD -14.7%
2009
High Yield 58.2% % EMD 34.2% Corp. 18.7% Asset Alloc. 15.8% Muni 12.9% TIPS 11.4% Barclays Agg 5.9% MBS 5.9% Treas. -3.6%
2010
High Yield 15.1% % EMD 12.8% Corp. 9.0% Asset Alloc. 7.6% Barclays Agg 6.5% TIPS 6.3% Treas. 5.9% MBS 5.4% Muni 2.4%
2011
TIPS 13.6% % Muni 10.7% Treas. 9.8% Asset Alloc. 8.9% Corp. 8.1% Barclays B l Agg 7.8% EMD 7.0% MBS 6.2% High Yield 5.0%
2012
EMD 17.9% % High Yield 15.8% Corp. 9.8% Asset Alloc. 7.8% TIPS 7.0% Muni 6.8% Barclays Agg 4.2% MBS 2.6% Treas. 2.0%
1Q13
High Yield 2.9% % Muni 0.3% Asset Alloc. 0.1% MBS 0.0% Corp. -0.1% Barclays B l Agg -0.1% Treas. -0.2% TIPS -0.4% EMD -1.5%
Fixed In ncome
Corp. 8.2% Muni 5.3% Barclays Agg 4.1% MBS 3.1% Treas. 2.2%
Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets USD Index; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Asset allocation portfolio assumes annual rebalancing.
31
10%
Fixed In ncome
-5% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: Federal Reserve, BLS, J.P. Morgan Asset Management. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for March 2013, where real yields are calculated by subtracting out February 2013 year-over-year core inflation. All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance. Data are as of 3/31/13.
32
2y UST
1Q13 0.09% 0.18% -0.31% -3.07% -0.36% 0 36% 2012
+1% -1%
y UST 5y
0.31% 2.29%
4.13%
30y UST
2.34% 6 98% 6.98%
20.4%
Floating Rate
8,223 784 8,988 , 4,527 2,056 314 517 623 430 0.87 0.81 0.53 0.52 -0.22 -0.23 -0.28 0.23 -0.04 7.2 years 5.9 9.9 10.4 6.7 1.8 -9.6 7.0 1.86% 2.52% 2.06% 2.76% 5.67% 0.68% 1.06% 4.30% 4.86% 2.22% 2.74% 2.47% 3.40% 7.23% 1.44% 0.97% 5.35% 5.95% -0.12% -0.05% 0.35% -0.11% 4.21% 2.59% 5.70% 9.82%
-0.1% -3.0% -4.1% -4 1% -4.1% -5.0% -5.3% -6.0% -6.2% 6.2% -7.1% -20% -10% 0%
0.1% 3.5% 4.0% 4.1% 5.0% 5.3% 6.0% 6.2% 7.1% 10% 20% 30%
Fixed In ncome
Broad Market MBS Municipals p Corporates High Yield Floating Rate Convertibles EMD ($) EMD (LCL)
Convertibles MBS US HY EMD (LCL) US Aggregate Munis EMD ($) IG Corps -30%
Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by Broad Market: Barclays U.S. Aggregate; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; EMD ($): Emerging Markets (USD); High Yield: Corporate High Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS). EMD (LCL): Barclays y Emerging g g Market Local Currency y Government; Floating g Rate: Barclays y U.S. Floating g Rate Notes; Convertibles: Barclays y U.S. Convertibles Composite. p Treasury y securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on Bellwethers for Treasury securities. Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of monthly returns for all sectors except Floating Rate and EMD (LCL), which are based on monthly returns from May 2004 and July 2008, respectively, due to data availability. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.25% to 0.00% and the 5-year Treasury falls 0.77% to 0.00%,as interest rates can only fall to 0.00%. Chart is for illustrative purposes only. Past performance is not indicative of future results.
33
Money Multiplier
M2 / Monetary Base
10.0x 9 0x 9.0x 8.0x 7.0x 6.0x
$1 0tn $1.0tn
$0.5tn
Fixed In ncome
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'84
'88
'92
'96
'00
'04
'09
'12
'14
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. Money multiplier defined as M2 divided by the monetary base. Long-term Fed projection is based on average expectations of FOMC members.
34
Credit Conditions
Lending Standards for Approved Mortgage Loans
Average FICO score based on origination date
760 740 720 700 680 660 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
19%
Fixed In ncome
Delinquency Rates
All b banks, k seasonally ll adjusted dj t d
12% 10% 8% 6% 4% 2% '92 '94 '96 '98 '00 '02 '04 '06 '08
12%
10.1%
10% 8%
2011: 11.1%
Average: 7.6%
2.6% 1.2%
'10 '12
'34 34 '41 41 '48 48 '55 55 '62 62 '69 69 '76 76 '83 83 '90 90 Source: (Top left) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left): Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom right) FDIC, J.P. Morgan Asset Management. All data reflect most recently available releases. Data are as of 3/31/13.
35
HY Spreads
15%
10%
5%
0%
Fixed In ncome
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Historical High Yield Recovery Rates High g yield y e d bonds, bo ds, ce cents ts o on t the e do dollar a
90 80 70 60 50 40 30 20 10 0 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Annual Flows into High Yield and Leveraged Loan Funds Mutual funds & ETFs, , billions USD YTD 2013: $11 $11.7bn 7bn
$50 $40 $30
Average: 42.1
$20 $10 $0 -$10 -$20 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
36
Source (Top chart): U.S. Treasury, J.P. Morgan, Strategic Insight, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan Asset Management. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. 2013 recovery rate is a weighted average number as of February 28, 2013. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. Flows include ETFs and are as of February 28, 2013. Past performance is not indicative of comparable future results. Data are as of 3/31/13.
Municipal Finance
Muni/Treasury Ratio Ratio of Barclays 10-year Municipal Bond yield to 10-year Treasury
240%
220%
7%
200%
6%
4Q12: 5.2%
5%
180%
4%
Fixed In ncome
160%
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
140%
120%
100%
$200bn
80%
$100bn $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
60%
Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P. Morgan Asset Management. *Excludes maturities of 13 months or less and private placements. 2013 issuance data is as of February 2013. Data are as of 3/31/13.
37
40% 20%
0%
Fixed In ncome
Sovereigns (EMBIG)
Corporates (CEMBI)
0% '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
B B-
-$5 '03 '04 '05 '06 '07 '08 '09 '10 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 Source: J.P. Morgan, MorganMarkets, FactSet, Strategic Insight, J.P. Morgan Asset Management. Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USDdenominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of February 2013. Past performance is not indicative of comparable future results. Data are as of 3/31/13.
38
Regions / Broad Indexes USA (S&P 500) EAFE Europe ex ex-U.K. UK Pacific ex-Japan Emerging Markets 9.8 57 5.7 7.0 -0.4 10.6 5.3 30 3.0 7.0 -1.6 17.9 20 0 20.0 22.6 17.4 16.0 17.9 22 5 22.5 24.7 18.6
2 Yrs
23.2%
3 Yrs
16.1%
4 Yrs
12.8%
5 Yrs
10.8%
MSCI: Selected Countries United Kingdom France 9.7 3.3 2.9 21 6 21.6 -4.4 -3.3 -2.3 -1.8 2.5 0.6 0.3 11 8 11.8 -4.5 -2.6 -0.8 -3.2 10.2 20.9 30.1 21 8 21.8 22.9 30.0 10.1 9.7 15.3 22.8 32.1 84 8.4 23.1 26.0 0.3 14.4
International
2 Yrs
11.5%
3 Yrs
8.5%
4 Yrs
7.0%
5 Yrs
6 1% 6.1%
Source: Standard & Poors, MSCI, IMF, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Definition of emerging markets is based on MSCI data. Data assume dividend yields as of 3/31/13 (MSCI EAFE: 3.3% and MSCI EM: 2.7%). Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions. Data as of 3/31/13.
39
EM Market
International
12% 10% 8% 6% 4% 2% 0% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: MSCI, IMF, FactSet, J.P. Morgan Asset Management.
Canada 2%
40
Share of global market capitalization is based on float adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) as calculated by the IMF for 2013. Definition of emerging markets is based on MSCI and IMF data sources. Percentages may not sum to 100% due to rounding. Data as of 3/31/13.
International
6% 4% 2% 0% -2% -4% Developed Countries U.S. Canada Germany Japan U.K. France Italy
Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. Forecast and aggregate data come from J.P. Morgan Global Economic Research. Data are as of 3/31/13.
41
10.3%
10.2%
US U.S.
17.6%
15.5% 14 4% 14.4%
E Eurozone
BRIC
Oth Other
26.1% 26 8% 26.8%
9.8%
6.2% 1.3%
14.0%
4.8% 1.5% 2.0%
18.0%
5.8% 7.6% 2.5% 1.6%
21.1% 23.4%
2.8%
International
26.0%
4.2% 10.7%
38.9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Source: IMF, IMF J.P. J P Morgan Asset Management Management. Numbers represent exports of goods only and would be higher if services were included. Values may not sum to total exports due to rounding. Data are as of 3/31/13.
42
35% 35%
30% 30%
25%
25% 20%
International
20%
Source: FactSet, Compustat, Russell, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies reported sales figures and does not capture p all index members due to differences in reporting p gp practices. Data are as of 3/31/13.
43
8%
Indonesia 10% India Malaysia Turkey 5% Singapore Brazil U.S. Germany France EU Japan
6%
4%
Russia
Korea
Mexico
2%
Australia
South Africa
0%
U.K. Italy
-2%
Spain Portugal
International
-4%
-6%
Greece
-8% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180%
240%
44
Developed p Countries
$3,885
$2 000 $2,000
$3,500
$3,716
$1,750
$1,500
$1,250
$2,000
$2,089
$2,077 $866
$1,000
$1,500
$750
International
$1,000 $455 $500 $309 $352 $74 $0 $348 $139 $323 $112 $193 $52 $148
$500
$250
$0
U.S.
Germany
Japan
Brazil
Mexico
China
Thailand
Vietnam
Indonesia
Source: ILO (International Labor Organization), U.S. Bureau of Labor Statistics, Ministry of Labor-Mexico, EM Advisors Group, Thailand National Statistical Office, General Statistics Office of Vietnam, Vietnam Statistics Indonesia, Indonesia IMF IMF, FactSet, FactSet J.P. J P Morgan Asset Management Management. Chinese wages are those of rural migrant workers as a proxy. *Data begins in 2005 for Vietnam due to availability of data. Data is from 2012 for Mexico, China, and Thailand; 2011 for United States, Vietnam (preliminary), and Indonesia (preliminary); and 2010 for Brazil, Germany, and Japan. Data as of 3/31/13.
45
2% 1% 0% -1%
Inflation Rate
International
South Africa
Hong Kong
Euro area
Indonesia
Russia
Thailand
Colombia
Canada
Australia
Mexico
Poland
Turkey
Taiwan
Japan
Korea
Developed Markets
Emerging Markets
46
Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. (Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown represent year-over-year quarterly rates for 4Q12. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation. Data are as of 3/31/13.
China
India
-5.0%
U.K.
U.S.
Brazil
4%
Austria Germany
2%
Average: 1.5%
0%
-2%
International
-4%
Italy Portugal
Greece
47
Unemployment Rate
Avg. Since 1999 Headline CPI Core CPI 2.1% 1.7% Feb. 2013 1.8%
24%
27%
1.4%
4%
Italy Germany
3%
18%
15% 2%
12% 1%
International
9%
0% 6%
'99
'01
'03
'05
'07
'09
'11
Source: (Left) ECB, FactSet, J.P. Morgan Asset Management. (Right) Note: Greece,and Spain unemployment rate is weighted average of each countrys harmonised unemployment rate based on population size. Latest data January 2013 except US which is February 2013. Source: Eurostat, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/13.
48
Euro launch
30%
25%
20%
LTRO
15%
OMT
International
10%
5%
49
Inflation
Year-over-year % change
12% 8%
Avg. since Jan. 2000 Headline CPI: Non-Food CPI: 2.3% 1.0% 1 0%
9.1%
4%
12%
10.4% 9.6%
8.1%
9.3% 7.8%
5.5% 4.5% 3.9%
8%
4.5%
RRR
25%
4%
Internatio onal
4.5%
5.2%
4.1%
7%
15% 10%
0%
Mar. 2013: 6%
5%
5% 0%
'00
'02
'04
'06
'08
'10
'12
Source: National Bureau of Statistics of China, The Peoples Bank of China, FactSet, CEIC, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding. RRR represents the reserve requirement ratio.
50
90% 60%
Imports Feb. 2013: 21.8%
30% 0%
-30%
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
'10
'11
'12
'13
Manufacturing PMIs
Index level
60
Internatio onal
60%
55
Mar. 2013: 51.7 (Flash) NBS Mfg. Mf PMI
50
Feb. 2013: 17.7% Markit Mfg. PMI Feb. 2013: 50.1
Source: National Bureau of Statistics of China, Markit, FactSet, J.P. Morgan Asset Management. Note: NBS manufacturing PMI covers approximately 800 companies with a bias toward state-owned and large enterprises, while the Markit manufacturing PMI includes 400 companies with a bias toward small and medium-sized companies.
51
4Q12 0.4%
Nikkei 225
18,000
14,000
CPI Inflation
Y Year-over-year % change, h sa
3%
Headline CPI
90
Internatio onal
1%
10,000
-1%
80
8,000
Core CPI
'06 '08
Source: (Left) Japanese Statistics Bureau & Statistics Centre, Bank of Japan, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management. Core CPI is defined as CPI excluding food and energy prices. Data are as of 3/31/13.
52
Example Expensive relative to world Expensive relative to own history Cheap relative to own history
World (ACWI)
EAFE Index
France Germany
U.K.
Japan
Australia Canada
Current Com posite Index World (ACWI) EAFE Index France Germ any U.K. J Japan Australia Canada United States Sw itzerland -0.29 -1.11 -1.83 -1.51 -0.93 -0.25 0 25 -0.45 -0.32 1.08 0.82
Current Fw d. d P/E 13.0 12.8 11.5 11.3 11.5 14 9 14.9 14.2 13.3 13.9 14.6 P/B 1.8 1.5 1.3 1.5 1.8 12 1.2 1.9 1.8 2.4 2.5 P/CF 7.5 6.5 5.7 6.0 8.2 55 5.5 8.6 8.0 9.3 10.7 Div Yld Div. Yld. 2.6% 3.3% 3.8% 3.4% 3.7% 1 9% 1.9% 4.4% 2.9% 2.0% 3.1% Fw d. d P/E 12.7 12.3 11.0 11.3 10.8 17 0 17.0 13.1 13.5 13.4 13.0
10-year avg. P/B 1.9 1.7 1.5 1.5 1.9 13 1.3 2.2 2.1 2.3 2.4 P/CF 6.8 5.9 5.5 5.0 6.7 60 6.0 7.9 7.1 8.0 9.9 Div Yld Div. Yld. 2.7% 3.4% 3.8% 3.4% 3.9% 1 9% 1.9% 4.5% 2.5% 2.1% 3.0%
Internatio onal 53
Source: MSCI, FactSet, J.P. Morgan Asset Management. Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd (Fwd. P/E), P/E) price to current book (P/B), (P/B) price to last 12 months months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions. Data are as of 3/31/13.
+5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 3 Std Dev -4 Std Dev -5 Std Dev
Russia Brazil
China Taiwan
Korea
Mexico Indonesia
India
10-year avg.
World(ACWI) EM Index Russia Brazil China Taiw an Thailand South Africa Korea Indonesia Mexico India
Current posite Com p Index -0.29 -1.31 -3.80 -1.76 -2.14 -0.58 -0.05 0.16 0.12 3.09 2.41 2.52
Current Fw d. P/E / 13.0 10.6 5.3 11.2 9.2 14.2 12.4 12.4 8.5 15.1 18.0 13.6 P/B / 1.8 1.6 0.7 1.4 1.5 1.8 2.4 2.3 1.2 3.8 3.0 2.4 P/CF /C 7.5 5.9 3.0 5.5 4.4 6.4 8.4 10.4 4.9 14.0 7.7 13.2 Div. Yld. 2.6% 2.7% 3.8% 3.7% 3.2% 3.0% 3.1% 3.4% 1.1% 2.2% 1.6% 1.6% Fw d. P/E / 12.7 11.4 7.7 10.5 12.6 14.9 10.7 11.3 10.0 13.0 14.2 16.0
P/B / 1.9 2.0 1.4 2.0 2.3 1.9 2.0 2.5 1.5 3.7 2.8 3.3
P/CF /C 6.8 6.1 4.2 6.0 5.1 6.2 6.9 8.0 5.5 10.2 6.3 12.9
Div. Yld. 2.7% 2.7% 2.3% 3.2% 2.6% 3.9% 3.8% 3.3% 1.6% 2.8% 2.0% 1.3%
Internatio onal 54
Source: MSCI, FactSet, J.P. Morgan Asset Management. Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions. Data are as of 3/31/13.
International
20%
Source: MSCI, FactSet, J.P. Morgan Asset Management. Other is comprised of Healthcare, Industrials, Telecom, and Utilities sectors. *Mexican Telecom sector accounts for 19% of the countrys market capitalization. Values may not sum to 100% due to rounding.
55
2004
REITs 3 1. 6 % MS CI EME 26.0% MS CI EAFE 20.7% Russe ll 2000 18 . 3 % Asse t Alloc . 12 . 5 % S &P 500 10 . 9 % DJ UBS Cmdty 9 . 1% Ma rke t Ne utra l 6.5%
2005
MS CI EME 34.5% DJ UBS Cmdty 2 1. 4 % MS CI EAFE 14 . 0 % REITs 12 . 2 % Asse t Alloc . 8.3% Ma rke t Ne utra l 6 . 1% S &P 500 4.9% Russe ll 2000 4.6% Ca sh 3.0% Ba rc la ys Agg 2.4%
2006
REITs 3 5 . 1% MS CI EME 32.6% MS CI EAFE 26.9% Russe ll 2000 18 . 4 % S &P 500 15 . 8 % Asse t Alloc . 15 . 2 % Ma rke t Ne utra l 11. 2 % Ca sh 4.8% Ba rc la ys Agg 4.3% DJ UBS Cmdty 2 . 1%
2007
MS CI EME 39.8% DJ UBS Cmdty 16 . 2 % MS CI EAFE 11. 6 % Ma rke t Ne utra l 9.3% Asse t Alloc . 7.4% Ba rc la ys Agg 7.0% S &P 500 5.5% Ca sh 4.8% Russe ll 2000 - 1. 6 % REITs - 15 . 7 %
2008
Ba rc la ys Agg 5.2% Ca sh 1. 8 % Ma rke t Ne utra l 1. 1% Asse t Alloc . - 24.0% Russe ll 2000 - 33.8% DJ UBS Cmdty - 35.6% S &P 500 - 37.0% REITs - 37.7% MS CI EAFE - 4 3 . 1% MS CI EME - 53.2%
2009
MS CI EME 79.0% MS CI EAFE 32.5% REITs 28.0% Russe ll 2000 27.2% S &P 500 26.5% Asse t Alloc . 22.2% DJ UBS Cmdty 18 . 9 %
2010
REITs 27.9% Russe ll 2000 26.9% MS CI EME 19 . 2 % DJ UBS Cmdty 16 . 8 % S &P 500 15 . 1% Asse t Alloc . 12 . 5 % MS CI EAFE 8.2%
2011
REITs 8.3% Ba rc la ys Agg 7.8% Ma rke t Ne utra l 4.5% S &P 500 2 . 1% Ca sh 0 . 1% Asse t Alloc . - 0.6% Russe ll 2000 - 4.2% MS CI EAFE - 11. 7 % DJ UBS Cmdty - 13 . 3 % MS CI EME - 18 . 2 %
2012
REITs 19 . 7 % MS CI EME 18 . 6 % MS CI EAFE 17 . 9 % Russe ll 2000 16 . 3 % S &P 500 16 . 0 % Asse t Alloc . 11. 3 % Ba rc la ys Agg 4.2% Ma rke t Ne utra l 0.9% Ca sh 0 . 1% DJ UBS Cmdty - 1. 1%
1Q13
Russe ll 2000 12 . 4 % S &P 500 10 . 6 % REITs 8 . 1% MS CI EAFE 5.3% Asse t Alloc . 5.0% Ma rke t Ne utra l 0.7% Ca sh 0.0% Ba rc la ys Agg - 0 . 1% DJ UBS Cmdty - 1. 1% MS CI EME - 1. 6 %
Asset Class
56
Source: Russell, Russell MSCI, MSCI Dow Jones, Jones Standard & Poor Poors s, Credit Suisse, Suisse Barclays Capital, Capital NAREIT NAREIT, FactSet, FactSet J.P. J P Morgan Asset Management Management. The Asset Allocation portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 3/31/13, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 2/28/13. 10-yrs returns represent period of 1/1/03 12/31/12 showing both cumulative (Cum.) and annualized (Ann.) over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Data are as of 3/31/13.
Correlations: 10-Years
Large Cap Large Cap Small Cap EAFE EME Core Bonds Corp. HY EMD Commodities REITs 1.00 Small Cap 0.95 1.00 Core Bonds -0.22 -0.28 -0.16 -0.08 1.00 Corp. HY 0.79 0.75 0.78 0.82 -0.04 1.00 Hedge Funds 0.82 0.76 0.89 0.91 -0.22 0.78 0.68 0.72 0.59 1.00 Eq. Market Neutral* 0.58 0.55 0.73 0.62 -0.08 0.44 0.43 0.52 0.50 0.59 1.00
Source: Standard & Poors, Russell, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NCREIF, DJ UBS, J.P. Morgan Asset Management. Indexes used Large Cap: S&P 500 Index; Small Cap: Russell 2000; EAFE: MSCI EAFE; EME: MSCI Emerging Markets; Bonds: Barclays Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: DJ UBS Commodity Index; Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral: CS/Tremont Equity Market Neutral Index. *Market Neutral returns include estimates found in disclosures. All correlation coefficients calculated based on quarterly total return data for period 3/31/03 to 3/31/13. This chart is for illustrative purposes only.
REITs 0.80 0.84 0.73 0.63 0.00 0.72 0.66 0.39 1.00
Asset Class
57
Data as of 3/31/13.
Difference Between Flows Into Stock and Bond Funds Billions, USD, U.S. and international funds, monthly
$40
Feb. 13: $1,447 billion into bond funds and d fixed fi d income i ETFs ETF since i 07
$20
Asset Class
Bonds Stocks
'09 '10
Feb. 13: $278 billion into stock funds and equity ETFs since 07
-$20
-$40
'11
'12
'13
Jul '09
May '10
Mar '11
Jan '12
Nov '12
Source: Investment Company Institute, J.P. Morgan Asset Management. Data include flows through February 2013 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows. Data are as of 3/31/13.
58
1960's
1970's
1980's
1990's
2000's
1926 to 2012
Yield Alternatives
Annualized Yield
10-year government bond yield
6% 4.9% 4.7%
5%
4% 2.7% 2.0% 3%
3%
3.5%
3.3%
Asset Class
2% 2% 1%
1%
0%
EMD Loc.
Preferreds
U.S. REITs
Inter. REIT's
Converts
Floating Rate
Source: (Top chart) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. Dividend vs. capital appreciation returns are through 12/31/12. (Bottom left) FactSet, NAREIT, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. Preferreds, U.S. REITs, Inter. REITs, EMD Loc., Converts, and Floating Rate yields reflect current yield. Data are as of 3/31/13.
59
Global Commodities
Commodity Prices
Weekly index prices rebased to 100
600
Precious Metals
500
Industrial Metals
400
34% 32% 30% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
300
200
Grains
4% 2%
Asset Class
100
0%
Livestock
0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Source: Dow Jones/UBS, FactSet, J.P. Morgan Asset Management. Commodity prices represented by the appropriate DJ/UBS Commodity sub-index.
-6%
Source: (Top) BP Statistical Review of World Energy, J.P. Morgan Asset Management. (Bottom) BLS, DJ/UBS, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/13.
60
Gold
Gold Prices
$ / oz
$3,000
$2,500
$2,000
$1,500
$1,000
Asset Class
$500
61
16% 17%
14% 5%
Stocks
Asset Class
-30% -40%
1-yr. y
5-yr. y rolling
10-yr. y rolling
20-yr. y rolling
Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management. Returns shown are based on calendar year returns from 1950 to 2012. Growth of $100,000 is based on annual average total returns from 1950-2012.
62
26%
8% 8%
4%
13% 9%
22%
Asset Class
6.3%
2.7%
2.5%
2.3%
Bonds
Homes
Inflation
63
Average Investor
-8
-9
-30
-40% 40%
Asset Class
-50% -60% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06
-49
'08
'10
'12
Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2012. Data are as of 3/31/13.
64
Cash Accounts
Annual Income Generated by $100,000 Investment in a 6-month CD
$10,000 $8,000 $6,000 $4,000 $2,000 $0 1986 1990 1994 1998 2002 2006 2010
$ Billions
2012: $450
Retail MMMFs
628
6.1%
Savings deposits
6,701
64.6%
612
5.9%
20%
663
6.4%
16%
Asset Class
12%
Total
10,371
100.0%
'98 '00 '02 '04 '06 '08 '10 '12 Source: Federal Reserve, St. Louis Fed, Bankrate.com, J.P. Morgan Asset Management. All cash measures obtained from the Federal Reserve are seasonally adjusted monthly numbers. All numbers are in billions of U.S. dollars. Small denomination time deposits are those issued in amounts of less than $100 Small-denomination $100,000. 000 All IRA and Keogh account balances at commercial banks and thrift institutions are subtracted from small time deposits. Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested. 2012 average income is through December 2012. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds. Past performance is not indicative of comparable future results. Data are as of 3/31/13.
65
Overfunded
Underfunded
6% 22%
45.3%
32.0%
Fixed Income
13.0% 35.5% 21.9% 2.7% 10 7% 10.7% 4.7% 6.1% 3.1% 12.2% 4.1% 4.0% 4.7%
78%
94%
Hedge Funds
1999
40% 35% 28% 21% 20% 13% 10% 2% 0% < 7% 7 to 7.5% 7 5% 7.5 to 8% 8 to 8.5% 8 5% 8.5 to 9% 1% 9% 5% 3% 27% 29%
2011
1999: Average 9.2% 2012: Average 7.3%
Private Equity
30%
% of Comp panies
Real Estate
20%
Asset Class
Other
Cash
% of total
20% 30% 40% 50%
0%
10%
Return Assumption
66
Source: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan Asset Management. Asset allocation as of 2010. Funded status as of 2011. Endowments represents dollar-weighted average data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Funded Status based on 347 companies reporting pension funding status. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposes only. Data are as of 3/31/13.
300
1937 1948
10 1900 1924
1948 P/E: 10.0x 1924 P/E: 10.0x 1932 P/E: 14.5x
Asset Class
'00
'10
'20
'30
'40
'50
'60
'70
'80
'90
'00
'10
Source: IDC, FactSet, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. P/E ratios shown at price peaks and troughs use trailing four quarters of reported earnings and are shown as a one year average. Past performance is not indicative of future returns. Chart is for illustrative purposes only.
67
68
69
70