October 5, 2016

Dear Friends,

Money invested in both our equity income and our corporate bond strategies appreciated
by a double digit figure since the first of the year.
The S&P as well as other large growth large oriented funds lagged income oriented strategy
returns. The New York Times noted on September 22 that the largest endowment fund in
America, Harvard Universitys endowment fund, experienced a 2 per cent drop in value in
fiscal 2016, its worst investment performance since 2009. The Wall Street Journal also noted
that many mutual funds underperformed their benchmarks.
These data give rise to such questions as: Why did our equity income oriented and our
corporate bond strategies generate higher returns than many growth oriented strategies?
And, more importantly, is the current trend of value outperforming growth likely to
continue in future months and years?
Lets review some facts. The economy was in the midst of a financial panic in 2008. Real
estate values, corporate profits, and stock prices fell sharply. The Federal Reserve System
recognized that investors had to rebuild their liquid wealth and vigorously pursued a low
interest rate policy to improve liquidity and stimulate macro-economic activity. As a result,
interest rates on government bonds fell to less than 1 percent and remained low.
We believe that the Federal Reserves current low interest rate policy, which drove up the
prices of income generating assets, is the principal reason income oriented investment
strategies generated higher total returns than traditional growth oriented strategies.
However, a second factor also influenced the price of income securities.
Over the past several years, the average age of our population increased. Seniors have a
strong preference for steady current income rather than the fluctuating returns associated
with volatile growth companies. As interest rates on the higher quality corporate bonds
began to fall, corporate bonds rose. Many investors therefore turned to the short maturities
of lower credit rated corporates to earn higher yields. As a result, increases in bond prices
continued to spread and drive up the total return of income oriented assets.

500 Lake Cook Road | Suite 210 | Deerfield, IL 60015 TEL 847.282.4225 FAX 847.572.1586 hightoweradvisors.com/lerner
Securities offered through HighTower Securities, LLC | Member FINRA/SIPC/MSRB | HighTower Advisors, LLC is a SEC registered investment advisor

In the future, as the economy continues to expand, we expect that the near zero interest rate
of the Federal Reserve will change. We believe this will occur after the election regardless of
who is elected to be our next president. We hold this strong opinion because we believe
savers want relief from the Federal Reserves current near zero interest rate policy.
Moreover, as interest rates begin to increase, we believe corporate borrowers will once again
begin to search out new opportunities for plant and equipment financing. Rather than
spending time and effort on trying to borrow money at low rates to buy back equity or find
a merger opportunity, many firms would like to get back to doing what they do best, i.e.,
hiring more people and producing the goods and services that their customers want and
need.
When these events come to pass, and we believe they soon shall, stock market investors
should once again return to seeking out firms that report rising sales and earnings. Growth
strategies should then once again return to favor.
Please contact us if you would like to discuss your portfolio or if we can be of further
service.

Sincerely,

Eugene Lerner
Managing Director, Partner

JR Gondeck
Managing Director, Partner

The Lerner Group is a group of investment professionals registered with HighTower Securities, LLC, member FINRA, MSRB and SIPC, and with HighTower Advisors,
LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower
Advisors, LLC.
This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment
opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment
opportunities referenced herein may not be suitable for all investors.
All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained
in this research is provided as general market commentary, it does not constitute investment advice. The Lerner Group and HighTower shall not in any way be
liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for
statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date
referenced. Such data and information are subject to change without notice.
This document was created for informational purposes only; the opinions expressed are solely those of The Lerner Group and do not represent those of
HighTower Advisors, LLC, or any of its affiliates.