Investment Strategy

Weekly market insights and possible impacts on investors from the Wells Fargo Investment Institute Global Investment Strategy team.

Equities | Fixed Income | Real Assets

February 11, 2019

Chris Haverland, CFA, Global Asset Allocation Strategist

Veronica Willis, Investment Strategy Analyst

Drawdowns, Recoveries, and Diversification

Key Takeaways

  • Heightened market volatility contributed to poor asset class performance in 2018, but year-to-date, most asset classes have already recouped some of those losses.
  • Financial markets can be extremely volatile on a short-term basis—like in 2018—but a diversified allocation may help minimize volatility, provide the potential for reduced downside participation, and may allow for a quicker recovery time after a correction or bear market.

What it May Mean for Investors

  • A diversified portfolio has the potential to provide more consistent returns through lower volatility. We believe the best investment approach is to set a strategic asset allocation that represents your goals, risk tolerance, and time horizon—while also rebalancing back to those strategic targets on a regular basis.

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In 2018, investors experienced heightened financial market volatility (including two stock market corrections) that led to some of the worst investment returns in a decade. Nearly every asset class was lower for the year with cash being one of only a few categories with positive returns. What a difference one month can make. After bottoming on Christmas Eve, U.S.-based stocks have surged higher with large-cap, mid-cap, and small-cap indices up double-digits through the end of January. Nothing fundamentally has changed in the past month; however, progress on trade talks, a seemingly less aggressive Federal Reserve, and corporate earnings that are not as bad as feared may have prompted investors to take advantage of oversold conditions.

As investors review year-end statements, it’s important to keep in mind that volatility can work both ways. In 2017 equities posted significant gains well above historical averages—and most analysts’ expectations. This was followed by a down year in 2018 that seemed unusually painful during what has been a booming, decade-long bull market. Despite the weakness in 2018, the S&P 500 Index’s1 average annualized total return over the two-year timeframe was 7.9%—close to our long-term expectations. Meanwhile, in January 2019, the equity markets have clawed back a sizable chunk of the 2018 losses. Will this meteoric rise continue for the rest of the year? It’s unlikely, in our opinion. However, we do expect the economy and earnings to continue to grow (albeit at a slower pace), which should support further upside in stock prices.

Financial markets can be extremely volatile on a short-term basis, and some investors may be unable to tolerate sizable drawdowns in their portfolios. One way to participate in the financial markets, while potentially reducing wild swings in investment portfolios, is through asset allocation. Having exposure to a diversified mix of asset classes that don’t always move in the same direction has historically helped reduce downside participation. It also has allowed for shorter recovery times, meaning it doesn’t take as long to get back to the previous peak after markets fall. Chart 1 highlights periods throughout the past forty years when the S&P 500 Index has entered a correction or bear market territory. The chart also shows how a diversified allocation generally has not experienced losses as sharply as an all-equity position during equity market drawdowns.

Chart 1. Diversification may reduce downside riskDiversification may reduce downside riskSources: Morningstar Direct and Wells Fargo Investment Institute, as of December 31, 2018. Performance results for the Moderate Growth and Income 3AG Portfolio (MGI 3AG Portfolio) are hypothetical and presented for illustrative purposes only. Index returns do not represent investment performance or the results of actual trading. There are difficulties in assessing hypothetical asset class performance during corrections or bear markets, in part, because these results do not represent actual trading and cannot completely account for the impact financial risk has on actual trading of investable assets and securities. In addition, any actual portfolio or account will invest in different economic conditions during periods with different volatility and in different securities than those incorporated in the hypothetical performance shown above. It is possible there are other scenarios or events which could have resulted in heavier losses for a portfolio than those that occurred during the time periods shown. An index is unmanaged and not available for direct investment. Hypothetical and past performance does not guarantee future results. Please see the end of report for composition of the MGI 3AG Portfolio and for the risks associated with the asset classes and the definitions of the indices. Note: Corrections are declines of 10% or more. Bear markets are declines of 20% or more.

Attempting to reduce downside volatility is critical to long-term performance, as it may allow a portfolio to recover much more quickly after a negative market event. Using the same corrective periods from the chart above, we examined how long it took to recover to the prior peak. Table 1 shows that, on average, a diversified allocation recovered faster than the S&P 500 Index after corrections and bear markets.

Table 1. Recovery time of the S&P 500 Index versus a diversified allocation after drawdownsRecovery time of the S&P 500 Index versus a diversified allocation after drawdownsSources: Bloomberg, Morningstar Direct, and Wells Fargo Investment Institute as of December 31, 2018. Note: Corrections are declines of 10% or more. Bear markets are declines of 20% or more. For illustrative purposes only. Performance results for the MGI 3AG Portfolio are hypothetical. Please see Chart 1 above for important information on assessing index performance during correction and bear markets. An index is unmanaged and not available for direct investment. Hypothetical and past performance is no guarantee of future results. Please see the end of the report for the composition of the hypothetical MGI 3AG portfolio, the risks associated with the representative asset classes and the definitions of the indices.

Because each asset class has unique risk, return, and correlation characteristics, a diversified portfolio has the potential to provide more consistent returns through lower volatility. Attempting to smooth the ride for investors is important, as it can reduce the temptation to abandon a diversified portfolio when one asset class has outperformed or underperformed during a given time period. Although downside events are typically short-lived, how you react (or don’t react) is extremely important in meeting long-term financial goals. For example, by remaining invested during the market drop only, and then selling just before a recovery, portfolios are more likely to miss out on subsequent gains. Instead of attempting to time these events, we believe the best investment approach is to set a strategic asset allocation that represents your investment goals, risk tolerance, and time horizon—while also rebalancing back to those strategic targets on a regular basis. These actions may assist in reducing downside risk and may help your portfolio recover more quickly after negative, market-moving events.

Equities

Scott Wren, Senior Global Equity Strategist

The S&P 500 Index and sector revenue mix

There has been a lot of conversation over the last six months trying to get a handle on how exposed U.S. companies are to a slowdown in international growth, particularly in China. To provide a better view of domestic versus international revenue exposure, we decided to graph the revenue mix of the S&P 500 Index and its underlying sectors.

Over the last few years, we have been telling clients that 35% to 40% of revenues for the S&P 500 come from outside the U.S. The chart below shows that, based on current FactSet data, a touch less than 40% of revenues are earned outside the domestic economy (37.4% to be exact). Therefore, we may need some help from these international economies in order to reach our S&P 500 company earnings expectations of $173.00 for this year (and beyond).

Investors have also focused on the potential for a significant economic slowdown in China. The chart below shows that not all S&P 500 large-cap sectors have meaningful China exposure. In fact 6 of 11 sectors earn less than 4% of their total revenue in China. The Information Technology sector sees a touch over 14% of total sales coming from China—by far the largest percentage of any sector. The Industrials, Materials, and Consumer Staples sectors, which all have large overseas exposure, have roughly 5% of their revenues coming from China. China is important for some but not so much for others.

Key takeaways

  • Unbeknown to some investors, typically 35% to 40% of revenues for companies within the S&P 500 Index come from outside the U.S.
  • The Information Technology sector has the largest share of revenue coming from China.
S&P 500 Index and sector revenue mixS&P 500 Index and sector revenue mixSources: FactSet, Wells Fargo Investment Institute, February 6, 2019. For illustrative purposes only. The S&P 500 Index is a market capitalization index generally considered representative of the US stock market. An index is unmanaged and not available for direct investment.

Fixed Income

Brian Rehling, CFA, Co-Head of Global Fixed Income Strategy

How to position portfolio duration today

Generally speaking, if interest rates move higher, bond prices fall. The opposite occurs as interest rates fall. Duration is one measure of the sensitivity of a bond’s price to a change in interest rate movements. As the yield curve has flattened over the last several years, there is less opportunity for investors who are moving out on the curve into longer maturities. In the Treasury market, investors purchasing a 10-year Treasury note (over a 2-year note) pick-up just 17 basis points, 2 despite the fact that they must lock-in their money at current rates for an additional eight years. Further out on the curve, things are starting to change; however, we have seen the longest part of the curve (the 30-year- to the 10-year) steepen over the last six months. While not a good value in our opinion, purchasing a 30-year Treasury bond offers investors the potential to receive 34 basis points in additional yield over the 10-year yield, an increase of 24 basis points in the last seven months

The price impact of these duration decisions is meaningful. The table below demonstrates the price impact on a fixed income security if interest rates increase by 100 basis points across the interest rate curve. We are looking for opportunities to extend duration at this point in the cycle. Yet, given our expectation that rates will increase modestly over the course of this year, we believe investors should look to do so at higher rates rather than at today’s levels.

Key takeaways

  • Higher short-term yields offer investors the potential opportunity to shorten duration and improve the risk/return opportunity.
  • Our guidance recommendation is most favorable on Short Term Fixed Income and unfavorable on Intermediate and Long Term Fixed Income.
  • Currently, we recommend investors consider maintaining duration slightly below the level of their individually selected benchmarks. For reference the Bloomberg Barclays U.S. Aggregate Bond Index currently has a duration of 5.96 years.
Price impact on a fixed income security if interest rates increase by 100 basis pointsPrice impact on a fixed income security if interest rates increase by 100 basis pointsSources: Wells Fargo Investment Institute, February 6, 2019. Scenarios are hypothetical and for illustrative purposes only. They are conceptual and used for estimating yield curve shifts only and should not be relied upon as actual performance. The yields shown do not reflect the rates currently available on any U.S. Treasury security available for purchase and do not incorporate all factors that may affect performance. There can be no assurance markets will perform in a similar manner and under similar market conditions in the future. Generally, the longer the duration the more sensitive a bond or bond portfolio is to changes in interest rates.

Real Assets

Austin Pickle, CFA, Investment Strategy Analyst

Buybacks are big news for MLPs

“The main dangers in this life are the people who want to change everything…or nothing.”
--Lady Astor

On January 31, 2019, the largest midstream master limited partnership (MLP) announced a $2 billion multiyear buyback program. This may not sound noteworthy to the average stock investor who, over the past decade, has grown accustomed to massive buyback programs (i.e., in the four quarters ending September 30, 2018, companies in the S&P 500 Index had $640 billion of net buybacks3). But for MLPs, which are known for repeatedly issuing equity to fund projects, buybacks are exceedingly rare. Is January’s announcement a sign of things to come? We think so, and we believe it is a positive development for a space looking to attract investors.

Historically, MLPs have distributed most of their cash flow to unitholders, issued equity to help fund capital investments, and focused on distribution growth. But investor preferences have shifted over the past few years in the wake of abysmal performances. MLPs have since looked for ways to attract investors by aligning priorities and righting their financial ships. Many are working to simplify structures, remove incentive distribution rights (IDRs),4 increase coverage ratios (see chart below), and transition to a more self-funded model. With many of these improvements near completion, buybacks may be the next trend.

Buybacks are another tool in the toolbox to show investors 1) the value in the MLP unit price; 2) management’s confidence in the business; and 3) management’s capital discipline. We expect that investors will respond favorably to the recent buyback announcement, which is likely to encourage other MLPs to follow suit.

Key Takeaways

  • The largest midstream MLP recently announced a $2 billion buyback program.
  • We believe this buyback announcement will be viewed favorably by investors, which, in our opinion, should encourage more MLPs to do the same.
Midstream MLP distribution coverageMidstream MLP distribution coverageSources: Company reports; Wells Fargo Securities, LLC estimates; Wells Fargo Investment Institute. Data as of January 4, 2019. MLPs are not appropriate for all investors. Please see the end of this report for important risk considerations regarding an investment in an MLP. Per Alerian, distribution coverage (or coverage ratio) compares distributable cash flow (DCF) generated in a period to the total cash distributions paid for that period. Investors look at distribution coverage to better understand an MLP's ability to pay distributions from the cash generated by its operations.

Alternative Investments

James Sweetman, Senior Global Alternative Investment Strategist

Private equity secondary market opportunities

Despite being a small segment of the overall private capital universe, assets under management by funds focused on private equity secondary strategies strategies (refers to the buying and selling of aged or mature investor commitments to private equity funds) reached $218.5 billion as of June 2018, about 3% of the total private capital assets.5 Secondary market opportunities remain robust as the long-term nature of private equity creates opportunities from factors like portfolio rebalancing, government regulation, over allocation, and liquidity needs, leading investors to actively manage their private investment allocations.

One of the primary benefits of secondary strategy is its ability to fast-forward through the uncertainty of early portfolio construction by allowing the buyer to perform a comprehensive analysis of both the embedded performance and the future value potential of these underlying companies. Thus, portfolio risk is more readily identifiable by the secondary strategy, allowing for the benefit of hindsight as investors arrive at a discounted price. Importantly, secondary funds typically span a range of vintage years, geographies, investment strategies, and industries, providing investors a broader level of diversification in an expedited period.

Importantly, the potential benefits of the secondary strategy have historically come at a risk/return profile that compares favorably with the broader private capital asset class. As the chart below shows, since 2000, secondary funds have outperformed the broader private capital market—and specifically private equity funds—by a large margin since 2000, with a few periods of slowdowns.

Key Takeaways

  • Secondary strategy’s diversification, cash flow, and return characteristics can create a potential beneficial addition to the portfolios of both new and experienced private equity investors.
  • The backward-looking vintage year and strategic diversification may help investors to simulate a long-term, programmatic private equity portfolio via a single commitment.
Diversification and the opportunity for attractive returns over timeDiversification and the opportunity for attractive returns over timeSources: Preqin, Wells Fargo Investment Institute, February 2019. For illustrative purposes only. The Private Equity Quarterly Index (PrEQin) is designed to be used by investors seeking to compare their private equity portfolios with their overall investment portfolios, as well as directly with their investments in other asset classes. Please see important information regarding PrEQin at the end of this report. Past performance is no guarantee of future results. Index returns do not represent fund performance.

Asset allocation, including strategic asset allocation, and diversification do not guarantee investment returns or eliminate risk of loss. They are investment methods used to help manage risk and volatility within a portfolio. There is no guarantee any asset class will perform in a similar manner in the future.

Alternative investments, such as hedge funds, private equity, private debt and private real estate funds are not suitable for all investors and are only open to “accredited” or “qualified” investors within the meaning of U.S. securities laws.

1 The S&P 500 is considered representative of the US stock market. Keep in mind, index performance does not represent investment performance or the actual trading of investable assets or securities. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

2 One hundred basis points equal 1%.

3 Ned Davis Research, September 2018.

4 IDRs are rights to an increasing share of distributions, or payouts, after the distribution level meets certain predetermined thresholds.

5 Preqin.

Risk Considerations

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. High yield (junk) bonds have lower credit ratings and are subject to greater risk of default and greater principal risk. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility. Real estate has special risks including the possible illiquidity of underlying properties, credit risk, interest rate fluctuations and the impact of varied economic conditions.

Investments in securities of Master Limited Partnerships (MLPs) involves certain risks which differ from an investment in the securities of a corporation. MLPs may be sensitive to price changes in oil, natural gas, etc., regulatory risk, and rising interest rates. A change in the current tax law regarding MLPs could result in the MLP being treated as a corporation for federal income tax purposes which would reduce the amount of cash flows distributed by the MLP. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of interest may exist between common unitholders and the general partner, including those arising from incentive distribution payments. Other risks include the volatility associated with the use of leverage; volatility of the commodities markets; market risks; supply and demand; natural and man-made catastrophes; competition; liquidity; market price discount from Net Asset Value and other material risks. Investors should carefully consider these risk factors and those described in the prospectus, annual reports or other offering documents before investing in an MLP.

An MLP is not required to make distributions and distributions may represent a return of capital as detailed in the K-1 delivered to the unitholder. Unlike regular dividends, a `return of capital' is typically tax-deferred for the unitholder of an MLP and each distribution may reduce the unitholder's cost-basis.

Alternative investments, such as hedge funds, private equity/private debt and private real estate funds, are speculative and involve a high degree of risk that is suitable only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program. They entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds. Hedge fund, private equity, private debt and private real estate fund investing involves other material risks including capital loss and the loss of the entire amount invested. A fund's offering documents should be carefully reviewed prior to investing.

Hedge fund strategies, such as Equity Hedge, Event Driven, Macro and Relative Value, may expose investors to the risks associated with the use of short selling, leverage, derivatives and arbitrage methodologies. Short sales involve leverage and theoretically unlimited loss potential since the market price of securities sold short may continuously increase. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. Derivatives generally have implied leverage which can magnify volatility and may entail other risks such as market, interest rate, credit, counterparty and management risks. Arbitrage strategies expose a fund to the risk that the anticipated arbitrage opportunities will not develop as anticipated, resulting in potentially reduced returns or losses to the fund.

Private equity funds, are not suitable for all investors and are only open to “accredited” or “qualified” investors within the meaning of U.S. securities laws. These investments are suitable only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund for which the fund does not represent a complete investment program. Private equity funds are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and risks associated with the operations, personnel and processes of the manager. There is no assurance that any investment strategy pursued by a fund will be successful or that a fund will achieve its intended objective. Other material risks include capital loss and the potential loss of the entire amount invested. An investor should review the private placement memorandum, subscription agreement and other related offering materials for complete information regarding terms, including all applicable fees, as well as the specific risks associated with a fund before investing.

Important Information on PrEQin.

The Private Equity Quarterly Index (PrEQin) is designed to be used by investors seeking to compare their private equity portfolios with their overall investment portfolios, as well as directly with their investments in other asset classes. PrEQin captures the return earned by investors on average in their private equity portfolios based on the actual amount of money invested in private equity partnerships. It is calculated on a quarterly basis using data from Preqin's Performance Analyst database (Preqin database). The Preqin database provides performance information for over 9,000 private capital funds whose individual return data is received from general partners, limited partners and other sources and is available to subscribers. Listed sources are chosen based on consistency, completeness and timeliness of the data. It is considered the most comprehensive and international data set available The indices show the quarter-to-quarter changes in the returns on invested capital and are rebased from a fixed date to make comparisons across the indices. PrEQin has limitations some of which are typical to other widely used indices and should not be used to predict performance of a fund. These limitations include survivorship bias (the returns of the index may not be representative of all private equity funds in the universe; heterogeneity (not all private equity funds are alike or comparable to one another, and the index may not accurately reflect the performance of a described style. Past performance is no guarantee of future results. Index returns do not represent fund performance.

Definitions

Moderate Growth & Income 3 Asset Group Portfolio

Composition of portfolio

3% Bloomberg Barclays U.S. Treasury Bill 1–3 Month Index, 4% Bloomberg Barclays U.S. Aggregate (1–3 year), 16% Bloomberg Barclays U.S. Aggregate (5–7 year), 7% Bloomberg Barclays U.S. Aggregate (10+ year), 6% Bloomberg Barclays U.S. Corporate High Yield Bond Index, 3% JPM GBI Global Ex-U.S. TR USD Index, 5% JPM EMBI Global TR USD Index, 21% S&P 500 Index, 9% Russell Mid Cap TR USD Index, 8% Russell 2000 Index, 6% MSCI EAFE GR USD Index, 5% MSCI EM GR USD, 5% FTSE EPRA/NAREIT Developed TR USD Index, 2% Bloomberg Commodity Index

Index Definitions

Bloomberg Barclays U.S. Treasury Bills (1-3M) Index is representative of money markets.

Bloomberg Barclays U.S. Aggregate Bond Index is unmanaged and is composed of the Bloomberg Barclays U.S. Government/Credit Index and the Bloomberg Barclays U.S. Mortgage-Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities.

Bloomberg Barclays U.S. Aggregate 1-3 Year Bond Index is unmanaged and is composed of the Bloomberg Barclays U.S. Government/Credit Index and the Bloomberg Barclays U.S. Mortgage-Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities with maturities of 1-3 years.

Bloomberg Barclays U.S. Aggregate 5-7 Year Bond Index is unmanaged and is composed of the Bloomberg Barclays U.S. Government/Credit Index and the Bloomberg Barclays U.S. Mortgage-Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities with maturities of 5-7 years.

Bloomberg Barclays U.S. Aggregate 10+ Year Bond Index is unmanaged and is composed of the Bloomberg Barclays U.S. Government/Credit Index and the Bloomberg Barclays U.S. Mortgage-Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities with maturities of 10 years or more.

Bloomberg Barclays U.S. Corporate High Yield Index covers the universe of fixed-rate, noninvestment-grade debt.

Bloomberg Commodity Index is a broadly diversified index comprised of 22 exchange-traded futures on physical commodities and represents 20 commodities weighted to account for economic significance and market liquidity. It is unmanaged and not available for direct investment.

FTSE EPRA/NAREIT Developed Index is designed to track the performance of listed real-estate companies and REITs in developed countries worldwide.

JPM Global Ex United States Index (JPM GBI Global Ex-US) is a total return, market capitalization weighted index, rebalanced monthly, consisting of the following countries: Australia, Germany, Spain, Belgium, Italy, Sweden, Canada, Japan, United Kingdom, Denmark, Netherlands, and France.

JPM EMBI Global is a U.S. dollar-denominated, investible, market cap-weighted index representing a broad universe of emerging market sovereign and quasi-sovereign debt. While products in the asset class have become more diverse, focusing on both local currency and corporate issuance, there is currently no widely accepted aggregate index reflecting the broader opportunity set available, although the asset class is evolving. By using the same index provider as the one used in the developed-market bonds asset class, there is consistent categorization of countries among developed international bonds (ex. U.S.) and emerging market bonds.

MSCI EAFE Index (MSCI EAFE GR) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.

MSCI Emerging Markets Index (MSCI EM GR) is a free float-adjusted market capitalization index designed to measure equity market performance of emerging markets.

Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 90% of the total market capitalization of the Russell 3000 Index.

Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.

Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index.

S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market.

An index is unmanaged and not available for direct investment.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

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