EFTA00862331.pdf

From: "NI, Anton C" To: "Pil, Anton C" Subject: GIO Market Alert - March 2015 Date: Fri, 13 Mar 2015 14:08:25 +0000 Attachments: GIO_Market_Alert_-_March_2015.pdf Inline-Images: image001.png 0313-0217 GIO banner for word & ennailjpg GIO Market Alert March 2015 increasingly the market appears to be coming around to our view that not only is the Fed likely to hike in 2015 but the timing of that hike is likely to be in the next 3-6 months (i.e. June or September). While we view this as a positive sign and affirmation that the US economy is solidly expanding, equity markets can be choppy in the months around the beginning of a tightening cycle as markets digest the news. Looking back 30 years, the S&P 500 has typically been range bound in the months before the first Fed hike with peak-to-trough drawdowns ranging from 5.10%. Furthermore, our views on continued US dollar strength and oil weakness as it re- tests recent lows could drive additional concerns on corporate earnings. With this in mind, we think it is prudent to take profits on some of our US equity exposure which has done well over the last 3 years to take down risk in the US. We will look for the right opportunity to reinvest this dry powder when market volatility increases. WHERE TO TAKE PROFITS WHAT WE'RE HOWING ON TO Large Cap Outperformers Hedged European Equities and Short EUR There are many companies that have outperformed in the last With the ECB engaging in quantitative easing (QE) we think the 6-9 months and as a result now have a smaller valuation pressure remains for euro to continue weakening and may last cushion. We would take profits on those outperformers, well below parity. We expect European equities to remain particularly those up over 10% in 2015 in the large cap supported with investors following the US QE playbook. White technology and pharma sectors that lack catalysts in the next European equities could experience some volatility, it could be 3-6 months. We expect to buy them back on a —1.0% pullback. tempered by continued investor flows. Payments Innovation Hedged Japanese Equities Since the announcement of Apple Pay in September 2014, the Recent improvements in Japanese macro fundamentals keep us stocks we highlighted as beneficiaries of mobile payments invested in Japanese equities. There may also be potential innovation are up 14% due to strong results and underlying catalysts around an equity-geared increase in QE and flows trends. While we still like many of the companies longer term, benefits from continued shifts into equities by asset allocators the credit card networks and NFC chip makers may become following the GPIF's lead. more volatile in the near term. Life Sciences US Banks Last year we highlighted an opportunity in Life Sciences, While recognizing that US bank stocks will not be fully immune particularly those focusing on genetic testing. While we still to market beta, as a sector bank valuations remain low in a like some companies longer term, we believe the primary historical context and capital returns to shareholders seem to catalyst around reduced sequencing costs has played out in the be increasing following the recent CCAR (Comprehensive near term and are taking profits on the stock basket up 12% Capital Analysis and Review) results. Furthermore, the sector since inception in February 2014 with some individual stocks should broadly benefit from Fed hikes and as a result we would up over 30%. For clients interested in maintaining exposure to maintain exposure to this sector, especially to the regional the theme, we would focus on hardware manufacturers. banks, even through near term volatility. GIO Investments Strategy EFTA00862331 Anton Pil Jeanne Sun Peter Epstein Source: Bloomberg. As of March 2015. 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