EFTA01196657.pdf

GIO GLOBAL INVESTMENT OPPORTUNITIES 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 rangebound 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 HOLDING 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. While technology and pharma sectors that lack catalysts in the next 3- European equities could experience some volatility, it could be 6 months. We expect to buy them back on a —10% 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 GNPs 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 like to market beta, as a sector bank valuations remain low in a some companies longer term, we believe the primary catalyst historical context and capital returns to shareholders seem to around reduced sequencing costs has played out in the near be increasing following the recent CCAR (Comprehensive term and are taking profits on the stock basket up 12% since Capital Analysis and Review) results. Furthermore, the sector inception in February 2014 with some individual stocks up over should broadly benefit from Fed hikes and as a result we would 30%. For clients interested in maintaining exposure to the maintain exposure to this sector, especially to the regional theme, we would focus on hardware manufacturers. banks, even through near term volatility. Source: Bloomberg. As of March 2015. Anton Pil Jeanne Sun Peter Epstein Investment products: Not FDIC insured • No bank guarantee • May lose value EFTA01196657  GIO GLOBAL. INVESTMENT OPPORTUNITIES IMPORTANT INFORMATION This presentation and the material contained herein is not a product of the J.P. Morgan Research Department and is not a research report, although it may refer to a research report or research analyst. This presentation should be reviewed in conjunction with U.S. research published by.I.P. Morgan Securities, LLC to the extent that such research exists. The opinions and ideas expressed herein do not take into account individual client circumstances, objectives and needs. Transactions in any securities that may be referenced herein may not be suitable for all investors. This presentation has been prepared for information purposes only. Nothing in this material is intended to be a solicitation for any product or service offered by.I.P. Morgan's Private Bank or any of its affiliates. Information contained herein has been obtained from sources believed to be reliable but we do not guarantee its accuracy or completeness and accept no responsibility for any direct or consequential losses arising from its use. The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument and is being provided merely to illustrate a particular investment strategy. Past performance is no guarantee of future result. This material contains certain information/statistics that hove been obtainedfrom sources deemed reliable, but J.P. Morgan Securities does not guarantee their accuracy or completeness. Past performance is not a guarantee offuture results, and information is subject to change at any time. Bank products and services are offered through JPMorgan Chase Bank, NA. and its affiliates. Securities are offered by.I.P. Morgan Securities LLC and Clearing and Custody by 1.P. Morgan Clearing Corp., both are members of FINRA, NYSE and SIPC.J.P. Morgan Securities LLC and J.P. Morgan Clearing Corp are affiliates of JPMorgan Chase Bank, N.A. Investment products: Not FDIC insured • No bank guarantee • May lose value EFTA01196658