February 2019

Perspectives from GSAM Strategic Advisory Solutions

MACRO VIEWS ASSET CLASS VIEWS 1
GDP DECELERATION: We see downside risk to our 2019 global economic Current View Previous View Less Attractive More Attractive
growth forecast of 3.5%. However, a deceleration is different from a reversal. US Equity
For the US and Euro area, we expect stable growth to follow a deceleration: 1)
the shutdown has, for now, ended in the US, and 2) fiscal policy, cheaper oil, European Equity

EQUITY
and labor market strength could potentially support the Euro area’s outlook. Japanese Equity
SHUTDOWN SHUTS DOWN: The US government shutdown was suspended UK Equity
after five weeks – the longest in history – without progress on the border wall.
Emerging Market Equity
The Congressional Budget Office (CBO) estimates an $11bn cost to GDP,
representing a 0.4% drag on Q1 growth. While most of the drag will be Emerging Market Debt Local

CREDIT
recovered in Q2, the impact on consumer and business sentiment may not be. Investment Grade Corporate Bonds
BREXIT: With no majority in the UK parliament for Prime Minister May’s Brexit High Yield Corporate Bonds
deal, and no majority for leaving without a deal, it looks increasingly likely that
US Government Fixed Income
the March 29 deadline will be extended. The path forward lacks agreement as SOVEREIGN
May seeks changes from the EU in order to win support for her deal but may German Government FI (Bunds)
ultimately need to pivot to a softer form of Brexit in order to secure a majority. Japanese Government FI (JGB)
CHINA: The largest emerging market (EM) economy decelerated in 2018 and UK Government FI (Gilts)
its 2019 trajectory, in our view, is dependent upon both fiscal and monetary
ASSETS

Commodities
REAL

policy; we anticipate growth rate stabilization if both are implemented. Ex-

China, EM growth has accelerated alongside easier financial conditions, Public Real Estate
reflecting the notable differentiation in conditions within the EM bloc. US Dollar
CURRENCIES

Euro
MARKET VIEWS Japanese Yen
DECEMBER PAIN, JANUARY GAIN: In December, the S&P 500 fell 9%, but British Pound
year to date the index is already up 7%. Swift changes in valuation have Chinese Renminbi
meaningfully contributed to price swings, highlighting the need for being both
invested and protected. Even though we anticipate double-digit returns in 2019, Short Term
MUNICIPAL

we expect more volatility as sentiment moves faster than earnings. Intermediate Term
BONDS

COUPON CREDIT: We believe the rapid spread widening, from decade lows Long Term
in September to multi-year highs in December, was overdone, though we know High Yield
the credit cycle has aged. Default rates remain contained and solid corporate
balance sheets, in our view, should limit fallen angel risk in the growing BBB
market. As decelerating economic growth faces data-dependent central bank ASSET CLASS FORECASTS 2
policymaking, the potential benefits of clipping coupons may persist. Current 3m 12m % ∆ to 12m
MEASURING UP MUNIS: Given the flatter US Treasury curve, growing tax S&P 500 ($) 2708 2625 3000 10.8
revenues, strengthening state fund balances, and higher general fund STOXX Europe (€) 358 365 375 4.7
revenues, we believe that municipal bonds (munis) are an attractive relative MSCI Asia-Pacific Ex-Japan ($) 511 480 510 (0.2)
value opportunity. For example, the yield differential between 1- and 30-Year TOPIX (¥) 1539 1600 1650 7.2
AAA-rated munis is 140 bps, compared to 50 for Treasuries. Within the muni
10-Year Treasury 2.6 2.8 3.0 36.8 bp
market, our views diverge, reflecting our conviction in dynamic investing and
security selection, which are critical in the lower rated corners of the market. 10-Year Bund 0.1 0.3 0.7 61.9
10-Year JGB 0.0 0.1 0.1 13.5
FX: EM currencies have performed well in the midst of downshifting developed
Euro (€/$) 1.13 1.17 1.20 5.9
market growth rates, even while investors are positioned long dollar. These
Pound (£/$) 1.29 1.38 1.41 8.9
higher beta currencies have been a drag on EM equity returns in recent years
Yen ($/¥) 109.7 108.0 105.0 (4.3)
but we believe that they may become additive at a time when the fundamentals
and prospects for EM are also looking brighter. Brent Crude Oil ($/bbl) 62.1 62.5 60.0 (3.4)
London Gold ($/troy oz) 1315 1325 1425 8.4

Source: Goldman Sachs Global Investment Research and GSAM as of January 2019. The economic and market forecasts presented herein are for informational purposes as of the date
of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Past performance does not
guarantee future results, which may vary.
 Market Pulse February 2019

ALTERNATIVE REALITY
Today’s markers of equity market sensitivity include the pace of economic growth, the ongoing withdrawal of
monetary policy accommodation, escalating trade tensions, and geopolitical risk. Each of these can drive episodic
volatility. Geopolitical uncertainties, in particular, may be important drivers of both returns and volatility in the year
ahead. In our view, now is the time for investors to stay focused on a commitment to risk management and
strategic portfolio design, including deploying alternatives to manage a riskier market landscape.

Late-cycle Excess... or Lack Thereof

The current US economic recovery is likely to
become the longest in history in 2019. While the
economy is probably closer to the end of this cycle
than the beginning, a smorgasbord of leverage- and
valuation-based indicators still points to few current
imbalances in the economy. Despite the macro
stability, we believe that market volatility and the
speed of drawdowns and subsequent recoveries
have risen.
Source: Goldman Sachs Global Investment Research and GSAM.

Missing the Bottom, Missing the Bounce

Some of the strongest equity market returns have
come within days of a market bottom. We are wary of
investors' tendency toward loss aversion, which may
lead to missing out on gains while trying to time the
market. Investors are rarely able to achieve perfect
timing— even if they miss drawdowns, they may still
fail to benefit from rebounds. We advocate for a risk-
aware approach and maintaining a strategic
allocation.
Source: Bloomberg and GSAM.

Know Your Alternatives

Liquid alternatives, in our view, can be a valuable
late-cycle diversifier and counterbalancing asset for
periods of heightened episodic volatility. Historically,
as the economic cycle turns, investors who have
held liquid alternatives have seen smaller losses
than those who held only equities, while still
participating in the subsequent recovery. In our view,
alternatives offer an efficient solution for investors to
de-risk yet remain invested.

Source: Bloomberg and GSAM.

Top Section Notes: As of September 30, 2018, latest available. Indicators are shown as percentiles, where orange represents high risk and teal represents low risk. Middle Section Notes:
As of January 2019. Chart shows the captured portion of the average 5-year total return of the S&P 500 from the last three economic cycles’ market bottoms (March 9, 2009, October 9,
2002, and October 19, 1990), which equals 147%. Bottom Section Notes: As of January 2019. Chart shows the average monthly growth of a $100 investment made one year before an
average economic cycle market bottom in both the S&P 500 and the HFRI Fund of Funds Index. GROWTH OF $100: A graphical measurement of a portfolio's gross return that simulates
the performance of an initial investment of $100 over the given time period. The example provided does not reflect the deduct ion of investment advisory fees and expenses which would
reduce an investor's return. Investments in Liquid Alternative Funds expose investors to risks that have the potential to result in losses. These strategi es involve risks that may
not be present in more traditional (e.g., equity or fixed income) mutual funds. Past performance does not guarantee future re sults, which may vary.
 Market Pulse February 2019

Important Information
1. Asset Class Views for equities, credits, sovereigns, real assets, and currencies Glossary
are provided by GSAM Global Portfolio Solutions. Views for municipal bonds
The HFRI Fund of Funds Index is an equal weighted, net of fee, index composed
are provided by GSAM Fixed Income. The views expressed herein are as of
of approximately 800 fund-of-funds which report to HFR.
January 2019 and subject to change in the future. Individual portfolio
management teams for GSAM may have views and opinions and/or make The MSCI AC Asia Pacific ex Japan Index captures large and mid cap
investment decisions that, in certain instances, may not always be consistent representation across 4 of 5 Developed Markets countries and 8 Emerging
with the views and opinions expressed herein. Markets countries in the Asia Pacific region.
2. Price targets of major asset classes are provided by Goldman Sachs Global The S&P 500 Index is the Standard & Poor’s 500 Composite Stock Prices
Investment Research. Source: “Global Equities lost 0.6%; Growth Index of 500 stocks, an unmanaged index of common stock prices. The index
outperformed” – 02/11/2019. figures do not reflect any deduction for fees, expenses or taxes. It is not possible
to invest directly in an unmanaged index.
Page 1 Definitions:
The STOXX Europe 600 Index is derived from the STOXX Europe Total Market
Basis point (bps) refers to a common unit of measure for interest rates and
Index (TMI) and is a subset of the STOXX Global 1800 Index.
other percentages. One basis point is equal to 1/100th of 1%, or 0.01%.
The Tokyo Price Index (TOPIX) is a metric for stock prices on the Tokyo Stock
Brent crude oil is a common international benchmark for oil prices.
Exchange (TSE). A capitalization-weighted index, TOPIX lists all firms that
Brexit refers to the process of the United Kingdom leaving the European Union. have been determined to be part of the "first section" of the TSE.
EU refers to the European Union The US Treasury Bond is a US Treasury debt obligation that has a maturity
of 10 years.
Fallen angel refers to when investment grade BBB companies are de-rated to high
yield categories.
The Fed refers to the Federal Reserve.
FX refers to foreign exchange.
GDP refers to Gross Domestic Product.
Volatility is a measure for variation of price of a financial instrument over time.
Page 2 Notes:
Top Section Notes: Households/Consumers is a category that includes personal
saving, mortgage, and non-mortgage debt, Nonfinancial Business includes
corporate debt and interest expenses, debt to assets, and debt to GDP,
Financial Business includes bank equity ratios, financial sector liabilities,
leverage, and loan-to-deposit ratios, Government includes debt/GDP and
deficit/GDP for federal, state, and local governments, Housing includes price-to-
rent and price-to-income, house prices, mortgage spreads, lending standards,
and credit scores, Commercial Real Estate includes commercial cap rates,
commercial real estate prices, collateralized mortgage bond spreads, and
lending standards, Consumer Credit includes credit card interest rates, personal
loans, auto loan originations, credit card loans, and other consumer loans,
Business Credit includes corporate debt spreads, commercial and industrial
lending standards, and high yield debt issuance, and Equity Market includes
valuations, equity risk premiums, and volatility. Indicators are shown as
percentiles relative to all available data, dating to 1990.
Middle section notes: Market bottom refers to the trough, or lowest price level,
of a market cycle.
 Market Pulse February 2019

Important Information
Risk Considerations uncertainty that may affect actual performance. Accordingly, these forecasts
should be viewed as merely representative of a broad range of possible
Equity securities are more volatile than bonds and subject to greater risks. Foreign
outcomes. These forecasts are estimated, based on assumptions, and are subject
and emerging markets investments may be more volatile and less liquid than
to significant revision and may change materially as economic and market
investments in U.S. securities and are subject to the risks of currency fluctuations
conditions change. Goldman Sachs has no obligation to provide updates or
and adverse economic or political developments. Investments in commodities may
changes to these forecasts.
be affected by changes in overall market movements, commodity index volatility,
changes in interest rates or factors affecting a particular industry or commodity. Past performance does not guarantee future results, which may vary. The
The currency market affords investors a substantial degree of leverage. This value of investments and the income derived from investments will fluctuate
leverage presents the potential for substantial profits but also entails a high degree and can go down as well as up. A loss of principal may occur.
of risk including the risk that losses may be similarly substantial. Currency
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fluctuations will also affect the value of an investment.
Goldman Sachs & Co. LLC, member FINRA.
Investments in fixed income securities are subject to the risks associated with debt Compliance code: 156921-OTU-918322
securities generally, including credit, liquidity, interest rate, call and extension risk. Date of First Use: 02/12/2019
A 10-Year Treasury is a debt obligation backed by the United States government For more information contact your Goldman Sachs sales representative:
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General Disclosures MPFEB2019
This information discusses general market activity, industry or sector trends, or
other broad-based economic, market or political conditions and should not be
construed as research or investment advice. This material has been prepared by
GSAM and is not financial research nor a product of Goldman Sachs Global
Investment Research (GIR). It was not prepared in compliance with applicable
provisions of law designed to promote the independence of financial analysis and
is not subject to a prohibition on trading following the distribution of financial
research. The views and opinions expressed may differ from those of Goldman
Sachs Global Investment Research or other departments or divisions of Goldman
Sachs and its affiliates. Investors are urged to consult with their financial advisors
before buying or selling any securities. This information may not be current and
GSAM has no obligation to provide any updates or changes.
Views and opinions expressed are for informational purposes only and do not
constitute a recommendation by GSAM to buy, sell, or hold any security, including
any Goldman Sachs product or service. Views and opinions are current as of the
date of this presentation and may be subject to change, they should not be construed
as investment advice. In the event any of the assumptions used in this presentation
do not prove to be true, results are likely to vary substantially from the examples
shown herein. This presentation makes no implied or express recommendations
concerning the manner in which any client’s account should or would be handled, as
appropriate investment strategies depend upon the client’s investment objectives. It
does not take into account the particular investment objectives, restrictions, tax and
financial situation or other needs of any specific client.
GSAM leverages the resources of Goldman Sachs & Co. LLC subject to legal,
internal and regulatory restrictions.
Although certain information has been obtained from sources believed to be
reliable, we do not guarantee its accuracy, completeness or fairness. We have
relied upon and assumed without independent verification, the accuracy and
completeness of all information available from public sources.
Indices are unmanaged. The figures for the index reflect the reinvestment of
all income or dividends, but do not reflect the deduction of any fees or expenses
which would reduce returns. Investors cannot invest directly in indices.
Economic and market forecasts presented herein reflect our judgment as of the
date of this presentation and are subject to change without notice. These forecasts
do not take into account the specific investment objectives, restrictions, tax and
financial situation or other needs of any specific client. Actual data will vary and
may not be reflected here. These forecasts are subject to high levels of