EFTA01377063

CIO Insights —August 2016 Multi Asset 6 MULTI ASSET Recalibrating strategy Return 14% 12% 10% 8% 6% 4% 2% 0% -1% 1% Volatility 3% 5% Multi-asset investors face an environment where growth remains stubbornly low and there are increasing concerns about the long-term implications of very accommodative monetary policy. But, for the foreseeable future, we should live in a situation where core sovereign-bond yields are at record lows, corporate-credit yields are moving down and equities are at record highs. In short, we have an investment cycle where some asset- class price movements are out of synch with economic growth. Lower effective returns are also accompanied by high levels of volatility. This is most simply illustrated by the classic "efficient- 7% 9% 11% 13% 15% frontier" chart (Figure 1) showing the highest rate of return for a given level of risk, or vice versa. A simple hypothetical example makes the point even more strongly. In 2004 you could achieve a 4% return with a portfolio made up with 85% fixed income and only 15% of equities. Now you would have to allocate -50% into equities to have a hope of approaching this level of return - and your expected volatility would have doubled. Figure 1. Lower returns for a higher level of risk 1990-2005 - 2010-2016 Expected return (10y1 Past performance is not indicative of future returns. In short, we have an investment cycle where some asset- class price movements are out of synch with economic growth. Sources: Morgan Stanley Research, Bloomberg Finance L P Data as of November 2015. Past performance is not indicative of future returns. Readers should refer to the explanatory notes at the end of this document. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SONY GM_00219783 DB-SDNY-0073599 EFTA01377063