Investment Strategy Insights Base Case November 2014 Renato Grandmont

Transcription

Investment Strategy Insights
Base Case
November 2014
Renato Grandmont
[email protected]
(212) 559 1766
Charles Iragui
[email protected]
(212) 559 6485
INVESTMENT AND INSURANCE PRODUCTS: NOT FDIC INSURED – NOT CDIC INSURED – NOT GOVERNMENT
INSURED – NO BANK GUARANTEE – MAY LOSE VALUE
David Nieuchowicz
[email protected]
(212) 559 8203
Nelson Sotomayor
[email protected]
(212) 559 8601
Forecast Summary
Global Economic Forecasts and Changes to Our Views
Global Outlook
Eurozone
 Citi has a somewhat more pessimistic view on the global
economy, with reductions of 0.1% to 2014 GDP growth
(2.7%) and 2015 (3.2%). Reductions of 0.1% came for
EM and DM. Lower EM growth was driven by mild
reductions to the Korea outlook and material change to
the Venezuela forecast (2014 now -4.0% was -1.0%;
2015 now -2.2% was +1.9%). DM saw US reductions of
0.1% for 2014 (now 2.2%) and 2015 (now 3.2%) and UK
of 0.3% for 2014 (now 3.0%) and 2015 (now 3.2%).
 Growth: Conflict in Ukraine and slowing growth globally
mean economic activity remains skewed to the downside.
 Inflation: Persistent disinflation poses clear policy risks.
 ECB: We expect persistent low- and below-target
inflation, with a fragile recovery, will lead the ECB to
launch a large-scale (EUR1Tn, 60/40 public/private) asset
purchase program around late 2014/early 2015.
 Energy Dependence on Russia: Imports from Russia
account for 21% of total energy use in Germany, 18% in
Italy, 7% in France and 2% in the UK.
 The inflation outlook is also lower: 0.1% lower for 2014
and 0.3% lower for 2015. The forecast reductions for
inflation were very widespread across EM and DM.
Japan
United States
 Rates: 10Y forecast for 4Q15 is 2.95% (was 3.20%).
 New QE: We believe the central bank of Japan will delay
additional QE to Jan 2015.
 Rate Hike Timing: We expect the Fed to begin hiking in
Sep 2015, and leave the policy rate at 1.00% at yearend.
 New Tax Hikes: Tax hike slated in October 2015 will likely
be approved in Dec 2014.
 Growth: Improving consumer fundamentals point to solid
growth of around 3% in the next few years.
China
 Credit Dependence: Credit growth has slowed to 15%
YoY in August (lowest since 2005) from 20% a year
earlier, still above nominal GDP growth (9.0% YoY in Q2).
 Inflation: Wage inflation is mild and falling oil prices add
to a low inflation outlook.
2
All forecasts are expressions of opinion and are subject to change without notice
and are not intended to be a guarantee of future events.
Charts and tables are for illustrative purposes only. Refer to Important Information at the end of this presentation.
Macroeconomic View
Developed Markets in Economic Recovery
Emerging Markets (EM): Prospective Fed rate hikes in 2015 are
pressuring EM but the stronger US growth that is allowing normalization
remains a key factor for EM, though trade acceleration so far is tentative.
Inflation pressures in many countries have caused policy tightening but we
expect inflation to remain contained, permitting some policy flexibility.
3.0
Policy Questions: Fading fiscal austerity is aiding growth in Europe and
the US while Japan tax hikes have hit hard. Low inflation globally has
allowed easy money policies. The Fed is normalizing policy: tapering done,
it will likely hike the policy rate in September 2015. ECB policy is loosening
in the face of disinflation, likely leading to EUR1Tn QE soon. Japan will
likely expand QE in January 2015.
-1.5
(in percentage points)
1.5
0.0
Global
Based on PPP
Industrial Countries
United States
Japan
Euro Area
United Kingdom
Emerging Markets
China
India
Korea
Russia
Brazil
Mexico
GDP Growth
2015F 2016F
3.2%
3.6%
3.8%
4.2%
2.2%
2.5%
3.2%
3.2%
0.9%
1.2%
1.1%
1.7%
3.2%
3.3%
4.6%
5.1%
6.9%
6.7%
6.5%
7.0%
3.8%
4.0%
1.0%
2.4%
1.0%
2.8%
3.9%
4.4%
Source: Citi Research, 29 October 2014
Emerging Markets
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
-3.0
Developed Markets
Source: IMF, CIRA, 29 October 2014
Financial Conditions Index and Industrial Production
Global GDP and Inflation Rates
2014F
2.7%
3.3%
1.7%
2.2%
0.8%
0.8%
3.0%
4.2%
7.3%
5.6%
3.6%
0.7%
0.1%
2.4%
Forecasts
4.5
2004

Contributions to Global Growth
2003

Growth Prospects: We expect global growth to accelerate mildly the next
two years. Citi economists have slightly revised downward the 2015 growth
and inflation forecasts, with moderation in views coming in EM and DM.
Recent US growth reports point to little adverse impact from QE tapering.
2002

2014F
2.7%
3.5%
1.4%
1.4%
2.8%
0.5%
1.5%
4.5%
2.1%
7.8%
1.4%
7.4%
6.3%
4.0%
CPI Inflation
2015F
2016F
2.6%
3.1%
3.5%
3.9%
1.4%
1.6%
1.4%
2.2%
1.6%
1.6%
0.9%
1.4%
1.5%
1.9%
4.4%
4.4%
2.2%
2.6%
6.2%
6.0%
2.2%
2.9%
7.0%
5.9%
6.6%
6.1%
3.5%
3.6%
3
2
1
0
-1
-2
-3
-4
-5
Jun 1989
9
6
3
0
-3
-6
-9
-12
-15
Jun 1994
Jun 1999
Jun 2004
Financial Conditions Index (Left)
Jun 2009
Industrial Production (Right)
Source: Citi as of 24 September 2014. Note: Industrial Production is lagged 9 months.
All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.
The investor should not base its decision to enter into a trade solely on the basis of the forecasts.
3
Jun 2014
Fixed Income
The Zero Rate Game – Still Attractive to Borrow


Rate Hikes: Citi sees the Fed raising rates in 3Q2015 and the policy rate
at 1.00% by 2015YE. This would leave policy rates below inflation. The UK
is likely to lead the way, with rate hikes in 2Q15.

Corporate Credit: Citi expects low default rates to persist in 2015, but
already tight High Grade spreads can compress only modestly. Tight
spreads leave credit exposed to rising Treasury rates or from bouts of risk
aversion. High Yield (HY) default rates are low enough to worry that they
represent a trough but HY bonds could benefit in a pro-risk environment.

US Yield Curve
Yield Curve Normalization: The long end of the US yield curve has a
strongly upward slope. Citi economists believe mild flattening will occur
through 2015, as policy normalizes. The curve should shift higher as Fed
policy rates and Treasury yields will likely keep slowly rising for years.
(in percent and years)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
0
Emerging Markets: EM is vulnerable to rising US rates, falling currencies
and fund outflows. Local policy challenges are adding to risk premia.
United States
Japan
Euro Area
Australia
United Kingdom
China
India
Korea
Russia
Brazil
Mexico
15
20
1-Month
25
YTD
30
1-Year
Credit Bond Yields
(in percent)
Long Rates*
Current 2Q15F 4Q15F
2.53
2.80
3.05
0.54
0.75
0.75
1.01
1.00
1.25
3.55
4.20
4.60
2.49
2.85
2.95
4.05
NA
3.66
8.66
NA
8.50
2.99
NA
3.13
9.47
NA
NA
12.28
NA
12.52
6.22
NA
6.52
20
15
10
5
0
Oct 89
Oct 94
High Yield
*Developed Markets long rates are period averages. Emerging Markets short rates are for 3Q15
Oct 99
BBB Yield
Oct 04
US 10-Year Bond
Source: Bloomberg
and long rate forecasts are full-year averages. Long Euro rates are German yields. Source:
CIRA, 29 October 2014.
10
1-Week
Source: Bloomberg
Short and Long Rates (Forecasts)
Short Rates (quarter end)
Current 2Q15F 4Q15F
0.25
0.25
1.00
0.10
0.10
0.10
0.05
0.05
0.05
2.50
2.75
3.25
0.50
0.75
1.25
3.00
2.25
2.25
8.00
8.00
8.00
NA
NA
NA
8.00
8.00
7.50
11.00
11.50
11.00
3.00
3.50
3.75
5
10/30/2014
4
Charts are for illustrative purposes only. Refer to Important Information at the end of this presentation. Bloomberg charts as of 30 October 2014
Oct 09
EM Sovereign Yield
Oct 14
Equities
Focused on Earnings Recovery and EM Risks

S&P 500 Index and Volatility
Earnings Outlook: The outlook for earnings is positive globally. US
corporate earnings will likely continue to grow in 2015, even as earnings
have already hit record levels. EM, Europe and Japan earnings will keep
rebounding in 2015, despite economic growth challenges.

US Outlook: Citi estimates the S&P 500 to finish 2015 at 2,200, primarily
contingent on earnings expansion. The near-term outlook is less bright,
with Fed and ECB policy uncertainties and prices near yearend targets.

Emerging Markets: We would focus on countries with exposure to US
growth, strong fiscal / account balances, robust GDP expansion and solid
expected earnings growth in 2015. US rate rises, a weak yen (and yuan)
and sluggish DM imports are weighing on earnings and cheap valuations.

Japan: Expected new central bank liquidity will likely support equities, as a
lower yen benefits corporate profits (expected to rise 11% in 2015); tax
hikes threaten consumption but business investment looks strong.
85
75
65
55
45
35
25
15
5
Nov 04
10/28/14
Global (MSCI World)
413
Developed
Emerging
1,113
US (S&P 500)
1,985
Europe (Euro Stoxx)
306
UK (FTSE 100)
6,402
Japan (Topix)
1,252
China
63
India
26,881
Brazil (Bovespa)
52,330
Mexico (Bolsa)
44,040
Russia
1,050
Nov 10
Nov 12
S&P 500 Index (right scale)
US Panic/Euphoria Model (Other PE)
End 2015 Target
Levels Returns
475
14.9%
1,180
2,200
400
7,700
1,550
NA
NA
60,000
52,700
NA
Nov 08
VIX Index (left scale)
Source: Bloomberg
Consensus EPS Estimates & Citi Index Targets
P/E EPS YoY % Div Yld
14E
14E
14E
15.3
9.0
2.6
15.9
9.3
2.5
11.6
7.1
3.0
17.1
7.8
2.0
15.2
12.4
3.5
13.4
4.2
4.0
12.8
6.8
3.2
10.5
1.5
1.4
16.4
2.0
3.2
21.8
9.0
1.3
17.6
9.5
2.8
11.2
-1.8
3.2
Nov 06
2200
2000
1800
1600
1400
1200
1000
800
600
Nov 14
1.8
90
1.2
6.0%
10.8%
30.6%
20.3%
23.8%
N/A
N/A
14.7%
19.7%
N/A
0.6
30
0.0
0
-0.6
-1.2
Sep 89
24 October 2014.
5
-30
Panic
Sep 94
Sep 99
Sep 04
S&P 500 12-Month Forward Return (right scale)
P/E, EPS YoY% and Div Yld based on MSCI Indexes. 14E is 2013 Estimates. Source: MSCI, CIRA,
60
Euphoria
Sep 09
The Other PE
Source: Citi Research as of 30 October 2014
All forecasts are expressions of opinion and are subject to change without notice and are not
intended to be a guarantee of future events. The investor should not base its decision to enter
into a trade solely on the basis of the forecasts.
-60
Sep 14
Currencies
From Strengthening Fundamentals to Policy Normalization to Loosening Policies



US Dollar Index versus Gold Price
USD Strengths: USD could benefit from its perceived role as a safe
haven. USD, though still mildly dragged by easy monetary policy, could
benefit from higher growth versus other DM and policy normalization.
Unexpected geopolitical shocks could trigger flight to quality to USD and
additional economic strength in the US could bring in investment capital.
EUR/USD: With inflation falling in the Eurozone, the ECB will likely
continue to loosen policy and engage in QE in the next few months, all
negative for the currency. Modest growth rebound will likely lead to
investment inflows, bolstering the euro.
Emerging Markets: Softening relative macro fundamentals have
undermined EM currencies, and US liquidity removal may still trigger fear
of economic weakness. Contrarily, any delay of Fed normalization would
likely provoke currency snap-backs and stronger US growth could make
investment flows return. Carry trades dominate trading activity, working the
impressive spread in rates between funding and carry currencies.
Euro
Japanese yen
Australian Dollar
Swiss Franc
British Pound
Chinese Renminbi
Indian Rupee
Korean Won
Russian Ruble
Brazilian Real
Mexican Peso
Spot
1.27
108
0.88
0.95
1.60
6.12
61
1,058
41.9
2.50
13.6
165
1600
145
1200
125
800
105
400
85
0
Oct 74
Oct 84
Oct 94
Gold Price (LHS, US dollars)
Dollar Index (RHS)
Oct 04
65
Oct 14
EM Currency Index (RHS)
Source: Bloomberg
Exchange Rate Forecasts
Versus US Dollar
2015 YE
1.13
117
0.78
1.08
1.48
6.03
63
1,046
45.3
2.70
13.2
2000
DM Exchange Rates
(USD/EUR; JPY/USD)
2016 YE
1.11
119
0.75
1.13
1.43
6.00
62
1,018
45.6
2.81
12.9
1.6
150
1.4
130
1.2
110
1.0
90
0.8
Nov 94
Source: Citi Research as of 24 October 2014.
Source: Bloomberg
Nov 99
Nov 04
Euro
Yen
Currency risk: One currency may decline in value versus another. The value of a multicurrency portfolio will fluctuate with exchange rates.
6
Nov 09
70
Nov 14
Commodities
Reacting to Global Demand Questions
Energy: We believe oil prices have bottomed for the nearterm; the winter
seasonal rise in crude demand by oil refineries will likely lift oil prices above
$90/bbl through the fourth quarter of 2014. But we expect crude prices to
fall again in the spring as the seasonal factors dissipate.
Global Natural Gas Prices

Precious Metals: Over the medium term gold should decline: inflation is
tepid, US deficits are falling and global systemic risks are lower.
16

Industrial Metals: Copper is dragged by slower Chinese growth and less
infrastructure spending; China’s indigenous supply is a new down factor.
But Citi believes these negatives have been overplayed. Iron has been hit
by Chinese energy defaults and weak trade data.
8


Agriculture: Grains look weak for the year ahead but tropical and
semitropical “California crops” look strong as well as coffee and cocoa.
Physical inventories, planted acreage and ideal grain growing conditions
across the US farm-belt and China this summer have lowered prices.
Citi Commodity Price Forecasts
Energy
WTI Crude USD/bl
Brent Crude USD/bl
Natural Gas (USD/MMBtu)
Base Metals
LME Aluminium USD/mt
LME Copper USD/mt
LME Nickel USD/mt
Bulk Commodities
Iron Ore Spot (TSI) USD/mt
Precious Metals
Gold USD/oz
Silver USD/oz
Platinum USD/oz
Agriculture
Corn (USD/bu)
Wheat (USD/bu)
(in US$ per million BTU)
20
12
4
0
Sep 06 Sep 07 Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14
US
Source: World Bank as of 10 October 2014
Europe
Japan
Key Commodity Prices
Spot
2Q15
4Q15 5Y Cyclical
81.1
86.4
3.83
88.0
96.0
3.80
85.0
95.0
4.00
81.0
85.0
5.50
2,030
6,815
15,670
1,980
7,100
23,500
2,050
7,400
26,000
2,200
6,200
21,000
81.60
80.00
78.00
81.00
1,200
16.45
1,245
1,220
18.50
1,475
1,250
19.20
1,575
1,050
16.50
1,763
376
542
375
530
400
545
N/A
N/A
(rebased to 1)
5.0
4.0
3.0
2.0
1.0
0.0
Nov 04
Nov 06
Nov 08
Oil
Gold
Nov 10
Corn
Nov 12
Copper
Source: Bloomberg
All forecasts are expressions of opinion and are subject to change without notice and are not intended to
be a guarantee of future events. The investor should not base its decision to enter into a trade solely on
the basis of the forecasts. These are indicative market prices and cannot be directly invested in.
7
Source: Citi Research 29 October 2014. 2Q15 and 4Q15 estimates are average of period.
Nov 14
Citi House View Summary
Citi Research Economic Outlook
CPB Asset Allocation
Our economists forecast below trend global GDP growth in 2014 but near trend in
2015. US growth acceleration and European QE are critical to the view. Removal of
accommodative policy in the US and UK and decline of EM macro advantages are
significant challenges. Low and falling inflation is pushing down sovereign yields.
Global GDP Rates
2014F
2.7%
1.7%
2.2%
0.8%
0.8%
3.0%
4.2%
7.3%
5.6%
0.7%
0.1%
2.4%
Global
Industrial Countries
United States
Japan
Euro Area
United Kingdom
Emerging Markets
China
India
Russia
Brazil
Mexico
2015F
3.2%
2.2%
3.2%
0.9%
1.1%
3.2%
4.6%
6.9%
6.5%
1.0%
1.0%
3.9%
2016F
3.6%
2.5%
3.2%
1.2%
1.7%
3.3%
5.1%
6.7%
7.0%
2.4%
2.8%
4.4%
1Q15
0.25
0.10
0.05
0.50
2Q15
0.25
0.10
0.05
0.75
3Q15
0.75
0.10
0.05
1.00
Overweight
Underweight
1. High Yield
2. Supranational / Agencies
2. US
3. Corporate High Grade
(focus on 7- to 10-year
bonds)
3. Japan
4. Emerging Markets
4. Emerging Markets
5. Developed Asia ex-Japan
5. Inflation Linked
6. Developed Sovereign
(ranking: US, Japan,
Europe)
Policy Rates Forecasts
4Q14
0.25
0.10
0.05
0.50
Fixed Income
1. Europe: Core, Periphery
and UK
Current
United States
0.25
Japan
0.10
Euro Area
0.05
United Kingdom 0.50
Equities
4Q15
1.00
0.10
0.05
1.25
Cash
Gold
Overweight
Neutral
Alternatives
Neutral
8
Citi Private Bank Asset Allocation
Adaptive Valuation Strategies (AVS)
Strategic Asset Allocation Pies
Strategic Asset Allocation Commentary
Level 1
Level 2
Seeks liquidity management and
capital preservation
Seeks income generation and
Cash: 19%
Cash: 10%
Fixed Income: 75%
Fixed Income: 54%
Equitie s: 0%
Hedge Funds: 12%
Gold: 0%
Gold: 0%
Level 3
Level 4
Seeks modest capital appreciation
and, secondly, capital preservation
Seeks long-term growth of capital
with moderate volatility
Cash: 5%
Cash: 0%
Fixed Income: 28%
Fixed Income: 14%
Equities: 51%
Equities: 67%
Hedge Funds: 16%
Hedge Funds: 19%
Gold: 0%
Gold: 0%
Seeks maximum long-term growth
of capital
 The methodology helps us forecast the potential level of
loss an investment portfolio may experience during times
of severe market instability using a proprietary risk
measure.
Equities: 24%
Hedge Funds: 6%
Level 5
 Adaptive Valuation Strategies (AVS), our proprietary
strategic asset allocation methodology, uses a valuationdriven forecasting method and employs a risk
measurement framework that draws on historical
performance metrics to set allocation levels.
 Quarterly changes to the AVS recommended strategic
allocations depends on the latest data altering the
optimized allocation levels more than a hurdle: only
significant changes merit a new message to clients.
 This month no change occurred.
 The next month for potential changes is November.
Source: Citi Private Bank's Global
Investment Committee, September
2014
Cash: 0%
Fixed Income: 4%
Equities: 76%
Hedge Funds: 20%
Gold: 0%
9
Citi Private Bank Asset Allocation
Global Investment Committee (GIC)
Tactical Asset Allocation Pies
Tactical Asset Allocation Commentary
Level 1
Level 2
Seeks liquidity management and
Seeks income generation and
Cash: 19%
Cash: 10%
Fixed Income: 72%
Fixed Income: 49%
Equities: 3%
Hedge Funds: 12%
Gold: 0%
Gold: 0%
Level 3
Level 4
Seeks modest capital appreciation
and, secondly, capital preservation
Seeks long-term growth of capital
with moderate volatility
Cash: 5%
Cash: 0%
Fixed Income: 21%
Fixed Income: 7%
Equities: 58%
Equities: 74%
Hedge Funds: 16%
Hedge Funds: 19%
Gold: 0%
Gold: 0%
Seeks maximum long-term growth
of capital
 Over the last year and a half, the GIC has gradually
increased exposure to risky assets, expressed as an
overweight to equities (focus on DM; small EM equity
overweight) and an underweight to fixed income (strong
underweight to DM sovereign debt; small overweight to
riskier HY). Cash has also been slightly overweight,
keeping the recommended stance opportunistic.
Equities: 29%
Hedge Funds: 6%
Level 5
 The Global Investment Committee (GIC) adds a monthly
tactical under/overweight overlay to the strategic
allocation recommendation. The GIC incorporates
quantitative and qualitative inputs, such as economic
data, forecasts and observed market trends.
 This month, the GIC left the weightings for equities, bonds
and cash unchanged.
Source: Citi Private Bank's Global
Investment Committee, September
2014.
Cash: 0%
Fixed Income: 2%
Equities: 78%
Hedge Funds: 20%
Gold: 0%
10
Citi Private Bank Asset Allocations: Our Active Stance
Adaptive Valuation Strategies (AVS) and Global Investment Committee (GIC)
November 2014 Over/Underweights: With Alternatives
Our Active Tactical Stance on Asset Allocation
Cash
Fixed Income
Developed Sovereign FI
North America
Europe
Asia ex Japan
Japan
Supranational/Agencies
Global Inflation-Linked
Developed Investment Grade
Developed High Yield FI
Emerging Market FI
Equities
Developed Market EQ
North America Large Cap
North America Small/Mid Cap
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Emerging Latin America Equities
Emerging EMEA Equities
Emerging Asia Equities
Hedge Funds
Gold
Total
 Tilt Toward Risk: overweight equities, underweight to fixed
income. A slight overweight to cash leaves allocation to
deploy.
Level 1
0.3%
-3.0%
-2.3%
3.7%
-2.1%
-0.1%
-4.1%
0.3%
-0.0%
-1.7%
1.0%
0.0%
2.8%
2.3%
1.1%
0.1%
0.2%
0.5%
0.2%
0.1%
0.5%
0.1%
0.1%
0.3%
0.0%
0.0%
0.0%
Level 2
0.0%
-4.8%
-3.6%
1.4%
-1.8%
-0.1%
-2.8%
0.0%
-0.3%
-1.7%
1.0%
-0.5%
4.8%
3.8%
1.8%
-0.0%
0.3%
1.4%
0.3%
-0.0%
1.0%
-0.2%
-0.1%
1.2%
0.0%
0.0%
0.0%
Level 3
0.1%
-6.9%
-5.7%
-1.1%
-1.7%
-0.2%
-2.6%
0.0%
-0.2%
-1.2%
1.0%
-1.0%
6.8%
5.8%
2.7%
0.0%
0.6%
2.3%
0.5%
-0.3%
1.0%
-0.3%
-0.2%
1.5%
0.0%
0.0%
0.0%
Level 4
0.0%
-7.0%
-4.0%
-1.0%
-1.1%
-0.1%
-1.3%
-0.2%
-0.3%
-2.0%
0.0%
-1.0%
7.0%
5.5%
2.5%
-0.8%
0.6%
3.3%
0.3%
-0.4%
1.5%
-0.4%
-0.2%
2.1%
0.0%
0.0%
0.0%
Level 5
0.0%
-2.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-2.0%
2.0%
2.0%
1.5%
-2.0%
0.4%
2.7%
0.0%
-0.6%
0.0%
-0.9%
-0.5%
1.4%
0.0%
0.0%
0.0%
 Underweight to High Grade corporate debt, overweight
High Yield (HY) bonds (US and especially European).
 Large underweight to developed markets (DM) sovereign
debt and small underweight to emerging markets (EM)
debt.
 Overweight DM equities (Europe large and small/mid cap,
UK, US large, Japan). Small overweight EM North Asia
equities (Korea, China, Taiwan) and Mexico. Underweight
Brazil and Turkey. Neutral US SMID.
Change to Strategic Asset Allocation
 None this month.
 Next potential change: in November.
Change to Tactical Asset Allocation
 None this month.
Source: Citi Private Bank's Global Investment Committee, 22 October 2014
 Next potential change: in November.
11
Citi Private Bank Asset Allocations: Strategic and Tactical
November 2014 Strategic Allocations: With Alternatives
November 2014 Tactical Allocations: With Alternatives
Cash
Fixed Income
North America
Europe
Asia ex Japan
Japan
Emerging Market FI
Equities
Developed Market EQ
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Hedge Funds
Gold
Total
Cash
Fixed Income
North America
Europe
Asia ex Japan
Japan
Emerging Market FI
Equities
Developed Market EQ
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Hedge Funds
Gold
Total
Level 1
19.0%
75.0%
44.0%
12.4%
11.9%
0.7%
11.5%
3.3%
4.3%
25.0%
2.0%
4.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
6.0%
0.0%
100.0%
Level 2
10.0%
54.1%
26.6%
7.5%
7.2%
0.4%
6.9%
2.0%
2.6%
17.5%
2.0%
8.0%
23.9%
15.9%
8.2%
1.2%
1.0%
3.2%
1.4%
0.9%
8.0%
1.8%
1.4%
4.8%
12.0%
0.0%
100.0%
Level 3
5.0%
28.2%
10.0%
2.8%
2.7%
0.2%
2.6%
0.8%
1.0%
10.0%
2.0%
6.2%
50.8%
38.8%
21.6%
1.2%
2.8%
7.7%
3.3%
2.2%
12.0%
2.7%
2.2%
7.1%
16.0%
0.0%
100.0%
Level 4
0.0%
14.0%
5.0%
1.4%
1.3%
0.1%
1.3%
0.4%
0.5%
5.0%
2.0%
2.0%
67.0%
51.0%
22.9%
7.3%
2.9%
10.4%
4.5%
2.9%
16.0%
3.6%
2.9%
9.5%
19.0%
0.0%
100.0%
Level 5
0.0%
4.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.0%
2.0%
76.0%
56.0%
24.1%
9.1%
3.1%
11.5%
5.0%
3.2%
20.0%
4.5%
3.6%
11.9%
20.0%
0.0%
100.0%
Level 1
19.2%
72.0%
41.7%
16.1%
9.7%
0.6%
7.4%
3.6%
4.3%
23.3%
3.0%
4.0%
2.8%
2.3%
1.1%
0.1%
0.2%
0.5%
0.2%
0.1%
0.5%
0.1%
0.1%
0.3%
6.0%
0.0%
100.0%
Level 2
10.0%
49.3%
23.0%
8.9%
5.4%
0.3%
4.1%
2.0%
2.3%
15.8%
3.0%
7.5%
28.7%
19.7%
10.0%
1.2%
1.4%
4.6%
1.7%
0.9%
9.0%
1.6%
1.4%
6.0%
12.0%
0.0%
100.0%
Level 3
5.1%
21.4%
4.4%
1.7%
1.0%
0.0%
0.0%
0.8%
0.8%
8.8%
3.0%
5.2%
57.6%
44.6%
24.3%
1.2%
3.4%
10.0%
3.8%
1.9%
13.0%
2.4%
2.0%
8.6%
16.0%
0.0%
100.0%
12
Level 4
0.0%
7.0%
1.0%
0.4%
0.2%
0.0%
0.0%
0.2%
0.2%
3.0%
2.0%
1.0%
74.0%
56.5%
25.4%
6.5%
3.5%
13.7%
4.9%
2.5%
17.5%
3.2%
2.7%
11.6%
19.0%
0.0%
100.0%
Level 5
0.0%
2.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.0%
0.0%
78.0%
58.0%
25.6%
7.2%
3.5%
14.2%
5.0%
2.6%
20.0%
3.6%
3.1%
13.3%
20.0%
0.0%
100.0%
Citi Private Bank Asset Allocations: Changes from Last Month
November 2014 Change to Strategic Asset Allocation
November 2014 Change to Tactical Asset Allocation
Cash
Fixed Income
North America
Europe
Asia ex Japan
Japan
Emerging Market FI
Equities
Developed Market EQ
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Hedge Funds
Gold
Total
Cash
Fixed Income
North America
Europe
Asia ex Japan
Japan
Emerging Market FI
Equities
Developed Market EQ
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Hedge Funds
Gold
Total
Level 1
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 2
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 3
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 4
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 5
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 1
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 2
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 3
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
13
Level 4
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Level 5
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-0.0%
Non-Illiquid Asset Allocations: Strategic and Tactical
Adaptive Valuation Strategies (AVS) and Global Investment Committee (GIC) Excluding Hedge Funds
November 2014 Strategic Allocations: Traditionals Only
November 2014 Tactical Allocations: Traditionals Only
Cash
Fixed Income
North America
Europe
Asia ex Japan
Japan
Emerging Market FI
Equities
Developed Market EQ
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Hedge Funds
Gold
Total
Cash
Fixed Income
North America
Europe
Asia ex Japan
Japan
Emerging Market FI
Equities
Developed Market EQ
Europe Core
Europe Other
Japan
Asia (ex Japan)
Emerging Markets EQ
Hedge Funds
Gold
Total
Level 1
15.0%
79.6%
48.6%
13.7%
13.1%
0.7%
12.7%
3.7%
4.7%
25.0%
2.0%
4.0%
5.4%
1.4%
0.8%
0.0%
0.1%
0.3%
0.1%
0.1%
4.0%
0.9%
0.7%
2.4%
0.0%
0.0%
100.0%
Level 2
10.0%
57.0%
29.5%
8.3%
7.9%
0.4%
7.7%
2.2%
2.9%
17.5%
2.0%
8.0%
33.0%
25.0%
13.5%
1.2%
1.7%
5.0%
2.2%
1.4%
8.0%
1.8%
1.4%
4.8%
0.0%
0.0%
100.0%
Level 3
5.0%
33.9%
10.0%
2.8%
2.7%
0.2%
2.6%
0.8%
1.0%
10.0%
2.0%
11.9%
61.1%
49.1%
27.7%
1.2%
3.6%
9.7%
4.2%
2.7%
12.0%
2.7%
2.2%
7.1%
0.0%
0.0%
100.0%
Level 4
0.0%
14.0%
5.0%
1.4%
1.3%
0.1%
1.3%
0.4%
0.5%
5.0%
2.0%
2.0%
86.0%
70.0%
34.2%
7.2%
4.4%
14.2%
6.1%
3.9%
16.0%
3.6%
2.9%
9.5%
0.0%
0.0%
100.0%
Level 5
0.0%
4.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.0%
2.0%
96.0%
76.0%
35.9%
9.1%
4.6%
15.4%
6.7%
4.3%
20.0%
4.5%
3.6%
11.9%
0.0%
0.0%
100.0%
Level 1
15.3%
76.6%
46.3%
17.8%
10.8%
0.7%
8.2%
4.0%
4.7%
23.3%
3.0%
4.0%
8.2%
3.7%
2.0%
0.1%
0.3%
0.8%
0.3%
0.2%
4.5%
0.8%
0.7%
3.0%
0.0%
0.0%
100.0%
Level 2
10.0%
52.2%
25.9%
10.0%
6.0%
0.4%
4.6%
2.3%
2.6%
15.8%
3.0%
7.5%
37.8%
28.8%
15.3%
1.2%
2.1%
6.5%
2.5%
1.2%
9.0%
1.6%
1.4%
6.0%
0.0%
0.0%
100.0%
Level 3
5.1%
27.0%
4.4%
1.7%
1.0%
0.0%
0.0%
0.8%
0.8%
8.8%
3.0%
10.9%
67.9%
54.9%
30.2%
1.2%
4.2%
12.2%
4.7%
2.3%
13.0%
2.4%
2.0%
8.6%
0.0%
0.0%
100.0%
14
Level 4
0.0%
7.0%
1.0%
0.4%
0.2%
0.0%
0.0%
0.2%
0.2%
3.0%
2.0%
1.0%
93.0%
75.5%
36.4%
6.4%
5.0%
17.8%
6.5%
3.3%
17.5%
3.2%
2.7%
11.6%
0.0%
0.0%
100.0%
Level 5
0.0%
2.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.0%
0.0%
98.0%
78.0%
37.1%
7.2%
5.1%
18.6%
6.7%
3.4%
20.0%
3.6%
3.1%
13.3%
0.0%
0.0%
100.0%
Asset Class Performance
The Case for Diversification
2006
2007
2008
2009
2010
2011
2012
2013
2014 YTD
DJ Equity REIT
MSCI Emerging
BarCap US Gov 10- MSCI Emerging
DJ Equity REIT
BarCap US Gov 10- DJ Equity REIT
Russell 2000 Small
DJ Equity REIT
Index
Markets
Year
Markets
Index
Year
Index
Cap Index
Index
35.4%
39.4%
18.9%
78.5%
27.7%
15.5%
19.6%
38.8%
21.4%
MSCI Emerging
DJ UBS Commodity BarCap Global Corp BarCap Global Corp Russell 2000 Small DJ Equity REIT
Markets
Total Return Index
32.1%
16.2%
MSCI Emerging
S&P 500 Large Cap S&P 500 Large Cap
HY
Cap Index
Index
Markets
Index
Index
36.7%
26.9%
7.5%
18.2%
32.4%
9.0%
Russell 2000 Small BarCap Global Corp BarCap Global Corp DJ Equity REIT
MSCI Emerging
BarCap Global Corp Russell 2000 Small BarCap Global Corp BarCap US Gov 10-
Cap Index
HY
HY
Index
Markets
4.8%
18.4%
13.3%
-5.9%
28.5%
18.9%
-5.1%
Cap Index
HY
Year
16.3%
4.7%
7.4%
S&P 500 Large Cap BarCap US Gov 10- Russell 2000 Small Russell 2000 Small DJ UBS Commodity BarCap Global Corp BarCap Global Corp DJ Equity REIT
BarCap Global Corp
Index
Year
Cap Index
Cap Index
Total Return Index
HY
HY
Index
6.6%
15.8%
10.4%
-33.8%
27.2%
16.8%
3.0%
16.0%
2.7%
BarCap Global Corp S&P 500 Large Cap DJ UBS Commodity S&P 500 Large Cap S&P 500 Large Cap S&P 500 Large Cap S&P 500 Large Cap BarCap Global Corp BarCap Global Corp
HY
Index
Total Return Index
Index
Index
Index
Index
8.5%
5.5%
-35.6%
26.5%
15.1%
2.1%
16.0%
0.1%
HY
5.8%
BarCap Global Corp BarCap Global Corp S&P 500 Large Cap DJ UBS Commodity BarCap Global Corp Russell 2000 Small BarCap Global Corp MSCI Emerging
MSCI Emerging
3.6%
Markets
Markets
-2.6%
2.5%
3.2%
Index
Total Return Index
HY
Cap Index
-37.0%
18.9%
9.7%
-4.2%
10.9%
BarCap US Gov 10- Russell 2000 Small DJ Equity REIT
BarCap Global Corp BarCap US Gov 10- DJ UBS Commodity BarCap US Gov 10- BarCap US Gov 10- Russell 2000 Small
Year
Cap Index
Index
16.6%
2.2%
-1.6%
-37.6%
Year
Total Return Index
Year
Year
Cap Index
9.4%
-13.3%
3.8%
-5.8%
-0.5%
DJ UBS Commodity DJ Equity REIT
MSCI Emerging
BarCap US Gov 10- BarCap Global Corp MSCI Emerging
DJ UBS Commodity DJ UBS Commodity DJ UBS Commodity
Total Return Index
Index
Markets
Year
Markets
Total Return Index
Total Return Index
Total Return Index
2.1%
-15.6%
-53.3%
6.9%
-18.4%
-1.1%
-9.5%
-6.3%
7.2%
Source: Bloomberg, 30 Oct 2014
15
Glossary
Brazilian Bovespa: The Bovespa Index is a gross total return index weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Exchange. The
Bovespa Index has been divided 10 times by a factor of 10 since Jan 1, 1985: 12/02/85, 08/29/88, 04/14/89, 01/12/90, 05/28/91, 01/21/92, 01/26/93, 08/27/93, 02/10/94, and 03/03/97.
Citigroup Global Markets High Yield Market Index: A measure that tracks actual economic data relative to consensus estimates of market economists
Citigroup Global Markets High Yield Market Index: The High-Yield Market Index includes cash-pay, deferred-interest, and Rule 144A bonds with remaining maturities of at least one
year and a minimum amount outstanding of $100 million. The issuers must be domiciled in the United States or Canada for consideration in this index.
Citigroup Global Emerging Market Sovereign Bond Index: The Global Emerging Market Sovereign Bond Index (ESBI) includes Brady bonds and US dollar-denominated emerging
market sovereign debt issued in the global, Yankee, and Eurodollar markets excluding loans. The ESBI offers diversification benefits with respect to the geographical and asset class
dimensions. It comprises debt in Africa, Asia, Europe, and Latin America.
The Consumer Confidence Survey: Reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitudes and buying
intentions, with data available by age, income, and region
CPI Inflation: Consumer Price Index (CPI) - The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of US inflation. The US
Department of Labor publishes the CPI every month.
Current Balance: The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude
transactions in financial assets and liabilities.
Currency Abbreviations: AUD: Australia; NZD: New Zealand; NOK: Norway; GBP: UK; EUR: Euro Zone; SEK: Sweden; CAD: Canada; CHF: Switzerland; JPY: Japan; ZAR: South
Africa; PLN: Poland; BRL: Brazil; RUB: Russia; KRW: Korea; TRY: Turkey; MXN: Mexico; CNY: China; INR: India
DJIA: Dow Jones Industrial Average - The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that
trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest US companies are performing.
DXY Index: The DXY Index represents a basket of currencies, giving a price level for the US dollar.
Event Driven: In the context of hedge funds, a style of management that combines many different types of hedge fund investing such as merger arbitrage, distressed securities and high
yield investing, in conjunction with an important "event" that is supposed to unlock firm value (like a merger announcement, earnings announcement, or a regulator decision).
Fiscal Balance: The Fiscal Balance represents the difference between General Government revenues over expenses. It includes capital expenditure, but excludes depreciation.
Global Macro: Directional Macro strategies frequently employ leverage and may trade futures, options on future contracts and foreign exchange contracts as well as trade in diversified
markets or focus on one market sector. Two types of strategies employed by directional macro managers are discretionary and systematic trading.
Industrial Production: Measures the output of the industrial sector of an economy. The industrial sector includes manufacturing, mining, and utilities.
LIBOR: London Interbank Offered Rate - A short-term interest rate often quoted as a 1,3,6-month rate for U.S. dollars.
16
Glossary (Cont’d)
Managed Futures: In the context of hedge funds, a style of management that focuses on short-term trading in the futures market.
Mexican Bolsa: A capitalization weighted index of the leading stocks traded on the Mexican Stock Exchange. The index was developed with a base level of .78 as of October 30, 1978.
MSCI World Consumer Discretionary Price Index: An index measuring the performance of the Consumer Discretionary equities of developed countries including U.S.; a useful
benchmark for global funds.
MSCI World Free Index: An index measuring the performance of equities of developed and EM countries; a useful benchmark for global funds.
Nikkei 225 Index: Applies mainly to international equities. Price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange started on May 16, 1949. Japanese
equivalent of the US Dow.
Repo rate: A repo is a repurchase agreement. A procedure for borrowing money by selling securities to a counterparty and agreeing to buy them back later at a slightly higher price
based on a rate of interest called the repo rate.
Russell Mid-Cap Index: A market capitalization-weighted benchmark index made up of the 800 smallest US companies in the Russell 1000.
Russell Top 200 Growth Index: A market capitalization-weighted benchmark index made up of the largest 200 US companies by market cap that exhibit growth characteristics.
Russell Top 200 Value Index: A market capitalization-weighted benchmark index made up of the largest 200 US companies by market cap that exhibit value characteristics.
Russell 2000 Index: A market capitalization-weighted benchmark index made up of the 2000 smallest US companies in the Russell 3000.
S&P/ Case-Shiller US National is the broadest national measurement of home prices, with coverage going beyond the 20 MSAs that make up the composites.
S&P/Case-Shiller Composite-20 Home Price Index reflects price changes for Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle, Tampa, Boston,
Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington DC. In addition to those 10 markets.
S&P 400 Index: A market capitalization-weighted benchmark index made up of 400 securities with market values between $200 million and $5 billion
S&P 500 Index: Index of 500 widely held common stocks that measures the general performance of the market.
VIX Index: The Chicago Board Options Exchange SPX Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide
range of strikes 1st & 2nd month expirations are used until 8 day from expiration, then the 2nd and 3rd are used.
U.S. Treasuries: Interest-bearing obligations if the U.S. government issued by the U.S. Department of the Treasury as a means of borrowing money to meet government
expenditures not covered by tax revenues. There are three types of marketable Treasury securities-bills, notes and bonds.
U.S. Investment-Grade Bonds: A bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or
higher, and Moody's classifies investment grade bonds as BAA or higher. Related: High-yield bond.
U.S. High Yield Bonds: A bond with a speculative credit rating of BB (S&P) or BA (Moody's) or lower. Junk or high-yield bonds offer investors higher yields than bonds of financially
sound companies. Two agencies, Standard & Poors and Moody's Investor Services, provide the rating systems for companies' credit.
Wilshire 5000 Index: Measures the performance of all US equity securities with readily available price data. Over 5,000 capitalization weighted security returns are used to adhust the
index. The Wilshire 5000 base is its 12/31/1980 capitalization of $1,404.596 billion.
17
Glossary (Agency Ratings)
Moody's
Fitch
S&P
Investment grade
Aaa: Moody judges obligations rated Aaa to be the highest quality,
with the "smallest degree of risk".
Aa1, Aa2, Aa3: Moody judges obligations rated Aa to be high
quality, with "very low credit risk", but "their susceptibility to longterm risks appears somewhat greater".
A1, A2, A3: Moody judges obligations rated A as "upper-medium
grade", subject to "low credit risk", but that have elements "present
that suggest a susceptibility to impairment over the long term".
Baa1, Baa2, Baa3: Moody judges obligations rated Baa to be
"moderate credit risk". They are considered medium-grade and as
such "protective elements may be lacking or may be
characteristically unreliable".
Investment grade
AAA: the best quality companies, reliable
and stable
AA: quality companies, a bit higher risk
than AAA
A: economic situation can affect finance
BBB: medium class companies, which are
satisfactory at the moment
Investment Grade
AAA: the best quality borrowers, reliable and stable
(many of them governments)
AA: quality borrowers, a bit higher risk than AAA
A: economic situation can affect finance
BBB: medium class borrowers, which are satisfactory
at the moment
Speculative grade
Ba1, Ba2, Ba3: Moody judges obligations rated Ba to have
"questionable credit quality
B1, B2, B3: Moody judges obligations rated B as speculative and
"subject to high credit risk", and have "generally poor credit
quality."
Caa1, Caa2, Caa3: Moody judges obligations rated Caa as of "poor
standing and are subject to very high credit risk", and have
"extremely poor credit quality. Such banks may be in default..."
Ca: Moody judges obligations rated Ca as "highly speculative" and
are "usually in default on their deposit obligations".
C: Moody judges obligations rated C as "the lowest rated class of
bonds and are typically in default," and "potential recovery values
are low".
Non-investment grade
BB: more prone to changes in the economy
B: financial situation varies noticeably
CCC: currently vulnerable and dependent
on favorable economic conditions to meet
its commitments
CC: highly vulnerable, very speculative
bonds
C: highly vulnerable, perhaps in bankruptcy
or in arrears but still continuing to pay out
on obligations
D: has defaulted on obligations and Fitch
believes that it will generally default on
most or all obligations
NR: not publicly rated
18
Non-Investment Grade
BB: more prone to changes in the economy
B: financial situation varies noticeably
CCC: currently vulnerable and dependent on
favorable economic conditions to meet its
commitments
CC: highly vulnerable, very speculative bonds
C: highly vulnerable, perhaps in bankruptcy or in
arrears but still continuing to pay out on obligations
CI: past due on interest
R: under regulatory supervision due to its financial
situation
SD: has selectively defaulted on some obligations
D: has defaulted on obligations and S&P believes that
it will generally default on most or all obligations
NR: not rated
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19
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20
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21
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23
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instruments or other products denominated in a foreign currency are subject to exchange rate fluctuations, which may have an adverse effect on the price
or value of an investment in such products. This document does not purport to identify all risks or material considerations which may be associated with
entering into any transaction. Citi accepts no liability for any loss (whether direct, indirect or consequential) that may arise from any use of the information
contained in or derived from this communication. This document may contain historical and forward looking information. Past performance is not a
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historical) are indicative only may change without notice and do not represent firm quotes as to either price or size, nor reflect the value Citi may assign a
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24

Investment Strategy Insights Base Case November 2014 Renato Grandmont

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