2021年第三季度季信引言

Introduction to the 3Q 2021 Quarterly Letter Ben Inker | Co-head of Asset Allocation QUARTERLY LETTER 3Q 2021 This quarterly is a piece written by my Asset Allocation co-head John Thorndike. In it, he explains the rationale behind our strong preference for non-U.S. stocks despite the stellar performance the U.S. stock market has delivered over the last decade. The research behind the piece is an example of the bread and butter of our historical asset allocation analysis. In this short companion piece I wanted to explain a bit why we are so enamored of this type of analysis, which examines not just historical returns, but the underlying components of those returns.

Historical analysis of markets is crucial for trying to understand future potential returns. The trouble is that a standard way of doing this type of analysis – calculating average returns for an asset over time – can be extremely misleading. It is tempting to assume that over a long enough period of time historical returns are representative of what returns can be expected going forward, but that may not be the case. We believe It is only by taking the further step of delving into the components of that return that it is possible to come up with a reasonable estimate of what returns might be expected going forward. This is probably easiest to see in bonds, so in this piece I will show how a historical view of bond returns can give a grossly misleading impression of what investors might expect going forward. Exhibit 1 shows the rolling 10-year returns to the U.S. 10-Year Treasury Note.

EXHIBIT 110-YEAR TRAILING RETURN TO TREASURY NOTE 18% 12% 6% 0% 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 Data from 1961-2021; 10-Year returns start in 1971 | Source: Federal Reserve, GMO The average decade gave you a return of around 7.6% with a standard deviation of 2.9%. The last decade has seen just about the lowest return over the period, at 3.4%, and judging only from this exhibit one might be tempted to say the odds are the next decade will be better – after all, 99% of all the historical 10-year periods in the last 60 years gave a higher return. Is a 7.6% return a fair expectation for future returns from 10-Year Treasuries? Would 3.4% be a conservative forecast? By analyzing the sources of returns we can get a better idea of why the first forecast would be absurd and even the second is almost certainly unrealistically optimistic. Exhibit 2 shows the drivers of return for 10-Year Treasuries since 1961.

Introduction to the 3Q 2021 Quarterly Letter | p2 EXHIBIT 2: U.S. 10-YEAR BOND RETURN 1961-2021 8% 6.8% 7% 6.0% 6% 5% 4% 3% 2% 1% 0.3% 0.4% 0% Return Yield Change Roll-Down Yield Data from 1961-2021 | Source: Federal Reserve, GMO Yield change has been a positive piece of returns over this period, but it would be unwise to assume this will continue to be the case simply because it has been true on average historically. The rather large elephant in the room here is the yield component, which has averaged 6.0% over the last 60 years, whereas a 10-Year Treasury Note today yields less than 1.6%. A simple forecast methodology inspired by this component of return breakdown would be the current yield plus average roll-down, or 2%.1 As Exhibit 3 shows, this simple forecast methodology would have explained 71% of the historical variation of bond returns over the subsequent decade, and today’s forecast is lower than any realized 10-year return in this dataset.

EXHIBIT 310-YEAR TRAILING RETURN TO TREASURY NOTE AGAINST SIMPLE FORECAST 18% R2=71% 12% 6% Simple forecast for next 10 years is 2.0% 0th percentile vs. history 1 0% Roll-down is the return (which can be positive or negative, 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 although it has usually been positive historically) that a bondholder achieves due to the fact that a bond that is held for a period of time is definitionally a shorter maturity Data from 1961-2021; 10-Year returns start in 1971 | Source: Federal Reserve, GMO bond when it is sold than it was when it was bought. If a 10-Year Treasury yields 1.6% and a 9-Year Treasury yields 1.55% and yields don’t move over the course of the next It’s worth pointing out that this lowest-ever forecast for bonds does not require any year, the return for a bondholder who bought the 10-Year at assumption of mean reversion in valuations. It is no secret we tend to build in an the start of the period will be the yield on the bond (1.6%) plus a capital gain associated with the now 9-Year bond assumption of mean reversion in the medium term to our asset class forecasts. History selling at a lower yield – an approximate additional 0.4% suggests that valuations are generally mean-reverting over time, but valuations are a crucial capital gain in my example.

Introduction to the 3Q 2021 Quarterly Letter | p3 Ben Inker driver of future expected returns for assets even if valuations do not mean revert. Investors Mr. Inker is co-head of would be wise to keep that in mind because bonds are by no means the only asset today GMO’s Asset Allocation where valuations are far higher than their history, from which, of course, most long-term team and a member return assumptions are drawn. of the GMO Board of Directors. He joined GMO I will admit that the same fact that makes the bond example so instructive also makes the in 1992 following the completion of his B.A. in components of the return result less surprising. Bond math is inexorable enough that the Economics from Yale University. In his years current bond yield tells us most of what we need to know, and few investors base their at GMO, Mr. Inker has served as an analyst for bond forecasts on the simple historical return analysis that I’m suggesting would be so the Quantitative Equity and Asset Allocation misleading. But investors do often use just this type of analysis both in the case of more teams, as a portfolio manager of several complex asset classes such as equities or commodities and for multi-asset strategies such equity and asset allocation portfolios, as as 60/40 or risk parity. When applied in those cases, this analysis has, of course, the same co-head of International Quantitative Equities, flaws.2 Analyzing the components of return and estimating them going forward is certainly and as CIO of Quantitative Developed more complex than simply looking uncritically at historical returns. But as John’s piece will Equities. He is a CFA charterholder. show, it is every bit as important to analyze the drivers in those more complicated cases instead of assuming the raw returns are telling us what we need to know.

Disclaimer The views expressed are the views of Ben Inker through the period ending December 2021, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.

Copyright © 2021 by GMO LLC.

All rights reserved.

For those of you who think you do not rely on such simple analysis, remember that any time you are doing a historical simulation of a strategy and taking comfort in the result, that is exactly what you are doing.

WINNERS, LOSERS, AND THE CASE FOR QUARTERLY LETTER 3Q 2021 EXECUTIVE SUMMARY We reiterate our preference for non-U.S. equity markets based on an analysis that OWNING EACH shows that U.S. fundamental performance John Thorndike | Co-head of Asset Allocation has been ordinary in the context of history and insufficient to justify the market’s extraordinary valuation return.

Introduction ■ Equity market performance can be GMO’s Asset Allocation portfolios express three strongly held views: 1) value stocks globally decomposed into changes in valuations are cheap relative to growth; 2) non-U.S. equity markets are cheap relative to the U.S.; and a “fundamental return” that comprises and 3) traditional fixed income yielding less than inflation offers little benefit to portfolios. growth and reinvestment of income.

Recently, we’ve written extensively about the relative value opportunity for owning value ■ U.S. equity market performance led the stocks.1 This quarter, we turn to our preference for owning stocks in non-U.S. markets. We world for the 10 years ending September look at the winners and losers of the last 10 years by analyzing both the returns of equity 30, 2021, which has left the U.S. market markets and the fundamentals of the companies that comprise them. No one reading this trading at a significant valuation premium relative to non-U.S. stocks. quarterly will be surprised to see the U.S. equity market as the leading performer over the last decade, but some may be surprised to learn that Japanese companies delivered the best ■ Many investors believe that the U.S.’s fundamental performance over that same period. We wrap up by considering the potential greater fundamental performance justifies the market’s much higher valuations. Over for last decade’s laggards to produce a better showing in the decade to come. Readers will the past 10 years, U.S. companies delivered see that non-U.S. markets are home to both winners and losers from the last 10 years while fundamental performance 45% higher than offering starting valuations that should position these markets to outperform the U.S. in the the rest of the world, impressive indeed. decade to come.

Over the same period, the U.S. stock market valuation multiples rose more than U.S. Exceptionalism has been Driven by Multiple Expansion 85% faster than the rest of the world – far No review of equity market performance over the last decade can start without outpacing their fundamental upside. acknowledging just how strong performance has been for U.S. stocks. During the 10-year ■ Japanese companies delivered better period from September 2011 to September 2021, the MSCI U.S. index grew at a 16% fundamental performance than U.S. annualized pace, generating gains of nearly three and a half times capital. Over the same companies over the last decade, yet period, non-U.S. stocks, as measured by the MSCI All Country World ex-U.S. index, grew at Japan trades at two-thirds of the valuation less than half that pace (an otherwise respectable 7.5% annualized return) and delivered multiple of the U.S. market. less than one-third of the gains of the U.S. market (see Exhibit 1). ■ Fundamental performance in European and Emerging Markets was disappointing; however, history suggests that fundamental performance tends to revert to trend, so we EXHIBIT 1: THE U.S. HAS HAD AN EXTRAORDINARY DECADE can reasonably expect better fundamental returns over the next decade. 4.0 MSCI U.S.

3.5 ■ In our view, the much lower starting 16% (annualized) valuations of non-U.S. markets will provide 3.0 Cumulative Gain a tailwind for future returns. 2.5 ■ We continue to believe equity investors will 2.0 MSCI ACWI ex-U.S. be rewarded for allocating as much of their 1.5 7.5% (annualized) equity exposure to non-U.S. markets as 1.0 their risk tolerance allows. 0.5 0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 See GMO’s 2Q 2021, 1Q 2021, and 3Q 2020 Quarterly Letters.

As of 9/30/2021 | Source: MSCI, GMO analysis Winners, Losers, and The Case for Owning Each | p2 Not only did the U.S. market simply trounce the rest of the world, its gains over this period also stand in stark contrast to its own performance during the preceding 10 years, especially when measured in real terms, that is after subtracting the rates of inflation during each time period.2 From September 2011 to September 2021, the MSCI U.S. index outpaced inflation by 14.6% a year, whereas from September 2001 to September 2011, the same index gained only 0.5% a year. In other words, the U.S. exceptionalism of the last decade followed a lost decade for U.S. stocks.

To understand what drove this decade-over-decade difference in U.S. equity market returns, we can decompose the stock market’s performance into two components: the index’s fundamental return and its change in valuations. Changes in valuations are “ observable, and their contribution to performance is straightforward to calculate. While many investors will look at the price-earnings ratio, we prefer to use a composite valuation metric that compares price to standard accounting values (sales, gross profits, and book …the difference value), smoothed earnings (a 10-year, inflation-adjusted average), and our proprietary between the U.S. measure of book value.3 The fundamental return is calculated as a residual: it’s the index total return after accounting for changes in valuations. market experiencing a lost decade from One can think of the fundamental return as the return generated by the companies in the index. It comes from two sources: First, there’s growth from the reinvestment of retained September 2001 to earnings. Second, there’s concentration of ownership that occurs when investors reinvest September 2011 and dividends or the company buys back stock. These two factors – growth and reinvestment of an exceptional decade income – are the long-term drivers of equity market performance. over the subsequent 10 As Exhibit 2 shows, the difference between the U.S. market experiencing a lost decade years is almost entirely from September 2001 to September 2011 and an exceptional decade over the subsequent attributable to changes 10 years is almost entirely attributable to changes in valuations. During the earlier period, in valuations. valuation declines of 3.9% a year nearly negated the 4.4% fundamental return that companies delivered during that time. In the more recent period, fundamental performance was slightly better at 4.8% annualized, while valuations gained 9.8% a year. So, of the 14.1% improvement in annualized returns delivered by the U.S. market in the most recent decade relative to the decade before, 13.7% came from changes in valuations and only 0.4% came from changes in the returns delivered by the companies comprising the index.

EXHIBIT 2U.S. FUNDAMENTAL PERFORMANCE HAS NOT BEEN EXCEPTIONAL Changes in multiples can be the difference between exceptional and lost decades 20% 14.6% Annualized Real Return 15% 9.8% 10% 2 4.8% 4.4% We’ll use real, or inflation-adjusted, returns exclusively in 5% the rest of this piece. 0.5% 3 0% Unlike 12-month earnings, which can be volatile and cyclical, our composite of fundamentals provides a -5% -3.9% reasonably smooth representation of the evolving earnings power of the companies comprising a given market.

Fundamentals Valuations Total GMO’s proprietary measure of book value adjusts for Last 10 Years Prior 10 Years certain expenditures that we think are more appropriately accounted for as investments that should be amortized over multi-year periods.

Source: MSCI U.S. index, GMO analysis Fundamentals are an average of sales, gross profits, smoothed earnings, and GMO’s Economic Book Value.

Winners, Losers, and The Case for Owning Each | p3 Multiple expansion of nearly 10% a year for 10 years resulted in valuations more than doubling. For example, the index increased from a multiple of 17x 10-year average real earnings on September 30, 2011 to 37x on September 30, 2021. Why is the market now willing to pay such higher multiples for U.S. companies when the companies themselves look to be delivering fundamental returns that are more or less the same as they delivered in the prior decade? Lower interest rates are a natural culprit, although if low interest rates were the sole driver of high equity market valuations, one would expect to see much higher valuations in Europe and Japan. The argument for high U.S. valuations tends to come down to a belief that American companies are special – the only winners in a world of losers.

Japan’s Fundamental Performance Outpaced the U.S.

Just how special was the 4.8% fundamental return generated by U.S. companies over the last 10 years? The answer depends on how the result is framed. For example, our team uses a range of 4.5% to 5.7% real as its estimate of expected equilibrium equity returns.4 From this vantage point, recent U.S. fundamental performance hasn’t been special at all; it has been perfectly normal. However, when compared to fundamental performance from non-U.S. companies over the same period of only 3.3%, the U.S. result looks quite good indeed (see Exhibit 3). In the context of negative real yields on high-quality fixed income and sub-normal performance from overseas competitors, one can understand why investors would be tempted to apply a premium valuation to U.S. companies that continued to deliver historically normal fundamental results.

EXHIBIT 3U.S. FUNDAMENTAL PERFORMANCE HAS BEEN RATHER NORMAL Non-U.S. companies have generated sub-par fundamental returns 5.7% Real 1.80 Assumption 1.60 MSCI U.S.

4.5% Real Assumption 1.40 MSCI ACWI ex-U.S.

When we disaggregate the rest of the world into regions, however, the argument that the 4 market is rationally paying up for the sole source of normal fundamental performance Equilibrium equity returns are those we would expect to becomes challenged. Corporate performance across the Emerging Markets (EM) and receive when stocks are fairly valued (i.e., no expectations MSCI’s EAFE ex-Japan index (mostly comprising European companies) has averaged 3% of gains or losses from valuation changes). The 5.7% estimate comes from our traditional “Mean Reversion” a year for the last 10 years. Over the same period, however, fundamental performance forecast scenario and is consistent with a long view of in Japan has been 5.4% annually. Not only has Japan produced what we would consider history. The 4.5% estimate comes from our “Partial Mean to be normal fundamental performance over this period, Japanese companies have Reversion” or lower-returns-for-longer scenario. outperformed American companies (see Exhibit 4).

Winners, Losers, and The Case for Owning Each | p4 EXHIBIT 4: FUNDAMENTAL PERFORMANCE BY REGION Emerging Markets and Europe have disappointed, but Japan outperformed the U.S.

5.7% Real 1.80 Assumption MSCI Japan 1.60 MSCI U.S.

4.5% Real 1.40 Assumption MSCI EAFE 1.20 ex-Japan MSCI Emerging 1.00 Markets 0.80 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: MSCI, GMO analysis “ Fundamentals are an average of sales, gross profits, smoothed earnings, book value, and GMO’s Economic Book Value.

Japan today trades at about two-thirds If investors are rewarding fundamental winners with high valuations, has Japan seen the the valuation of the same multiple expansion that we’ve seen in the U.S.? No. And that’s not because Japan started at a particularly high multiple 10 years ago: both Japan and the U.S. traded at around 17x U.S. market despite cyclically adjusted earnings in September 2011. The difference comes from current valuations. Japanese companies Japan today trades at about two-thirds the valuation of the U.S. market despite Japanese delivering best in class companies delivering best in class fundamental returns over the prior decade (see Exhibit 5). fundamental returns over the prior decade.

EXHIBIT 5THE PRICE OF NORMALCY Japan has delivered U.S.-like fundamental performance, but trades at a significant discount 35 37 MSCI U.S.

Contrary to popular narratives, Japanese fundamentals have been on par with the U.S. – and consistent with our estimates of equilibrium – for most of the last 20 years. Exhibit 6 plots fundamental performance for Japan and the U.S. over rolling 10-year periods from January 1990 to September 2021. The first data point, marked 2000 on the chart, shows that Japanese companies didn’t deliver any fundamental gains in the 1990s. Periods such as 1994-2004 saw Japanese companies destroy fundamental value. By mid-2006, however, corporate Japan was back to breakeven on a 10-year basis, and it hasn’t looked back.5 Indeed, since September 2011, Japan’s 10-year fundamental performance has been better than the U.S. in just over half of our monthly measurements and above our lower bound for normal (4.5% real) two-thirds of the time. It seems Japan’s “lost decades” ended decades ago.

EXHIBIT 6JAPAN HAS ALREADY CHANGED Lost decades ended decades ago 8.0% MSCI Japan 5.7% Real Assumption 10-Year Fundamental Return 6.0% 4.0% 4.5% Real Assumption MSCI U.S.

It’s as easy to conjure up a story of U.S. exceptionalism as it is to assume Japanese malaise. The U.S. market, after all, includes some truly amazing businesses. For example, Apple, Amazon, Microsoft, Google, and Facebook (the “Big Five”) generated annualized fundamental performance of 16.3% over the last 10 years. Companies that can reinvest capital at high rates for long periods of time deserve to trade at higher multiples, and many investors seem to assume that the strong growth of these dominant companies Many, including our colleague Drew Edwards who manages justifies the premium multiple applied to the U.S. market. The problem with that GMO’s dedicated Japan equity strategies, credit former narrative is not that these five companies don’t deserve their valuations.6 The problem Prime Minister Abe with policy changes that fostered is that when you look at the U.S. market excluding these five names, its fundamental improved corporate performance. No doubt Abe’s policies helped. This chart makes clear, however, that by the time return was only 4.2% annualized over the last decade. That’s less than what we consider Abe was re-elected prime minister in 2012, corporate normal and, coincidentally, halfway between the superior performance of Japan and the fundamentals were already improving. Timing might not disappointing results from EAFE ex-Japan and EM. Yet, the U.S. market excluding the be everything, but it helps! Investors interested in direct Big Five still traded at a 32.5x CAPE at the end of September, a 30% premium to Japan. allocations to Japanese stocks can learn more about Drew’s strategies at gmo.com. Outside of the Big Five, U.S. equity market investors are paying exceptional prices for 6 quite dull fundamental performance.

I’m not making the argument that these stocks are cheap.

I’m making a weaker argument that you don’t need to While narratives can matter in the short term, valuations and fundamentals will matter for assume that they’re expensive to question the valuation of the long term. For investors who want to invest in companies that have generated attractive the U.S. market. fundamental performance over the last decade, both the U.S. and Japan fit the bill. For Winners, Losers, and The Case for Owning Each | p6 investors who care about the price they pay for such fundamentals, Japan appears to offer a clear advantage.

Europe and EM Are Poised to Benefit from Mean Reversion What should we make of the lackluster fundamental performance over the last 10 years from companies in EAFE ex-Japan and EM regions? Do their stocks deserve a place in investors’ portfolios? We think so.

History suggests that regions and countries experience mean reversion in their fundamental performance. Economic intuition suggests the same, as competitive capitalism should cause capital to flee areas of low return (thereby improving the prospects for the capital that remains) and seek out areas of high return (thereby dampening the prospects for all). Unfortunately, our ability to look for mean reversion of regional fundamentals from decade to decade is limited by data availability, especially in EM.7 To relax this constraint, we turned to the data for individual countries to see what we could learn. Regressing fundamental returns in one decade against fundamental returns in the prior decade for 37 countries with data spanning from the 1970s to the 2010s, we found a negative relationship (see Exhibit 7). That is, the lower a country’s fundamental performance was in one decade, the higher it tended to be in the subsequent decade. This isn’t the strongest relationship one may ever see,8 but if it holds, one might expect these regions to deliver fundamental performance over the coming decade that’s consistent with our equilibrium assumptions.

EXHIBIT 7MEAN REVERSION AT WORK “ Fundamentals have been negatively correlated decade-over-decade 25% …lower valuations 20% provide better starting 15% Sample Decade 10% points for long-term 5% performance, in part 0% because shareholders -5% -10% reinvest cash flows at -15% higher yields. -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Prior Decade Source: MSCI, GMO analysis 37 countries; 1970s–2010s Fundamentals are an average of sales, gross profits, smoothed earnings, book value, and GMO’s Economic Book Value.

7 While it’s no guarantee that the companies in these regions will be the fundamental We ran a similar analysis for the 9.25-year period from June 2002 to September 2011. During that time, winners of the 2020s, what is clear to us is that their current valuations are the lowest companies in EAFE ex-Japan produced respectable across regions as we look at markets today. And lower valuations provide better starting annualized fundamental performance of 4.7% and points for long-term performance, in part because shareholders reinvest cash flows at companies in EM returned 9.6% annualized. That EM higher yields. Today, EAFE-ex Japan markets are priced at a 40% discount to the U.S. companies were outperforming during that period should come as no surprise to those of us who were being told market, and EM trade at less than half the CAPE of the U.S. (see Exhibit 8). With reasonable how important it was that we buy the BRICs during much prospects for improving fundamentals and the most attractive starting valuations, we think of that time. investors will reap rewards from owning the laggards of the last 10 years.

The R-squared is around 12%.

Winners, Losers, and The Case for Owning Each | p7 John Thorndike EXHIBIT 8: U.S. STOCKS TRADE AT A SIGNIFICANT PREMIUM Mr. Thorndike is co-head of GMO’s Asset 60 Allocation team. Prior to joining GMO in 2015, he was a managing director and Deputy CIO at The Investment Fund for MSCI U.S. (37) PE10 Foundations. Previously, he was an analyst 30 with TIFF. Mr. Thorndike earned his AB in Japan (25) Physics from Bowdoin College. 20 EAFE ex-Japan (22) Emerging Markets (18) 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 Disclaimer The views expressed are the views of Source: MSCI, GMO analysis John Thorndike through the period ending Vertical axis truncated at 60; Japan’s P/E 10 peaked at over 76x in January 2006.

December 2021, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and Non-U.S. Equity Markets Offer Multiple Ways to Win should not be construed as such. References While the U.S. stock market has been far and away the leading equity market over the to specific securities and issuers are for past decade, U.S. companies played second fiddle to Japanese companies when it came to illustrative purposes only and are not intended generating fundamental returns over the period. Fundamental returns, which come in the to be, and should not be interpreted as, form of growth from retained earnings and increased ownership from the reinvestment of recommendations to purchase or sell such shareholder distributions, represent the long-term drivers of equity market performance. securities. On this metric, Japan and the U.S. have performed quite similarly not just over the last 10 years, but also the 10 years prior. The same cannot be said for companies in EAFE ex-Copyright © 2021 by GMO LLC. Japan and EM, where fundamentals over the last decade were disappointing. History and All rights reserved. economic intuition suggest, however, that improved fundamental performance over the next 10 years is not just possible for these regions, but probable. On the other metric that matters for equity market performance – changes in valuation multiples – the U.S. stands out. Multiple expansion has accrued to the benefit of U.S. shareholders over the last 10 years, leaving developed non-U.S. companies trading around two-thirds of the valuation of the U.S. and EM at less than half the price. With Japan looking capable of sustaining its fundamental performance and the rest of the non-U.S. world poised for improvement, and with non-U.S. markets much more attractively priced than U.S. stocks, we continue to believe equity investors will be rewarded for allocating as much of their equity exposure to Our Global Equity Allocation Strategy, which represents the purest representation of our equity views, is maximally non-U.S. markets as their risk tolerance allows. We are.9 underweight the U.S.; has a dedicated allocation to Japan within its developed non-U.S. equity holdings; and is overweight Emerging Markets, mostly outside of China.

Consistent with our recent writings, we’re biased toward value stocks across all geographies.

EXHIBIT 9: GLOBAL ALL COUNTRY EQUITY ALLOCATION STRATEGY *Active weighting decisions are based on security level GMO ACTIVE WEIGHTING DECISIONS* holdings and are subject to change without notice. The MSCI ACWI STRATEGY information is based on a representative account in the Strategy selected because it has the fewest restrictions U.S. 7.9% U.S. Equities Quality 14.1% and best represents the implementation of the Strategy.

The groups indicated represent exposures determined -28.3% U.S. Small Value 10.2% U.S. Equities 60.6% Quality Cyclicals 5.4% pursuant to proprietary methodologies and are subject to Japan Value 3.9% change over time. Quality is predominantly U.S. but does Developed hold some Developed ex-U.S. and Emerging. Totals may Developed ex-U.S. 34.8% ex-U.S. Equities not add due to rounding. Cash is excluded for purposes of benchmark comparison. MSCI data may not be Developed ex-U.S. Equities 27.9% +14.8% reproduced or used for any other purpose. MSCI provides Emerging Equities Emerging Markets 16.1% no warranties, has not prepared or approved this report, Emerging Equities 11.5% +13.5% Emerging ex-China 7.7% and has no liability hereunder.

As of 10/31/2021 | Source: GMO