Capital Markets: Observations & Insights

​ Performance

Has Active Relative Performance Troughed?

• As some of those factors reverse, active management has been doing better ‒ Interest rates no longer declining/bond- like equities not outperforming ‒ Non-U.S. stocks have fared better ‒ Small caps beginning to recover ‒ Market performance more subdued

• Powerful cyclical factors impact U.S. active relative performance: ‒ Interest rates/bond-like equities ‒ Non-U.S. stock performance ‒ Small cap performance ‒ Overall market performance

% of U.S. Large Cap Active Managers Outperforming

Active Relative Performance Is Cyclical

100%

80%

57.4%

53.8%

60%

40%

20% % of Fund Assets Outperforming

0%

Last 12 Months

YTD

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

Source: Left chart: Nomura/Instinet, Joseph Mezrich and FactSet through 3/31/18. Fund performance is trailing five-year data of U.S. active equity mutual funds in existence for 5 years or more and part of the growth, growth & income, and income categories based on CRSP codes. Right chart: Bank of America Merrill Lynch U.S. Equity and U.S. Quant Strategy using Lipper data relative to Russell benchmarks through 3/31/18.

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