Opportunities on the Horizon: Investing Through a Slowing Economy

overview | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 5 1.1 FROM THE DESK OF THE CIO: 1 Strategic Return Estimates (SRE) based on indices are Citi Global Wealth Investments’ forecast of returns over a 10-year time horizon for specific asset classes (to which the index belongs). Indices are used to proxy for each asset class. Cash refers to the US Cash SRE. The forecast for each specific asset class is made using a proprietary methodology that is appropriate for that asset class. Equity asset classes use a proprietary forecasting methodology based on the assumption that equity valuations revert to their long-term trend over time. The methodology is built around specific valuationmeasures that require several stages of calculation. Assumptions on the projected growth of earnings and dividends are additionally applied to calculate the SRE of the equity asset class. Hedge Fund and Private Equity SREs are linked to equity SREs. Fixed Income asset class forecasts use a proprietary forecasting methodology that is based on current yield levels. Other asset classes use other specific forecasting methodologies. SREs are in US dollars. SREs are generally updated on an annual basis, however they may be updated off cycle based onmarket conditions or methodology adjustments. Strategic Return Estimates are no guarantee of future performance. SREs do not reflect the deduction of client fees and expenses. Future rates of return cannot be predicted with certainty. Investments that pay higher rates of return are often subject to higher risk and greater potential loss in an extreme scenario. The actual rate of return on investments can vary widely. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index. All SRE information shown above is hypothetical not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. 2 Haver Analytics as of June 1, 2023 Our 2023 Mid-Year Wealth Outlook DAVID BAILIN Chief Investment Officer Citi Global Wealth This is a time when investors are looking for a way forward. While headlines about US debt, the impact of artificial intelligence, US-China tensions and the war in Ukraine dominate the news, we believe the landscape for investing has the potential to evolve positively. Our view, reflected in our updated Strategic Return Estimates 1 (See FIGURE 3: Recession, recovery: A journey unfinished ) , is that investors who stay invested and rotate their portfolios toward timely opportunities may be well-rewarded over the next decade. At the moment, investor sentiment appears poor, and that creates potential opportunities. Bearishness, as measured by short equity interest, is at multi-decade highs while the amount of money in money funds and Treasury Bills (T-bills) is at a record high. Rates for short-term cash are at the highest level since 2007. 2 All these factors suggest that investors are waiting for a decline in market indices before shifting assets into equities. This may be the most anticipated bear market ever. It is also an argument for why market timing will not work. If everyone is waiting, any decline may be brief and untradable.