ARXGG4NK

Themes for 2015 and Beyond

CIO OutlookGlobal IntellIGence for Your PortfolIo / / wInter 2015

WelcomeWith winter upon us, it’s natural to look forward to what might unfold in the

year ahead. That impulse is especially strong coming off a 2014 in which many

areas of the U.S. markets registered strong gains, although with periodic

volatility.

Yet as important as it is to consider 2015 and your near-term financial strategy,

your financial life extends far beyond the coming year’s investment returns; it’s

more about the long-term goals you hope to reach. That’s why in this issue of

CIO Outlook we’re also using a longer lens to examine how markets, policy and

the wider world are likely to continue transforming over the next several years

and even in the decades to come. You’ll find insights from the members of our

CIO team as well as guest contributors from BofA Merrill Lynch (BofAML)

Global Research and U.S. Trust. Together we cover the impact of a stronger U.S.

dollar, disruptive technologies, aligning personal values with portfolio choices

and more.

In addition, to help you put all of this information to work for you, we describe

how our Wealth Allocation Framework can put your goals and aspirations at the

center of decisions about allocating your resources. You may want to discuss

these topics with your financial advisor as you consider their impact on your

own life—in 2015 and in the years and decades to come.

Ashvin B. Chhabra

Chief Investment Officer, Merrill Lynch Wealth Management

To Learn More About A Transforming World and gain insights on these and other investment themes, visit ml.com/insights.

christopher J. wolfecIo, Portfolio Solutions,PbIG & Institutional

Mary ann bartels cIo, Portfolio Solutions,u.S. wealth Management

ashvin b. chhabraChief Investment Officer, Merrill Lynch Wealth Management

the Office Of the ciO

http://insights.wm.ml.com/index.html

neW sLug here Tk sOmethIng tk tk

Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated(MLPF&S) and other subsidiaries of Bank of America Corporation.Investment products offered through MLPF&S:

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the coming Decades

18 Disruptive Technology future tech continues to transform nearly every aspect of lives and economies.

20 The Efficient Energy Frontier Better use of current and future resources will go far in meeting the global thirst for energy.

22 Values and Impact Investing With investors eager to express personal values through investing, the opportunities are expanding.

investing trends

24 The Rise of Nontraditional Mutual Funds these funds make alternative investment strategies more accessible and transparent.

Beyond 2015

8 Washington’s Unfinished Business from tax reform to normalizing interest rates, U.S. policy should evolve slowly.

12 The U.S. Dollar Lagging growth in other economies is adding to the appeal of the greenback.

14 The True Value of Bonds Bonds still help diversify portfolios and provide income.

the Near term

4 Outlook 2015 We expect the U.S. to lead the way to better global growth, with interest rates staying lower for longer.

Wealth Allocation

2 Redefining Wealth Management the Wealth Allocation framework moves the spotlight from investments to investors.

CIO Outlook // Merrill Lynch • 2

Ieven broadly

diversified portfolios

can at times experience

extreme volatility.

n the past 60 years, Modern Portfolio Theory1 has become an established

cornerstone of prudent investment strategy through its emphasis on port-

folio diversification. However, the theory as implemented today places the

market at the center of investment strategy, without sufficient accommo-

dation for an individual investor’s needs and goals. The Wealth Allocation Framework

represents an important evolution in wealth management philosophy by shifting focus

from the market at the center to the investor at the center. It underlies a goals-based

wealth management approach by asking the investor: “What do you want your money to

do for you?”

A diversified market portfolio is core to most investors’ financial strategies, but alone it

is not enough. Markets are unpredictable, and even broadly diversified portfolios can at

times experience extreme volatility. Investors have a desire for safety and personal

financial obligations they must meet regardless of market conditions. In addition, many

investors have aspirations that entail taking risks and pursuing returns beyond those of

a well-diversified market portfolio.

what do you want your money to do for you? The Wealth Allocation Framework can help you find the answers.

Redefining Wealth Management


Wealth Allocation

Recognizing the shortcomings of the market portfolio, the Wealth Allocation Framework

addresses three basic types of risks that may prevent investors from achieving their goals:

• Personal risk that could jeopardize one’s basic standard of living (such as from loss of

income, natural disaster, death or disability)

• Market risk that comes from exposure to financial markets (the widely known dimension

of risk)

• Idiosyncratic risk that is specific to an asset such as a business or another kind of asset

that has a risk of substantial loss of capital

To address all three risk dimensions, the Wealth Allocation Framework accounts for an

investor’s total wealth, recognizing not just market investments but all assets and

liabilities, including tangible capital such as home, mortgage, insurance, investment

real estate and art; financial capital such as investments and cash; and human capital such as the skills, knowledge and unique capabilities that contribute to an individual’s

earning potential.

Investors can use the framework to categorize their resources according to intended

purpose and risk-return characteristics—illuminating the potential risks to their total

wealth and, more specifically, the risk that they won’t achieve their goals. The result of the

process is the household balance sheet, reimagined with the focus on goals. We call this the

Risk Allocation Statement. This snapshot allows investors to align goals and resources from

a common starting place—and facilitates connecting their assets more directly with their

financial strategy.

the wealth Allocation Framework accounts for an investor’s total wealth.

The WeALTh ALLoCATIon FrAMeWork

Potential for significant wealth mobility

Protect basic standard of living

Invest to maintain lifestyle

To safeguard essential goals, investors can hold lower-risk assets—but they have to accept lower returns in exchange.

A well-diversified portfolio provides risk and return in line with efficient market performance—very efficient,but also uncertain.

To pursue goals that require higher-than-market returns, investors often need to take higher and concentrated risks.

This investor-centered approach organizes an investor’s wealth by intended purpose and risk-return characteristics.

1 Modern Portfolio theory assumes that investors are risk-averse and seek to earn the highest possible return with the least amount of risk through broad diversification across asset classes.

CIO Outlook // Merrill Lynch • 44 • CIO OUTLOOk 2015 // Title of Publication TkTkTk

In 2015, we expect better global economic growth, led by the U.S., with interest rates remaining lower for longer.

Outlook 2015

the Near termMarketsMarkets

Markets

We expect a divergence in central bank monetary policies around the

world to be the biggest story for financial markets in 2015. As the Federal

Reserve’s (Fed) stimulus is partly replaced by loosening on the part of the

European Central Bank (ECB) and the Bank of Japan (BOJ), the shift will

bring greater volatility to investment portfolios. Higher valuations should

temper investment returns in 2015, and the policy divergence should sup-

port the U.S. dollar, especially versus the euro and the yen.

Macro outlookWe expect global economic growth to pick up, with the U.S. economy leading the way. Despite

better growth, inflation should remain low due to continued spare capacity. Subdued inflation

should keep interest rates lower for longer and central banks more accommodative.

U.S.—fundamentals take hold: U.S. growth has picked up recently and we expect the trend

to continue in 2015. BofA Merrill Lynch (BofAML) Global Research Economist Ethan Harris

expects the economy to expand by 3.3% next year. Underpinning this uptick is spending by

the U.S. consumer, who has reduced debts and faces better job prospects. Harris expects the

economy to generate around 240,000 jobs a month, with the unemployment rate dropping

steadily throughout the year.

International—it’s all about policy: Our economists expect European growth to remain

fragile with downside risks, but they see growth in Japan improving. Europe’s recovery, at least

in the near term, will depend on the ECB’s monetary policy. We expect it to implement

sovereign quantitative easing early in the year. In Japan, the central bank has stepped up its

bond-buying program and we expect it to remain stimulative. Growth should pick up as

corporate profitability improves along with capital spending, employment and wages.

We expect growth in emerging markets (EM) to improve slightly in 2015 on the back of stron-

ger U.S. growth and lower oil prices, which should keep inflation contained. Growth should

rebound in Brazil and India from historically low levels, but moderate in China, supported by

fiscal and monetary stimulus.



We continue to favor

global equities

relative to global bonds.

equity outlook We continue to favor global equities relative to global bonds. With economic activity

improving and global monetary policy accommodative, the backdrop for equities is still

broadly constructive. However, BofAML Global Research’s return expectations are in the

range of 4% to 8% for global equities in 2015, lower than what investors have realized in

recent years.

U.S. equities should also benefit from the improvement in corporate earnings. We prefer

the technology and industrial sectors, which are beneficiaries of better global growth with

overall valuations that are not extended. We also favor higher-quality and large-cap

stocks. Pharmaceutical companies, along with other parts of the health care sector, offer

attractive income opportunities.

Outside the U.S., we prefer Japanese equities, hedged for currency risk. We think the

combination of yen weakness and a less restrictive Japanese fiscal policy than in 2014

should boost profits and keep stocks moving higher. In emerging markets, selectivity

will remain important as fundamentals among countries diverge, but we see opportu-

nities in countries such as India as reforms continue to take hold.

Fixed income outlookWe expect inflation to remain low and, as a result, for interest rates to remain lower for

longer. We thus see a challenging environment for returns on fixed income, but we

believe it remains an important part of a diversified, balanced portfolio. Credit markets

generally remain close to fairly valued, requiring investors to be selective. Our bias for

2015 is towards higher-quality offerings in segments with stronger fundamentals.

Treasuries and high-quality municipal bonds should continue to make up the core of a

fixed income allocation. Tactically, we see

opportunities in emerging market debt

and senior loans. For the former, inves-

tors should consider dollar-denominated

issues, as we see a stronger greenback in

2015. Our BofAML credit strategy team

believes that senior loans will be boosted

by strong supply-demand dynamics, mini-

mal energy industry exposure and expec-

tations for rate hikes later in the year.

Senior loans are lower in quality and

should be part of high yield allocations.

Alternative investmentsCommodity prices should continue to

face headwinds driven by the combina-

tion of a stronger U.S. dollar, rising

interest rates and sluggish demand

growth. Gold will remain challenged in

the near terM

7%

6%

5%

4%

3%

2%

1%

0%

BeTTer GroWTh BuT LoW InFLATIonGlobal growth should pick up in 2015, led by the U.S., while low

inflation keeps central banks accommodative.

Source: Haver Analytics, International Monetary Fund, BofAML Global Research and ML GWM Investment Management & Guidance. Data as of December 2014.CPI: Consumer Price Index.

2006 2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f

n % Global GDP Growth n % Global cPi

2015 and the BofAML Global

Research commodities team’s out-

look for oil calls for greater vola-

tility and wider trading ranges as a

result of a mismatch in supply and

demand.

As markets move toward a more

normal environment, we believe dis-

persions between the returns of

individual securities should rise—

historically an indicator of greater

potential for hedge fund strategies

like Equity Long/Short. In addition, during greater market volatility, which we expect,

strategies such as Global Macro and Managed Futures should be favored.

risks to our viewIn 2015, uncertainty over global growth will remain. There’s concern over the com-

mitment to policy easing abroad, as strong growth in the U.S. can only carry the rest

of the world so far. In Europe, the risks of recession and deflation remain high as the

recovery has been fragile. Recent ECB announcements

sound accommodative, but we have yet to see sufficient

action. If confidence declined and attention refocused on

the debt dynamics, it would be problematic for markets.

Our BofAML commodities team sees further oil price

declines as likely and this puts energy sector employment

and capital expenditures at risk. It can also create deteriorat-

ing financial conditions for oil-exporting emerging markets.

Finally, a risk to our modest single-digit return expectation

is that stocks get aggressively bid up as investors chase

performance. An ensuing scenario could be a harder pull-

back bringing losses to portfolios significantly over-

weighted to equities.

In conclusion, our outlook for 2015 reflects improving

global growth, with lower interest rates and muted infla-

tionary pressures. We expect equities to outperform bonds,

but acknowledge that returns going forward are likely to

be lower. Investors will need to be mindful of a new set of

risks, such as greater volatility and the possibility that cen-

tral banks outside the U.S. are less accommodative than

anticipated. Given these risks, investors with large over-

weight positions should look to rebalance to long-term

strategic allocations.


MACro ouTLook:• Improving global growth, led by the U.S. • Low to moderate inflation; lower interest rates

for longer• Diverging global central bank monetary policies

leading to higher volatility• More modest investment returns

equITy ouTLook: • U.S. and Japan are favored regions • Within U.S., prefer the technology and industrial

sectors; higher-quality large caps • Cautious on Europe in the near term and within

emerging markets prefer India

FIxed InCoMe ouTLook: • U.S. Treasuries and high-quality muni bonds for

core of the portfolio• Emerging markets debt (USD) and senior loans

for the satellite• Prefer higher quality within high yield

2015 ouTLook:continue to favor equities over bonds


s

Washington’s Unfinished Business

Beyond 2015

s

MarketsMarkets

government

government

ince the financial crisis six years ago, both fiscal and monetary poli-

cies have influenced the ensuing economic recovery. Washington’s

budget battles and austerity programs have acted as headwinds to

confidence and a drag on growth. Monetary policy, meanwhile, has

done much to encourage growth, with the Federal Reserve keeping

short-term interest rates near zero since 2008 and pursuing six years

of quantitative easing with massive purchases of government securities.

While the federal budget deficit has declined significantly from its highs in 2009, Wash-

ington has several pieces of unfinished business on the fiscal and monetary policy fronts.

Without action the deficit could rise again, and the Fed must determine how it will ulti-

mately normalize interest rates.

Fiscal policy—steady, but challenges aheadThere is no looming crisis that will force significant changes in fiscal policy in 2015, says

Michael Hanson, senior U.S. economist for BofA Merrill Lynch (BofAML) Global

Research. And although one party will control Congress, a strong public backlash against

the government shutdown in 2013 could prevent a repeat in 2015, leading to improved

business confidence and investment.

In the longer term, however, we believe that Washington does have a pressing need to

reform the U.S. tax code, energy policy and programs such as Medicare to ensure a

healthy and growing economy.

growing pressure for comprehensive tax reformBoth parties seem to want to reform the U.S. tax code, and high corporate tax rates, in

particular, may add momentum for change. The U.S. has the highest corporate tax rate in

Changes to fiscal and monetary policies are ahead, but will evolve slowly.


WASHInGTOn’S UnFInISHED BUSInESS

the industrialized world at 35%, putting American companies at a competitive disadvan-

tage against foreign competitors that pay an average of 25%.2 Yet while there are plans to

lower the U.S. corporate rate, for every percentage point it is reduced, Congress must find

an offsetting $100 billion in additional tax revenue over the next 10 years, says Daniel

Clifton, partner and head of policy research for Strategas Research Partners.

Meanwhile, U.S. companies have pushed ahead with a different solution—corporate

inversions, in which they combine with overseas companies and move their tax jurisdic-

tion to where tax rates are lower. Converting to real estate investment trusts or master

limited partnerships also brings more favorable tax treatment. While the U.S. Treasury

Department has signaled its intent to prevent corporate inversions, U.S. corporations

are likely to keep innovating in order to maximize their after-tax profits.

Those and other pressures may prompt attention to tax reform, but this process will

likely be complicated by whether to include revisions to individual as well as corporate

taxes, and Clifton doesn’t expect major movement before 2017.

Bumps on the road to energy exportsEnergy policy could change more quickly as Washington feels increasing pressure to

allow U.S. oil exports. The nation is already the largest producer of natural gas, and

exports of liquefied natural gas are expected to begin by late 2015. Yet, as one of the larg-

est producers of oil in the world, a 40-year-old ban on exporting crude oil largely remains

in effect. Combined with booming production, that could lead to a glut of domestic sup-

ply, with prices falling far enough to slow U.S. production—and curtail the broad eco-

nomic benefits of the energy boom.

both parties seem to want

to reform the tax code. But the task is enormous and will take

time.

A reverSAL oF ForTune For u.S. oILRising production of domestic crude has led to a

dramatic decrease in imports.

TAXeS DISADvAnTAGe AMerICAn CoMPAnIeSThe U.S. ranks near the bottom in this assessment

of tax competitiveness.

Source: Strategas, The Tax Foundation, 2014. note: The ranking factors variables across the following categories: Corporate Taxes, Consumption taxes, Property taxes, Individual taxes, and International tax rules.

100

90

80

70

60

50

40

30

20

10

0

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nia

New

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zerla

ndSw

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Aust

ralia

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urg

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ak R

epub

lictu

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Slov

enia

finl

and

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and

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US

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ven

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(10

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Source: Strategas, u.S. energy Information administration, MlwM Investment Management & Guidance. Data as of nov. 26, 2014.

10.5

9.5

8.5

7.5

6.5

5.5

4.5

3.5

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

n crude Oil Net imports n crude Oil Production


Congress is likely to resist repealing the export ban because lower gasoline and energy

prices help a broad swath of the American public. Still, President Obama could broaden

the export exemption for condensate crude—a light crude oil that isn’t ideal for U.S.

refineries—and buy more time to see how world markets digest the increased supply,

says Clifton.

A temporary reprieve on Medicare costsWith large businesses moving many employees to high-deductible health plans, health

care spending has slowed, leading the way for lower Medicare costs as well. In an

August update to its April 2014 projection for Medicare spending, the Congressional

Budget Office (CBO) reduced its estimate by $49 billion for 2014 through 2024,3 giving

Congress a temporary pass on making reforms. That will remain necessary in the longer

term, because of Medicare’s outsized share of federal spending and an aging population

projected to lead to ballooning costs. But for now, slowing spending on the huge pro-

gram is good news for policymakers and the economy.

slow changes ahead for monetary policyMonetary policy, too, should evolve

gradually. The first hike in the Fed’s tar-

get rate for short-term loans is expected

to come later in 2015. As long as the

economy continues to improve, bond

yields should also rise incrementally and

the stock market can continue to move

higher, although with more volatility,

according to Hanson.

The Fed will likely delay shrinking its

$4.5 trillion balance sheet—up from just

$900 billion when the financial crisis

began—until the first half of 2016 and

allow it to stay elevated through the

rest of the decade. The Fed will unwind

its asset purchases by letting them pas-

sively mature instead of actively selling

them, expects Hanson. That plan would change only if inflation increased rapidly, and

that’s not likely.

The Fed also wants to be as transparent as possible during these coming changes and to

avoid a repeat of the “taper tantrums” that caused market sell-offs when investors

reacted prematurely to worries that the Fed would reduce bond purchases. U.S. mone-

tary and fiscal policy will evolve gradually in the months and years ahead. The financial

markets will be following any developments along the way closely.

Beyond 2015

2 tax foundation 2014 international tax competitiveness index: http://taxfoundation.org.

3 U.S. congressional Budget Office, “An Update to the Budget and economic Outlook: 2014 to 2024,” Aug. 27, 2014.

energy policy could change more quickly as washington feels pressure to send u.S. oil overseas.

2008 2009 2010 2011 2012 2013 2014

A hIGh WATerMArk For The FeDerAL reServeThe Fed’s balance sheet has expanded significantly since 2008

and could remain elevated for some time.

Source: BofA Merrill Lynch Global Research, Federal Reserve, Haver. Data as of Dec. 3, 2014.

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

FeD

BA

LA

nC

e Sh

eeT

(In B

ILLI

on

S)

n treasury securities n Agency & MBS securities n Liquidity facilitiesn emergency lendingn Other assets


Differences in growth

and monetary policy across

global economies

will continue to provide

support for the dollar.

he U.S. dollar has been one of the best-performing major currencies in

2014, with the Dollar Index (DXY) up roughly 10% at the end of Novem-

ber. We see further upside for the greenback going forward, especially

against the euro and the yen.

growth and monetary policy are driversAs discussed previously, there has been a divergence between the monetary policy of

the U.S. and those of Europe and Japan. The Fed recently concluded its quantitative eas-

ing program, as confidence in the economy led it to embark on the path of normalizing

interest rates. This has caused the dollar to strengthen as prospects for growth and

inflation are better in the U.S. than in these other developed markets.

This year, as economic indicators have weakened, the European Central Bank (ECB) has

cut interest rates and decided to purchase asset backed securities and covered bonds

issued by financial institutions. Still, growth remains weak and the euro has fallen by

roughly 9% against the dollar from July through November. The dollar’s move relative

to the Japanese yen has also been significant, with the yen reaching the lowest level

since 2007 amid a backdrop of accommodative monetary policy in Tokyo.

Given the strong performance, bullish views on the dollar are common. Thus, we

won’t be surprised if the currency has limited upside in the first few months of 2015.

However, BofA Merrill Lynch (BofAML) Global Research does expect the dollar to

strengthen to 1.15 against the euro and to 127 against the yen in 2016.

rising confidence in the u.s.The differences in growth and monetary policy

across global economies will continue to provide

support for the dollar, as will the improving fiscal

health of the U.S. and transformative changes such

as the surge in U.S. energy production.

America’s fiscal position has improved quite a

bit as the economy has recovered. The Congres-

sional Budget Office (CBO) estimates that the

U.S. fiscal deficit will be $483 billion for the 2014

fiscal year, much less than the trillion-dollar

levels of 2009–2012.4 The CBO projects the

deficit will fall to 2.6% of gross domestic product

(GDP) by 2015, down from 6.8% in 2012.

The U.S. Dollar Buoyed by American growth, we expect the currency to stay strong.

Beyond 2015

T

MarketsMarkets

Markets

The u.S. DoLLAr MoveS AheADMost currencies in both developed and developing

markets lost ground to the greenback in 2014.

Source: Bloomberg, MLWM Investment Management & Guidance. Data as of Dec. 5, 2014.

yTD

Per

For

MA

nC

e vS

. u.S

. Do

LLA

r

0%

-2%

-4%

-6%

-8%

-10%

-12%

-14%

-16%

JAPANeSe YeN eURO

BRitiSh POUND

BRAZiLiAN ReAL

MexicAN PeSO

SOUth AfRicAN

RANDtURKiSh

LiRA

-15.0%

-10.4%

-5.6%

-10.0%-9.1%

-7.8%

-4.8%


The U.S. has also made great progress toward energy independence. U.S. energy production

rose by roughly 13% from 2009 to 2013, according to the Energy Information Administra-

tion. Consequently, net energy imports have fallen. This is a game changer for U.S. eco-

nomic competitiveness and is bullish for the dollar as the country reduces its reliance on

more expensive foreign oil.

Ultimately, a stronger dollar signals growing global confidence in U.S. assets and

resulting foreign capital inflows should contribute to further growth. The U.S. has long

been regarded as a more productive economy, especially compared with Europe and

Japan, which have been slow to imple-

ment structural reforms. The prospects

for a stronger currency going forward

should broaden U.S. appeal for foreign

corporations and investors, creating a

self-reinforcing cycle.

Depending on your time horizon, cur-

rency hedging can be critical for U.S.

investors. For roughly the past 15 years,

the dollar has trended downward against

a basket of other major currencies. That

trend has generally provided a boost to

returns on U.S.-based investors’ over-

seas holdings. Now with the trend

reversing, U.S. investors should consider

a strategy of hedging international bond

and equity exposures.

Source: Congressional Budget Office, MLWM Investment Management & Guidance. Data as of Aug. 27, 2014.

4 U.S. congressional Budget Office, “An Update to the Budget and economic Outlook: 2014 to 2024,” Aug. 27, 2014.

AMerICA’S FISCAL heALTh hAS IMProveDThe U.S. budget deficit is now far below recent peaks.

10%

8%

6%

4%

2%

0%

CBo Forecast

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

u.S

. Bu

DG

eT

DeF

ICIT

(% o

F G

DP)

14 • CIO OUTLOOk 2015 // Title of Publication TkTkTk

Beyond 2015

The True Value of Bonds

W

Bonds still help diversify portfolios and provide income.

MarketsMarkets

Markets

hen the Fed announced that it was finally ending its six-year bond-

buying program known as quantitative easing, we saw many investors

shrink away from bonds, worried that without those purchases, prices

would fall.

But that didn’t happen, and we believe bonds will continue to be a

valuable part of most portfolios regardless of what happens to interest rates. It’s true that

over the long term, stocks have outperformed bonds, chalking up a compound annualized

return since 1925 of 10.2%, compared with 5.3% and 5.7% for intermediate and long-term

Treasury bonds, respectively.5 However, equities’ higher returns have come with far

greater volatility. For their part, Treasuries may provide relative safety and reliable, pre-

dictable income to spend or reinvest. In addition, the two assets are negatively correlated,

meaning when one declines the other might rise or suffer a smaller loss.

And although bond yields will eventually rise, waiting until then to commit to this asset

class means sacrificing income now that could take years to recoup. Rather than relying on

yields rising enough in the future to make up for that foregone income, it is probably bet-

ter to take some of the yield that the market gives you now, according to Martin Mauro,

fixed income strategist for BofA Merrill Lynch (BofAML) Global Research. The risk of bond

prices declining as interest rates rise could be better managed through portfolio ladder-

ing—that is, by combining bonds with different maturities.

stretching for income amid low inflation One surprise over the past year has been a decline in inflation and inflation expectations,

despite an ongoing improvement in the U.S. economy. That has resulted from several factors,

including slowing global economic growth, subdued wage growth and lower energy prices.

Taken together, these factors have brought inflation that is a great deal lower than many inves-

tors expected. Bond yields tend to rise and fall with inflation. We have been in the camp of sub-

dued inflation and think that interest rates should remain low compared with previous



recoveries but will rise gradually from cur-

rent levels. As a result, finding income in

bonds will continue to be challenging as

yields are stuck at the bottom of their histor-

ical ranges.

Two classic ways to meet that challenge

and potentially boost income are to buy

bonds with longer maturities and to invest

in higher-yielding, lower-quality bonds.

The risk with the first approach is that it

leaves investors vulnerable if interest

rates rise. If you want to sell before maturity—say, to reinvest the proceeds in a higher-

yielding bond—you’ll likely have to accept a discounted price. The potential problem

with the second approach is that lower-quality bonds may be more volatile than other

issues and bring a greater risk of default. Thus, such bonds may not be suitable for con-

servative investors.

diversifying sources of incomeIncome-seeking investors can look beyond U.S. government and investment-grade cor-

porate bonds. High yield corporates, dividend-growth stocks and options strategies that

capitalize on near-term market volatility are some alternatives. Master limited partner-

ships (MLPs) can provide comparatively higher yields and some tax advantages. All of

the above come with their unique risks which must be balanced with the income need.

Also consider government bonds from other nations, particularly those in which opportuni-

ties have been created by global volatility. During turbulent times, foreign governments,

especially those in emerging markets, may have to offer comparatively high yields to

attract investors. We suggest that inves-

tors diversify their exposure to emerg-

ing markets among different countries

in order to better manage the credit risk.

One consideration for investors looking

at foreign sovereign bonds is the risk of

currency fluctuations that could reduce

the value of their holdings. Currency

movements could cause swings in the

prices of sovereign bonds, exerting more

influence on the prices than factors such

as changes in credit conditions that nor-

mally affect bond values. Investors could

consider both sovereign and corporate

emerging market debt that is issued and

Income-seeking

investors can look beyond a range of u.S. government

and investment-

grade corporate

bonds.

THE REAL vALUE OF BOnDS

Source: Ibbotson Associates; BofAML Global Research. note: Intermediate Term as defined by the 5-year Treasury bond, Long Term as defined by the 20-year Treasury bond. Stocks as defined by the S&P 500 Index. Data from 1925-2014. U.S. Treasures are guaranteed for the timely payment of principal and interest.

TreAsurIes

Intermediate term Long term sToCks

average return 5.3% 5.7% 10.2%

best year* 29.1% 40.4% 54.0%

worst year* -5.1% -14.9% -43.3%

Standard deviation 5.7 9.8 20.2

*Based on calendar years

A MIDDLe GrounD BeTWeen MArkeT eXTreMeSBonds haven’t soared as high as stocks over

the very long term but they also haven’t sunk as low.


denominated in U.S. dollars.

The bottom line is that in a low-

inflation, low-yield environment,

which may be with us for a while,

income-seeking investors may have

to consider alternatives that involve

more risk than Treasury securities.

We think that proper diversification

can help to mitigate some of these

risks. Even so, we do not believe

that investors should completely

abandon Treasuries in their search

for yield and ought to remain

within their risk tolerance. Risk-

averse investors with a focus on

capital preservation may need to

stay with lower-risk and lower-

yielding investments such as

Treasuries.

Inflation uncertainty drives portfolio constructionWe advise that investors consider adopting a core-satellite approach to fixed income

portfolios. For the core, diversified municipal bonds can be considered within taxable

accounts, and a combination of Treasuries and investment-grade corporate bonds for

tax-exempt accounts would be appropriate. For the satellite portion, high yield, emerg-

ing market bonds and senior loans can be considered. This approach helps investors

monitor and limit how much risk is in their fixed income portfolios.

The current economic environment, with its uncertainty about interest rates and infla-

tion, seems to favor intermediate bond maturities. Those bonds provide higher yields

than short-term bonds but are less susceptible to interest rate risk than longer-term

holdings. However, those who hope to stretch for the additional yield of longer-term

bonds while keeping risk in check may want to consider laddering one-, five- and 10-

or 15-year maturities, says Mauro. With such a portfolio, investors can benefit from

higher yields on extended maturities, but if rates rise, they can redeploy proceeds

from maturing bonds into longer-term bonds with higher coupon rates. Meanwhile,

for those in the 28% tax bracket or above, 10-year municipal bonds have better tax-

adjusted yields than corporate bonds of the same credit rating.6 In general, Mauro

suggests laddering out to 15 years in munis and 10 years in the taxable market.

Looking ahead, the bond market will be driven by continued low inflation, a modestly

generous Fed and decent economic growth. Even at their most volatile, bonds still

offer more stability than equities. Moreover, bonds’ inverse relationship to equities

can give you a crucial counterweight in times of turbulence.

Beyond 2015

5 ibbotson Associates. 6 BofA Merrill Lynch

Global Research.

even at their most volatile, bonds still offer more stability than equities.

Why InveSTMenT InCoMe IS hArD To FInDCurrent yields for stocks and most bonds

are near the lower ends of their historic ranges.

SOURCE: FactSet, Bloomberg, and ML GWM Investment Management & Guidance. Data as of nov. 30, 2014. Yield range 2/1997–11/2014. note: U.S. Corporates as defined by BofAML U.S. Corporate Index, U.S. Treasuries – BofAML Treasury Master Index, Municipals – BofAML Municipal Master Index, U.S. High Yield – BofAML U.S. High Yield Index, Global EM Debt – BofAML Global EM Debt Index

25%

20%

15%

10%

5%

0%

S&P 500 U.S. cORPORAteS

U.S. tReASURieS

MUNiciPALS U.S. hiGh YieLD

GLOBAL eM DeBt

(SOv + cReDit)*

n current n historic yield ranges

1.93.5

1.42.5

6.3

8.6

yIeL

D (%

)


Disruptive Technology Welcome to the future tech that could change economies and lives.

Technological innovations—in health care, communications, entertainment,

transportation, manufacturing, energy production and elsewhere—continue to

transform lives, upend businesses and boost the global economy. Now, as we

look beyond the silicon-based microprocessor, tomorrow’s disruptive

technologies are already in sight, changing the way we live.

Connectivity and the Internet of Things Only about 40% of the world’s 7 plus billion people currently use the Internet, according to

the International Telecommunication Union, and billions more, especially in emerging

markets, could be connected by 2020. The billions of connected devices that collect, process

and transmit information in real time will multiply and become a part of everyday living.

Beyond connected computers, smart devices and TVs, look for more connectivity in vehicles

for things like GPS, Wi-Fi, radar and vehicle-to-vehicle communication. Expect to see it in

wearables such as wristwatches, glasses and smart clothing and in health care devices like

monitors for the heart, blood pressure and glucose levels. And throughout homes for

thermostats, lighting, smoke detectors, security cameras, refrigerators, coffeemakers and more.

robotics Programmable machines, widely used in the auto industry, are increasingly employed in

aerospace, metal production, medicine and other fields. Robots are becoming capable of

working more safely with people and are in wider use in the home, in the form of vacuum

cleaners and security systems, for example, and for senior care. The use of drones—

essentially flying robots—is on the rise in entertainment and police surveillance, and

they could soon be used for package delivery and other services.

chris hyzy Chief Investment Officer, u.S. trust


TransportationThe automobile industry is undergoing perhaps the most significant shifts since Model

Ts first rolled off Henry Ford’s groundbreaking assembly line. Electric car technology

has advanced and consumer acceptance, although limited, is improving. E-cars could

eventually dominate the roads in the U.S. and elsewhere. Assisted-driving technology is

already standard in many automobiles in the form of rearview cameras, vehicle

proximity-detection radar, lane-departure warnings and other capabilities. Driverless

car technology is expected to reduce the number and severity of crashes and injuries,

thereby lowering insurance and medical costs.

energyIn the face of grim reports from the United Nations about the potentially catastrophic

effects of human-produced atmospheric carbon, the use of alternative energies and

technologies that reduce carbon emissions should rise.

Solar panels have become more efficient and less expensive. Faced with opposition from

nearby residents, more wind farms are likely to be built off-shore. Tidal turbines are

being tested and could become an option as well. Because alternative energy is

intermittent, megawatt batteries, currently in early development, should prove essential

to the spread of wind and solar.

Carbon-sequestration and storage technologies, which can absorb carbon from coal-fueled

power plants and other facilities, are plagued by high costs and carbon storage questions.

Yet with government funding or incentives, they could become viable, making it feasible

to continue using coal.

health careFrom penicillin to organ transplants, CAT scans and genome decoding, advances in

health care have improved or saved countless

lives and provided investors with significant

opportunities. Obesity, for example, is a global

problem. More effective medications to lower

cholesterol or prevent heart attacks and strokes

are likely. Producers of low-calorie and healthful

foods could also benefit. Regenerative medicine

leading to replacement of body parts is in its

infancy but eventually could help people with

diseased organs. High-tech prosthetics are

becoming more widely used and may soon be

grafted directly onto a recipient’s bone.

Changes caused by technological shifts seem to be

accelerating. This can bring challenges such as

higher and persistent levels of unemployment. But

the economy and society are likely to evolve and

adopt technologies that improve productivity.

Driverless car technology is expected to reduce the number and severity of crashes and injuries, lowering insurance and medical costs.

the coming DecadesInnovation

ConSuMerS Are GeTTInG ConneCTeDDuring the coming months and years, more and more people will

adopt technologies that put them in control of much of their daily lives.

Source: Cisco Systems. Data as of 2013.

2012 2013 2014 2015 2016 2017 2018 2019 2020

60

50

40

30

20

10

0

GLo

BA

L C

on

neC

TeD

oB

jeC

TS(B

ILLI

on

S o

F D

evI

CeS

)

Forecast


n energy-secure future will require a balanced energy mix, encompassing

cleaner coal, natural gas, nuclear and renewables—as well as energy-effi-

ciency measures. The latter offers the single greatest opportunity among

currently available options for cheap, easy energy and reductions in carbon

dioxide (CO2) emissions.

energy efficiency is the answerThe current energy path is unsustainable. With energy demand set to grow by as much as

40% by 2035, the world needs $48 trillion to $53 trillion in energy investments over that

period.7 Today’s share of fossil fuels in the global energy mix is much the same as it was

25 years ago, leaving large parts of the world dependent on energy imports and associated

geopolitical risks. The current energy path is also putting us on a CO2 emissions trajectory

consistent with long-term global temperature increases of 2.0°C to 4.5°C, which would

make irreversible climate change a reality.

In a resource-constrained world, energy demand needs to adjust to limited supplies of con-

ventional sources. The rationales include supply-demand balance, energy and infrastructure

costs, energy security, environmental sustainability, access to energy and fuel poverty. We

believe this process needs to occur through a combination of energy-efficiency improve-

ments and gradual replacement of oil and other fossil fuels.

Investing for the futureHistorical energy savings from efficiency measures exceed the output from any single

fuel source. Without the savings from improved

energy efficiency since 1974—particularly in build-

ings, industry, power production and transport—

global energy consumption would now be at least

65% higher in the 29 member countries of the Inter-

national Energy Association. Efficiency measures

could halve the energy needed to power the world

by 2035.8

Global investments in energy efficiency have

recently ranged from $130 billion to $300 billion

per year. By 2035, we anticipate $8 trillion to $14

trillion in investments—or at least $550 billion in

annual spending—both to meet growth in energy

demand and to make the transition to a lower-car-

bon economy.9 There is significant “low-hanging

fruit” given that 80% of energy is lost along the

The Efficient Energy Frontier Progress on many fronts helps make better use of fuel and power.

MarketsMarkets

earthearth

the coming Decades

A

DeMAnD For enerGy WILL ConTInue To GroW

All across the developed and developing worlds the appetite for energy should increase for decades to come.

Source: U.S. Energy Information Administration, data as of April 2013.

2010 2015 2020 2025 2030 2035 2040

900

800

700

600

500

400

300

200

100

0

n china n United States n india n Rest of Non-OecD n Rest of OecD

qU

ADRi

LLiO

N B

tU

Sarbjit nahal Head of Thematic Investing Strategy, BofAML Global Research


value chain. Every dollar spent means $2 to $4 in lifetime cost savings, and two-thirds

of the economic potential to improve energy efficiency remains untapped.10

Progress, but a long way to goThe U.S. has started making progress on energy efficiency in recent years with measures

like appliance standards, building codes, fuel economy requirements and voluntary gov-

ernment-industry partnerships. However, it has made limited progress compared with

China, the European Union and Japan. The U.S.—long considered an innovative and

competitive world leader—ranks 13th on the 2014 Scorecard of the American Council

for an Energy Efficient Economy, having fallen behind Australia, Canada, India and

South korea since the 2012 assessment.11

Multiple entry points for investorsThere is a diverse range of entry points for investors in the energy-efficiency theme that

includes autos, buildings, industry, the Internet of Things (IoT), information and commu-

nications technology (ICT), LEDs and other efficient lighting solutions, smart grids and

energy storage and transport.

Turbochargers, to cite one example, allow smaller automobile engines to replace larger ones

without compromising power during acceleration, providing fuel savings of 15% to 30% and

reductions in CO2 emissions of up to 20% at a fraction of the cost of a hybrid motor assist.

The Internet of Things, to highlight another, includes incorporation of sensors and smart

nodes into various devices to “undumb” the hardware in smart grids, smart homes, city

lighting, intelligent street signalling and networks for managing vehicle fleets, industrial

production and supply chains.

7 “World energy investment Outlook,” international energy Agency, 2014.

8 “World energy Outlook,” international energy Agency, 2012.

9 “World energy investment Outlook,” international energy Agency, 2014.

10 “energy efficiency: towards our 2020 climate Goals,” international energy Agency, 2014.

11 “the 2014 international energy efficiency Scorecard,” American council for an energy-efficient economy, July 2014.

Global investments in energy efficiency have recently ranged from $130 billion to $300 billion per year.

Values and Impact Investingopportunities to express personal values through investing have expanded.

T

assets under management

using SrI had grown to $6.57 trillion

at the start of 2014.

he opportunity to consider using values-based strategies in investment portfo-

lios has never been greater. The number of approaches and strategies avail-

able to investors has grown in both size and quality over the past several

years as better social and environmental data on companies has intersected

with an increased demand by individuals. The total assets under management using sustain-

able, responsible and impact investing (SRI) had grown to $6.57 trillion at the start of 2014.12

Where investors have interest in expressing their values in portfolios, we see a growing

opportunity. The following examples are worth considering.

supporting cancer researchThe most direct way to support the search for a cure for cancer is investing in promising

biotechnology companies. Somewhat less direct is screening to remove investments seen

as contributing to cancer, such as cigarette makers or those that use high levels of chemi-

cal carcinogens. However, these blunt approaches may add additional risks to a portfolio

that are not compatible with an investor’s goals.

The spectrum of opportunity to have an impact in this area is larger. For example, an investor

may choose to invest in companies that use a portion of revenues to fund research or set up

foundations to do so. This approach is exemplified by the founder of American Century Invest-

ments, who set up a foundation focusing on cancer research that is funded with a 40% share of

American Century’s profits.13 Going a

step further, investors can also choose

to invest in companies viewed as help-

ing prevent cancer, such as organic

food makers, operators of wellness cen-

ters or drug store chains such as CVS,

which recently began pulling cigarettes

from its shelves.14

Climate changeAnother notable area of investor

interest is climate change and carbon

emissions. This isn’t surprising given

extensive coverage of the topic in the

media, including the recent discus-

sions of fossil fuel divestment at uni-

versities like Stanford and Harvard.15

A growing number of investment

strategies seek to remove exposure to

the coming Decades People

34% 36%44%

67%

n Age 69+ n Baby Boomers n Gen x n Millennials


Source: U.S. Trust 2014 Wealth and Worth Survey. Data as of February 2014.

vALueS-BASeD InveSTInG IS MAkInG An IMPACT ACroSS GenerATIonS

Investors increasingly want to support companies whose policies align with their values.

Affirmative responses to the statement: “My investment decisions are a way to express my social, political or environmental values.”

fossil fuels or to invest in companies looking to reduce carbon emissions or improve effi-

ciency around the use of natural resources like water or energy. Individuals can also

invest with asset managers that support environmental policy-making or research, such

as ones that have formed partnerships with the Environmental Defense Fund, or in com-

panies that meet environmental standards such as the Sustainable Forestry Initiative.

gender equality: focus on womenThere have been a number of investment strategies launched recently based on the premise

that both developed and developing countries and companies benefit from an increase in

the number of women in the workforce and in senior management.16 Here, an approach

could be investing in companies led by women, or in companies that have focused on posi-

tive portrayals of women in their marketing. There are also investment strategies based on

financial inclusion by making loans or the capital markets more widely available to the eco-

nomically disadvantaged, which tend to create jobs or provide entrepreneurial capital and

training for women.17 Investing in companies that promote equal access to education in the

developing world also can contribute to a more educated and productive labor force while

expanding opportunities for women and girls.

The growing number of ways for investors to express their personal beliefs through their

portfolios suggests the time has come to align their values and investments to create a

bigger impact.

Investing in companies that promote equal access to education can expand opportunities for women and girls.

12 “Report on U.S. Sustainable, Responsible and impact investing trends 2014,” the forum for Sustainable and Responsible investment, 2014.

13 “What Sets Us Apart,” American century investments, 2014.

14 “cvS’s cigarette Ban Appears to have Boosted Sales,” The Huffington Post, 2014.

15 “Stanford to divest from coal companies,” Stanford Report, 2014.

16 “the Bottom Line: corporate Performance and Women’s Representation on Boards,” catalyst, 2007.

17 “calvert foundation and Bank of America Partner to invest in Women,” Bank of America Newsroom, 2014.


edge funds. Private equity. Real estate. Real assets. Over the past 20 years, these and

other alternative investments have joined the lexicon of the investing public and made

headlines for their roles in the endowments of Harvard, Yale and other universities.

More recently, hedge fund-like strategies and other alternative investments have become much

more widely available through mutual funds—so-called nontraditional mutual funds (NTMFs)—

and exchange-traded funds (ETFs).

The growth of nTMFsAfter the financial crisis, mainstream investors became interested in diversifying their portfolios

and reducing their dependence on the markets. Meanwhile, investors in hedge funds stepped up

calls for greater transparency, liquidity and uniformity of structure. This convergence of interests

led to greater demand for liquid, more highly regulated alternative investments in general and

for NTMFs in particular. Assets in mutual funds categorized by Morningstar as alternative grew

ninefold between 2005 and 2013. The most recent growth has been concentrated in a few catego-

ries. Of the roughly $94 billion that flowed into NTMFs last year, about $54 billion went to

h

The Rise of Nontraditional Mutual FundsMore liquid and more closely regulated than most alternative investments, they still can help manage portfolio risk and increase diversification.


nontraditional bond funds. There were also significant flows into long/short equity as well

as multi-alternative funds.

Comparing nTMFs and hedge fundsNTMFs are a liquid, more regulated way to access strategies most commonly found in hedge

funds. NTMFs offer hedge fund strategies in a convenient format, aiming to provide both

diversification and risk control. However, there are trade-offs in using NTMFs rather than

hedge funds. Regulations for mutual funds limit the use of some key drivers of hedge fund

returns, such as illiquid securities, leverage and concentrated holdings. It is fair to assume

that NTMFs may behave more like traditional mutual funds, with returns closer to those of

the overall markets and perhaps sacrificing some potential outperformance, compared with

their hedge fund siblings. These potential sacrifices may be offset by benefits such as daily

liquidity, regular transparency, lower investment minimums, less stringent eligibility

requirements, generally lower fees and more efficient tax reporting, which make NTMFs

more attractive to the average investor. They still offer a broad range of opportunities to

influence risk and potential returns as well as the ability to potentially reduce losses in down

equity markets. These variables and others must be taken into account when deciding

whether to pursue alternative strategies through hedge funds, NTMFs or other products.

using nTMFs in portfoliosLike hedge funds, NTMFs come in many shapes and styles. Strategies provide different

exposures and various risk and return profiles. Additionally, the skill and experience of

individual portfolio managers take on greater importance when funds have a more flexi-

ble mandate, so manager selection becomes integral to success.

Investors may benefit by combining various strategies into a diversified portfolio. Another

approach is to use NTMFs to diversify specific portfolio risks. An investor might, for example,

use long/short equity strategies as a portion of a traditional equity allocation to help reduce a

portfolio’s volatility. Similarly, an investor could use nontraditional bond strategies to address

a portfolio’s sensitivity to interest

rates; note, however, that while that

risk may be reduced, other types of

risks, such as that resulting from

increased credit exposure, may rise.

For investors who don’t have access to

hedge funds, a portfolio of carefully

selected NTMFs can provide exposure

to similar strategies in a more liquid,

regulated and convenient fashion. In

addition, sophisticated investors may

find that detailed analysis of funds,

strategies and structures leads to the

use of NTMFs in conjunction with

private-placement hedge funds and

other alternative vehicles.

investing trends

Like the hedge funds they emulate, nTMFs come in many shapes and styles.

SurGInG PoPuLArITy oF nonTrADITIonAL FunDSSince the beginning of 2012, assets in

non-traditional mutual funds have more than doubled

JAN 2012 APR 2012 JUL 2012 Oct 2012 JAN 2013 APR 2013 JUL 2013 Oct 2013 JAN 2014 APR 2014 JUL 2014 Oct 2014

350

300

250

200

150

100

Source: Morningstar Direct; MLWM Investment Management & Guidance. Data as of Oct. 31, 2014.

n Assets in NtMfs (Billions)


GWM Investment Management & Guidance (IMG) provides investment solutions, portfolio construction advice and wealth management guidance.The opinions expressed are those of IMG only and are subject to change. While some of the information included draws upon research published by BofA Merrill Lynch Global research, this information is neither reviewed nor approved by BofAML Global research. This information and any discussion should not be construed as a personalized and individual recommendation, which should be based on your investment objectives, risk tolerance, and financial situation and needs. This information and any discussion also is not intended as a specific offer by Merrill Lynch, its affiliates, or any related entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service. Investments and opinions are subject to change due to market conditions and the opinions and guidance may not be profitable or realized. Any information presented in connection with BofAML Global research is general in nature and is not intended to provide personal investment advice. The information does not take into account the specific investment objectives, financial situation and particular needs of any specific person who may receive it. Investors should understand that statements regarding future prospects may not be realized.Asset allocation and diversification do not assure a profit or protect against a loss during declining markets.The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high-yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher-rated categories. Historically, municipal bonds have been high-quality investments relative to other fixed income securities. However, not all municipal bonds are high grade, and when deciding whether to invest in municipal bonds, you should consider: default risk, market risk and liquidity risk. Income is generally exempt from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-exempt, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT). Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging and frontier markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risk related to renting properties, such as rental defaults. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.Investments in MLPs in the energy sector will be subject to more risks than if the investment were broadly diversified over numerous sectors of the economy. A downturn in the energy sector of the economy could have a larger impact than on an investment that does not concentrate in the sector. At times, the performance of securities of companies in the sector may lag the performance of other sectors or the broader market as a whole. In addition, there are several specific risks associated with investments in the energy sector, including the commodity price risk, depletion risk, supply and demand risk, and catastrophic event risk, among others.options involve risk and are not suitable for all investors. Before engaging in the purchase or sale of options, investors should understand the nature and extent of their rights and obligations and be aware of the risks involved in investing with options.Alternative Investments, such as hedge funds and private equity, can result in higher return potential but also higher loss potential. Before you invest in alternative investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity, and your tolerance for risk. Some or all alternative investment programs may not be suitable for certain investors. non-traditional mutual funds (nTMFs) are intended to offer investors exposure to hedge fund strategies, but in a more liquid format with relatively low minimums. each of the funds is registered under the 1940 Act and is subject to 1940 Act restrictions. While nTMFs can offer diversification within a relatively liquid and accessible structure, it is important to understand that they may be imperfect as a hedge fund substitute.© 2015 Bank of America Corporation ArXGG4nk

ashvin b. chhabraChief Investment Officer,

Merrill Lynch Wealth Management

Mary ann bartelscIo, Portfolio Solutions,u.S. wealth Management

christopher J. wolfecIo, Portfolio Solutions,

PbIG & Institutional

Office Of the ciO

chris hyzyChief Investment Officer,

u.S. trust

Sarbjit nahalHead of Thematic Investing Strategy,

bofaMl Global Research

GUeSt ARticLeS

OtheR cONtRiBUtORS

adon Vanwoerdenassistant

vice President, Office of the CIO

Martin MauroFixed Income

Strategist, bofaMl Global Research

niladri “neel” Mukherjee

Director, Office of the CIO

Michael KosoffManaging Director,

Investment Management &

Guidance

anna SniderDirector,

Investment Management & Guidance

John Veitvice President,

Office of the CIO

Michael HansonSenior u. S. Economist,

bofaMl Global Research

ARXGG4NK

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