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Volatility Returns: Wuhan Coronavirus Spreads, Bernie Rises in Polls and Bolton Jolts Trump Impeachment Trial

OUTLOOK & TACTICAL UPDATE | January 2020

MANAGER Outlook

EFFECTIVE January 27, 2020

The sense of calm and upward momentum in stocks that characterized the first three weeks of January 2020 has come to an abrupt end. The culprit is a rapidly spreading coronavirus emanating from the capital city of Wuhan in the Hubei province of China. Cases of the Wuhan coronavirus have now also been reported around the world, notably in Japan, France, Australia, Canada and the U.S. According to NBC, the virus has caused moderate to life-threatening pneumonia in approximately 2,900 people, with the death toll climbing to 82 (as of January 27). China has placed travel restrictions around at least 15 cities in Hubei and extended the Lunar New Year break from January 30 to February 2, in an effort to prevent a further spreading of the disease.

Given the news, investors are concerned that the Wuhan coronavirus is on the verge of going from an epidemic to a pandemic, denting global economic activity in the process. This risk is being discounted in stock prices and currency values, with the MSCI China Index down 6% from its highs (in U.S. dollars) and the offshore Chinese Renminbi falling approximately 1.6% versus the U.S. dollar. Gold is up approximately 2% to USD$1,579 an ounce. People still remember the SARS1 outbreak of 2003 well – another coronavirus originating from China – which caused 774 deaths across 17 countries and had a fatality rate of 9.6%.

The Wuhan coronavirus is an example of a “Black Swan” risk – one with a very low probability of occurrence but large negative impact (if the virus were to spread globally). At Cougar Global, we explicitly model the impact of such risks in our probability of Chaos over the next 12 months, which currently stands at 6%.

We did not increase the probability of Chaos in response to the Wuhan coronavirus, as we are encouraged by the rapid response of the Chinese authorities – and coordination of world governments – to contain the outbreak.

The situation is of course fluid and we are monitoring the risks to economic activity from any new developments. Our probability of Growth over the next 12 months in the U.S. stands at 5%, Inflation at 3%, Stagnation at 82% and Recession at 4%.

We made some changes to our portfolios in the third week of January 2020. In our Conservative and Conservative Growth mandates, we increased our allocation to Emerging Markets via IEMG by 5% and 10%, respectively, sourcing our allocations from short-term Treasuries. In our Moderate Growth and Growth mandates, we increased our allocation to Chinese stocks via ASHR – a unique Exchange Traded Fund that allows us to access the mainland Chinese stock market. Recall that earlier in January, we increased our allocation to gold across our mandates, which has rallied and helped performance over the last week.

Our thesis for investing in Emerging Markets and mainland Chinese stocks is twofold. First, the reduction of trade tensions due to the recent phase one U.S.-China trade deal significantly improves the intermediate-term prospects of emerging market currencies and financial markets. Second, as China liberalizes its financial sector and markets to allow more foreign competition as part of the trade deal, MSCI has been including Chinese A-shares in its broader emerging market indices. Combined with China’s steady economic growth, the influx of foreign capital should serve as a tailwind to mainland Chinese stocks, which trade at a significant discount to global stock markets. For example, the Shanghai Shenzhen CSI 300 Index currently trades at a forward price to earnings (P/E) multiple of 9.8 vs. 15.2 for the MSCI All-Country World Index. Mainland Chinese stocks also exhibit a low correlation to global stock markets, providing us with an opportunity to diversify our equity exposure and portfolio.

On the U.S. political front, polls show that Senator Bernie Sanders has surpassed former Vice President Joe Biden as the frontrunner in the race to be the 2020 Democratic presidential nominee. This is a noteworthy development for investors, as we believe a President Sanders – a democratic socialist – is likely to be less friendly towards U.S. corporations and their bottom lines than President Trump. Concerning the latter’s impeachment trial in the Senate, according to the New York Times, former U.S. National Security Advisor John Bolton revealed that President Trump explicitly told him that aid to Ukraine was tied to political investigations into democrats. This news increases the likelihood that certain Republican senators will vote to request testimony from John Bolton and others during the impeachment trial, thereby extending the trial and allowing new evidence to be submitted.

1Severe acute respiratory syndrome

Abe Sheikh, FSA MAAAChief Investment Officer and Portfolio Manager

Global Tactical Strategy Conservative

Global Tactical Strategy Conservative Growth

Global Tactical Strategy Moderate Growth

Global Tactical StrategyGrowth

2%10 % 5 %

83% 63%

15 %

2% 5 %

15 % 25 %

55%

18 %25%

30%

33%

2% 10%

30%45%

8% 2%

15 %

MACRO ECONOMIC Scenario Analysis

ASSET ALLOCATION Shifts

Dec. MES as of Dec. 24, 2019Current MES as of Jan. 14, 2020

GROWTH

5%CURRENT

7%

DECEMBER

-2%

INFLATION

3%CURRENT

3%DECEMBER

0%

STAGNATION

82%CURRENT

78%DECEMBER

+4%

CHAOS

6%CURRENT

8%

DECEMBER

-2%

RECESSION

4%CURRENT

4%DECEMBER

0%

On a monthly basis, the Cougar Global investment team establishes the probabilities of the future path of the U.S. economy over the next 12 months and quantifies its independent global research into the following five scenarios:

Asset Class Symbol PreviousMonth

Current Month* Change** Previous

MonthCurrent Month* Change** Previous

MonthCurrent Month* Change** Previous

MonthCurrent Month* Change**

U.S. Large Cap IVV 5 5 0 10 10 0 20 20 0 15 15 0

U.S. Small Cap IJR 0 0 0 5 5 0 5 5 0 5 5 0

Nasdaq 100 QQQ 0 0 0 0 0 0 0 0 0 10 10 0

Developed International IEFA 5 5 0 5 5 0 15 15 0 25 25 0

Emerging Markets IEMG 0 5 5 0 10 10 5 5 0 5 5 0

China A-Shares ASHR 0 0 0 0 0 0 0 10 10 0 15 15

TOTAL EQUITIES 10 15 5 20 30 10 45 55 10 60 75 15

U.S. Aggregate Bonds AGG 54 54 0 48 48 0 30 20 -10 18 3 -15

U.S. 1-3 Year Treasury Bonds SHY 19 19 0 15 5 -10 0 0 0 0 0 0

U.S. Short-Term Treasury Bonds SHV 10 0 -10 10 0 -10 10 0 -10 10 0 -10

High Yield Corporate Bonds HYG 5 10 5 5 10 5 8 13 5 0 5 5

TOTAL FIXED INCOME 88 83 -5 78 63 -15 48 33 -15 28 8 -20

Cash CASH 2 2 0 2 2 0 2 2 0 2 2 0

Gold IAU 0 0 0 0 5 5 5 10 5 10 15 5

GoldCashTotal Fixed Income Total Int'l EquityTotal US Equity

*Reflects trades made on 1/17/2020 and 1/24/2020**Total allocation change from 12/24/2019 to 1/24/2020

DISCLOSURES An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks: non-diversified, the risks of price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking error. All investments are subject to risk. Asset allocation and diversification do not ensure a profit or protect against a loss. There is no assurance that any investment strategy will be successful or that any securities transaction, holdings, sectors or allocations discussed will be profitable.Cougar Global Investments calculates the Macro Economic Scenario (MES) analysis by assigning probabilities to each of the five economic scenarios (Growth, Stagnation, Inflation, Chaos and Recession) over the next 12 months. Macroeconomic scenarios are based on quantitative data sourced from various firms and then weighted and may be adjusted based upon Cougar Global Investments thought capital. MES are subject to change. These are hypothetical examples and are not representative of any specific situation. Actual economic results may vary. Economic forecasts set forth may not develop as Cougar MES indicates and there can be no guarantee that these strategies promoted will be successful. Past performance is no guarantee of future results. Macro Economic Scenarios: Growth – U.S. economy is growing at or above its potential growth rate, Recession – U.S. economy is shrinking (negative quarter over quarter growth rate), Stagnation – U.S. economy is growing at lower than its potential growth rate, Inflation – Consumer Price Index (CPI) inflation rate is higher than U.S. economy’s potential growth rate, Chaos – a high impact, low probability event (“Black Swans”). Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Mid-capitalization companies are subject to higher volatility than those of large-capitalized companies. International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Stock investing involves risk, including the risk of loss. Investments in emerging market issuers are subject to a greater risk of loss than investments in issuers located or operating in more developed markets. This is due to, among other things, the potential for greater market volatility, lower trading volume, higher levels of inflation, political and economic instability, greater risk of a market shutdown and more governmental limitations on foreign investments in emerging market countries. High Yield/Junk Bonds are not investment grade securities, involve substantial risks and generally should be part of the diversified portfolio of sophisticated investors. Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity and redemption features. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Mortgage-Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extensions risk, the opposite of prepayment risk, and interest rate risk. Investing in IAU involves additional risks. The market price of the Shares will be as unpredictable as the price of gold has historically been and the price received upon the sale of Shares may be less than the value of the gold represented by them.Government bonds and Treasury bills are guaranteed by the U.S. Government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. The fund’s concentrated holding will subject it to greater volatility than a fund that invests more broadly. The fast price swings of commodities will result in significant volatility in an investor’s holdings. Precious metal investing is subject to substantial fluctuation and potential for loss. All indexes mentioned are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. The indexes don’t reflect charges, expenses, fees and is not indicative of any particular investment. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. The MSCI ACWI® (All Country World Index) measures the performance of large and mid-cap stocks across 23 developed markets (DM) and 24 emerging markets (EM) countries. The Bloomberg Barclays Global Aggregate Bond Index is a flagship measure of global investment grade debt from 24 local currency markets. The Russell 1000® Growth Index refers to a composite that includes large and mid-cap companies located in the United States that also exhibit a growth probability. The Shanghai Shenzhen CSI 300 Index is a free-float weighted index that consists of 300 A-share stocks listed on the Shanghai or Shenzhen Stock Exchanges.Cougar Global optimizes portfolios in US dollars for four risk categories. GTS – Conservative (formerly MAR 6) may be suitable for clients who have accumulated sufficient wealth to begin making regular withdrawals for income requirements while potentially achieving investment returns sufficient to preserve capital over a full investment cycle. GTS – Conservative Growth (formerly MAR 8) may be suitable for clients who may have occasional income needs and are willing to take moderate downside risk to achieve investment returns GTS – Moderate Growth (formerly MAR 10) may be suitable for clients who have a long term investment horizon and can tolerate downside volatility in the course of a market cycle. GTS – Growth (formerly MAR 12) may be suitable for clients who have a long term investment horizon and can tolerate higher downside volatility in the course of a market cycle. The conversion dates from sub-advisors to ETFs are April 30, 2008, for GTS - Conservative; February 29, 2008 for GTS – Moderate Growth; and October 31, 2007 for GTS – Conservative Growth. As of December 31, 2008, Cougar Global stopped using sub-advisors.This research material has been prepared by Cougar Global Investments. Opinions and estimates offered constitute Cougar’s judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. Under no circumstances does the information contained within represent a recommendation to buy, hold or sell any security and it should not be assumed that the securities transactions or holdings discussed were or will prove to be profitable. All holdings are subject to change daily. In March 2018, Abe Sheik was name co-CIO. In October 2018, Dr. James Breech stepped down from his role as co-CIO and Abe Sheik was name CIO. The investment process and philosophy remains unchanged.About Cougar Global Investments: Cougar Global Investments Limited (Cougar Global) is an investment manager that utilizes tactical asset allocation to construct globally diversified portfolios. Effective 4/30/15, Cougar Global was acquired by Raymond James Financial, Inc. (NYSE:RJF) and in 2016 Cougar Global became an affiliate of Carillon Tower Advisers, Inc., a wholly owned subsidiary of Raymond James Financial, Inc. Prior to 4/30/15, Cougar Global was an independent investment management firm not affiliated with any parent organization. Cougar Global is registered as a Portfolio Manager with the Ontario Securities Commission (OSC) and with the United States Securities and Exchange Commission (SEC) as a Non-Resident Investment Advisor. Prior to 01/02/2013, the firm was named Cougar Global Investments LP.

ABOUT COUGAR GLOBAL Investments Cougar Global Investments is a globally oriented macro asset-class portfolio manager that uses a disciplined portfolio-construction methodology which combines macroeconomic analysis with downside-risk management. Cougar Global Investments guiding belief is that the goal of investing is to generate consistent compound growth, primarily achieved by seeking to minimize loss.

ABOUT CARILLON TOWER AdvisersCarillon Tower Advisers is a global asset-management company that combines the exceptional insight and agility of individual investment teams with the strength and stability of a full-service firm. Carillon Tower Advisers and partner affiliates – ClariVest Asset Management, Cougar Global Investments, Eagle Asset Management, Reams Asset Management (a division of Scout Investments) and Scout Investments – offer a range of investment strategies through multiple vehicles in order to help investors meet their long-term business and financial goals.

AN AFFILIATE OF CARILLON TOWER ADVISERS

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