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Year of the “Black Swan”? Covid-19 Spreads, Democrats Feel the Bern and U.S. Tech Goes Parabolic

OUTLOOK & TACTICAL UPDATE | February 2020

MANAGER Outlook

EFFECTIVE February 25, 2020

The novel coronavirus emanating from China – or COVID-19 – is sparking concerns of a global pandemic. Infections have spiked in South Korea and Iran, and Italy has reported more than 200 cases (and at least 6 deaths). The worldwide death count from COVID-19 has reached 2,628, with almost 80,000 people infected (as of February 24, 2020). Global stocks are pricing these rising risks, with the MSCI All-Country World Index down almost 5% in less than two weeks and down 1.5% this year (in U.S. dollar terms). Despite a very strong dollar, gold is on an epic run, up 9% in this year and now trading at $1,650 an ounce.

In our view, the main catalyst for higher gold prices is likely to come from rising risks associated with a recession (the yield curve has inverted once again) and rock bottom interest rates.

Our portfolios have benefitted significantly from our exposure to gold since purchases in June 2019 and early January 2020, and we believe there is still upside.

The financial markets are also pricing in the potential impact of a President Bernie Sanders (if he were to win). Senator Sanders won the popular vote in the Iowa caucus, and also won the New Hampshire and Nevada caucuses convincingly. While the Democratic primary has a ways to go, Real Clear Politics’ polls suggest that Senator Sanders has gained a commanding lead over former Vice President Joe Biden. Further, another poll by Real Clear Politics shows Senator Sanders with a 4.6-point advantage in a head-to-head match with President Trump. Few question that a President Sanders – a democratic socialist – would be less friendly towards U.S. businesses than President Trump. However, at least for the moment, the odds remain in favor of President Trump’s re-election. It is also worth noting that in order to enact new legislation, such as higher taxes, the Democrats would need to win the Presidency, U.S. Senate and House of Representatives in November 2020 – a rather low probability event.

Over the last year, the U.S. technology sector has been on a stellar run, gaining nearly 38%. The pace of gains appears to be unsustainable. For example, the U.S. technology and communication

services sector now supports a $10 trillion valuation and comprises 35% of the total U.S. stock market. To put this in perspective, the entire market capitalization of European1 stocks – which includes France, Germany, Netherlands, Spain, Italy, Finland, Belgium, Ireland, Austria and Portugal – is $7 trillion!

For financial market historians, it is worth noting that there have been two other notable instances over the last 30 years when the U.S. stock market has become concentrated in one sector. Unfortunately, both such instances were followed by sharp losses. The first is the dot com “bubble” of 2000, when the combined market share of U.S. technology and communication services stocks reached 37%. The second is the housing bubble of 2006/07, when U.S. financial and real estate stocks represented 22% of the S&P 500 Index. From peak to trough, the S&P 500 Price Index fell 49% following the first instance (dot com bubble) and 57% following the second (housing bubble).

Will this time be different? Perhaps. However, concentration of the stock market in one sector is not a healthy occurrence, as such an imbalance typically points to an unsustainable long-term trend. In the current environment, investors are extrapolating high revenue growth and very elevated profit margins for large U.S. technology companies well into the next decade. Were we to see any economic slowdown or – in a worse case scenario – a recession, stock prices would have to adjust significantly to a more sobering reality. As downside risk managers, we are particularly wary of current high expectations and the potential for disappointment going forward.

We did not change our 12-month economic outlook or portfolios in February 2020. We are closely monitoring and evaluating the developing economic risks emanating from COVID-19. For the month of February, our current 12-month U.S. economic outlook remains as follows: probability of Growth at 5%, Inflation at 3%, Stagnation at 82%, Recession at 4% and Chaos at 6%. Given our outlook, our portfolios remain defensively positioned, with elevated allocations to gold and bonds across mandates.

1As measured by the Eurostoxx Index

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

Jan. MES as of Jan. 14, 2020Current MES as of Feb. 20, 2020

GROWTH

5%CURRENT

5%

JANUARY

0%

INFLATION

3%CURRENT

3%JANUARY

0%

STAGNATION

82%CURRENT

82%

JANUARY

0%

CHAOS

6%CURRENT

6%JANUARY

0%

RECESSION

4%CURRENT

4%JANUARY

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 5 5 0 10 10 0 5 5 0 5 5 0

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

TOTAL EQUITIES 15 15 0 30 30 0 55 55 0 75 75 0

U.S. Aggregate Bonds AGG 54 54 0 48 48 0 20 20 0 3 3 0

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

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

TOTAL FIXED INCOME 83 83 0 63 63 0 33 33 0 8 8 0

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

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

GoldCashTotal Fixed Income Total Int'l EquityTotal US Equity

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 Eurostoxx50® Index provides a Blue-chip representation of supersector leaders in the Eurozone (covers Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain). The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P 500 Price index measures the performance of 500 widely held stocks in US equity market. Standard and Poor's chooses member companies for the index based on market size, liquidity and industry group representation.Cougar Global optimizes portfolios in US dollars for four risk categories. GTS – Conservative 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 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 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 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. 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 Investments is a wholly owned subsidiary of Raymond James International Canada which is a wholly owned subsidiary of Raymond James International Holdings. Raymond James International Holdings is a wholly owned subsidiary of Raymond James Financial as is Carillon Tower Advisers.. 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.

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