Markets in perspective – October 2015 in review

Capital Market Returns as of October 31, 2015 As of October 31, 2015. Sources: U.S. Equity: Russell 3000® Index; Non-U.S. Equity: Russell Developed ex-U.S. Large Cap Index; Emerging Markets: Russell Emerging Markets Index; U.S. Bonds: Barclays U.S. Aggregate Bond Index; Global REITs: FTSE EPRA/NAREIT Developed Real Estate Index; Commodities: Bloomberg Commodity Index Total Return; Hypothetical balanced portfolio: 30% U.S. Equity, 20% Non-U.S. Equity, 5% EM, 35% Bonds, 5% REITs, 5% Commodities. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

Key points on global market themes

Russell Investments’ strategists continue to expect market volatility when the U.S. Federal Reserve eventually raises interest rates. But in their view, global equity markets should remain supported over the medium term if the U.S. economy continues to post moderate growth. The full 4th quarter update to the Global Market Outlook update can be found here. Following is Russell Investments’ Chief Investment Officers’ views of the key themes affecting market performance in October 2015. All data is as of October 30, 2015. For further information, please see the disclosures section below.

EQUITIES

1. China fears fade More positive manufacturing numbers out of China helped ease investors’ concerns about China’s economic slowdown. Global equity returns (represented by the Russell Global Equity Index) were strong for the month on the back of supportive European Central Bank (ECB) monetary policy, investor expectations of accommodative policy by year-end and a more positive interest rate outlook in the U.S. 2. Risk back on After the third quarter, where we saw extreme risk off sentiment and return dispersion across the board, the recovery seemed to be more broad-based in October. It was a very volatile month for market leadership. By month-end, dynamic stocks moderately beat defensive stocks and growth was marginally ahead of value. From a market cap perspective, large cap equities significantly outperformed small cap equities, which were left behind in the bounce back. By the end of October, emerging markets had improved from their August lows, ending October up 7.9%. 3. Sector leadership reverses1 After a strong run recently, utilities, consumer staples and financials were among the worst performing sectors in October. Meanwhile, materials, energy and technology stocks were best the performers for the month.

FIXED INCOME

1. Central bank expectations diverge U.S. government yields increased while European and emerging market yields decreased due to continued expectations of divergent central bank policies. In the U.S., sentiment improved for a December Fed rate increase. Investors have priced in a 50% probability of a rate hike. 2. China fears fade After a material sell-off in the third quarter due to concerns about China’s growth and commodities, October brought a strong global rally in investment grade and high yield credit. Also, we saw more aggressive spread tightening in the energy sector relative to the broader credit market in October. 3. Currency moves Emerging markets and commodity currencies did well relative to the U.S. dollar as oil prices stabilized.

ALTERNATIVES

1. Equities rally Following strong performance in the last quarter, REITs and infrastructure posted positive returns, although they slightly lagged equities. Within REITS and listed infrastructure, Asia and emerging markets led with the strongest rebounds. Rapid risk reversals in developed and emerging market equities caught some hedge fund managers off guard and, thereby, reduced their upside potential. 2. Dispersion of returns Within REITs, the healthcare sector struggled, while the lodging sector outperformed. For infrastructure, utilities lagged with below average returns. Ongoing REITs privatization activity reflected pricing dislocation between the public and private markets. 3. Commodities relatively muted Energy fell for the second month (-3.3%) despite a small gain from oil (+2.6%). Natural gas was the worst performer (-13.5%) in the index as a mild winter and ample inventory pressured prices. U.S. oil production has declined considerably from its peak in April. This trend is expected to continue and, thereby, significantly lower current global surplus. However, Saudi Arabia and Iraq increased production in an effort to retain market share. Agriculture markets were mixed with some down slightly due to strong harvest.

Asset Class Dashboard – October 2015

The October reading of the Asset Class Dashboard continues to show 12-month returns for most asset classes trading at the lower end of their “Typical Range” of historical returns. The only outlier was Commodities, still performing below its historical “Typical Range.” After a strong October rally, most equity asset classes’ current positions improved, bouncing off the bottom end of their ranges. The biggest positive moves were Non-U.S. Equity, Global Equity, and Large Cap U.S. Equity. Asset Class Dashboard October 2015 Large cap U.S. equity: Russell 1000® Index, Large cap Defensive U.S. equity: Russell 1000 Defensive Index, Large cap dynamic U.S. equity: Russell 1000 Dynamic Index, Small cap U.S. equity: Russell 2000 Index, Non-U.S. Equity: Russell Developed ex-U.S. Large Cap Index, Global equity: Russell Developed Large Cap Index, Emerging markets: Russell Emerging Markets Index, Commodities: Dow Jones – UBS Commodity Total Return Index, Global infrastructure: S&P Global Infrastructure Index, Global real estate: FTSE EPRA/NAREIT Developed Index, Cash: Citigroup 3-Month U.S. Treasury Bill Index, Global high yield bonds: Bank of America Merrill Lynch (BofAML) Global High Yield Index, Emerging markets debt: JP Morgan Emerging Markets Bond Index Plus, U.S. bonds: Barclays U.S. Aggregate Bond Index. How do I read this chart? This dashboard is intended as a tool to set context and perspective when evaluating the current state of a sample of asset classes. The ranges of 12 month returns for each asset class are calculated from its underlying monthly index returns. The stated inception date is the first full month of an index's history available for the dashboard calculation. Here is how to read the graphic on this page: FOR EACH INDICATOR, THE HORIZONTAL BAR SHOWS FOUR THINGS A GRAY BAR shows the full range of historical rolling 12-month returns for a sample of asset classes. A BLUE COLOR BAND represents the typical range (one standard deviation away from the mean, i.e. 68% of historical observations) of rolling 12-month returns for these asset classes. AN ORANGE MARKER represents the most recent 12-month return of the asset classes. A WHITE LINE within the blue bar represents the mean of the historical observations.
1 Sectors represented by Russell 1000® Index Utilities, Financials, Consumer Staples, Materials, Energy and Technology sectors.

All data is as of October 30, 2015 unless otherwise noted.

Corresponding indexes/sources by section, with in the "Key Points on global market themes":

Equities

• Styles represented by Russell 1000® Dynamic Index, Russell 1000® Defensive Index, Russell 1000® Growth Index, Russell 1000® Value Index. • Sectors represented by Russell 1000® Index Utilities, Financials, Consumer Staples, Materials, Energy, and Technology sectors • Emerging markets represented by Russell Emerging Markets Index.

Fixed Income

• Investment grade bonds represented by Barclays U.S. Corporate Investment Grade Index and Barclays Euro-Aggregate: Corporates Index • High yield represented by Barclays U.S. High Yield Index and Barclays Global High Yield Index • Emerging market debt represented by Barclays EM USD Aggregate Index

Alternatives

• REITs represented by FTSE EPRA/NAREIT Developed Real Estate Index • Infrastructure represented by S&P Global Listed Infrastructure Index • Hedge fund strategies data as observed across third party managers by Russell Investments • Commodities represented by Bloomberg Commodities index

• Oil represented by WTI crude prices