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 These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Investing involves risk and principal loss is possible. Bond investors should carefully consider risks such as interest rate, credit, default and duration risks. Greater risk, such as increased volatility, limited liquidity, prepayment, non-payment and increased default risk, is inherent in portfolios that invest in high yield ("junk") bonds or mortgage-backed securities, especially mortgage-backed securities with exposure to sub-prime mortgages. Generally, when interest rates rise, prices of fixed income securities fall. Interest rates in the United States are at, or near, historic lows, which may increase exposure to risks associated with rising rates. Investment in non-U.S. and emerging market securities is subject to the risk of currency fluctuations and to economic and political risks associated with such foreign countries. In general, alternative investments involve a high degree of risk, including potential loss of principal; can be highly illiquid and can charge higher fees than other investments. Hedge strategies and private equity investments are not subject to the same regulatory requirements as registered investment products. Hedge strategies often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets. Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment. Past performance does not guarantee future performance. This material is not an offer, solicitation or recommendation to purchase any security. Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. 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. The Russell 1000© Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. The Russell 2000© Index measures the performance of the small-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 3000© Index: Measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. Barclays Emerging Market Bonds Index includes fixed-and floating-rate USD-denominated debt from emerging markets in the following regions: Americas, Europe, Middle East Africa, and Asia. For the index, an emerging market is defined as any country that has a long term foreign currency debt sovereign rating of Baa1/BBB+/BBB+ or below, using the middle rating of Moody’s, S&P, and Fitch. Barclays U.S. Aggregate Bond Index is an index, with income reinvested, generally representative of intermediate-term government bonds, investment grade corporate debt securities, and mortgage-backed securities. Bloomberg Commodity Index Total Return: Composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position. FTSE EPRA/NAREIT Developed Real Estate Index is a global market capitalization weighted index composed of listed real estate securities in the North American, European and Asian real estate markets. The Russell Developed ex-US Large Cap Index offers investors access to the large-cap segment of the developed equity universe, excluding securities classified in the US, representing approximately 40% of the global equity market. This index includes the largest securities in the Russell Developed ex-US Index. Russell Emerging Markets Index: Index measures the performance of the largest investable securities in emerging countries globally, based on market capitalization. The index covers 21% of the investable global market. The Russell Global Index measures the performance of the global equity market based on all investable equity securities. The index includes approximately 10,000 securities in 63 countries and covers 98% of the investable global market. All securities in the Russell Global Index are classified according to size, region, country, and sector, as a result the Index can be segmented into more than 300 distinct benchmarks. The Russell Global Large Cap Index measures the performance of the largest securities in the Russell Global Index, based on market capitalization. The index includes approximately 3,000 securities and covers 86% of the investable global market. The S&P 500© Index is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500© are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ. Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes. Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide and is a subsidiary of London Stock Exchange Group. Copyright © Russell Investments 2015. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty. RFS 16241
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