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Citi Wealth Outlook 2023

Citi Global Wealth Investments Roadmap to recovery: Portfolios to anticipate opportunities

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Citi Global Wealth Investments CONTENTS UNSTOPPABLE TRENDS 3.1 The transformative power of unstoppable trends 51 FOREWORD 4 3.2 A greater separation between East and West: OVERVIEW G2 polarization intensifies 55 3.3 Energy security is vital 59 1.1 From the desk of the CIO: Our Wealth Outlook 2023 6 3.4 Deepening digitization 64 1.2 Roadmap to recovery: Markets lead, the economy follows 10 3.5 Digitization and the growth in alternative investments 68 1.3 Expect the unexpected: How we might be wrong 18 3.6 How unstoppable trends are redefining 1.4 Outlook Watchlist 2023 23 real estate 72 1.5 Better long-term returns ahead 25 3.7 Seeking to boost portfolio immunity with healthcare 77 PUTTING YOUR CASH TO WORK IN A HIGHER RATE ENVIRONMENT REGIONAL ASSET CLASS PREVIEWS 2.1 It is time to put excess cash to work 30 4.1 Asia: Broader re-opening to enable 2.2 Pursuing portfolio income with short-term bonds 33 regional recovery 82 2.3 Why dividend grower “tortoises” 4.2 Europe: Bracing for winter recession 88 may be core holdings 39 4.3 Latin America: Selective opportunities 2.4 Why capital markets are more important amid cheap valuations 93 than ever 42 4.4 North America: The hunt for quality and yield 98 2.5 Alternative investments may enhance cash yields 45 GLOSSARY 104

Citi Wealth Outlook 2023 - Page 3

slowing growth, international conflict and an intensified Foreword US-China tech rivalry. For the first time in decades, equities and fixed income suffered significant falls simultaneously, alongside alternative asset classes. While 2023 will still have its share of challenges, we also see it as a year of change and opportunity. In the US, we expect a mild recession, with regions such as the eurozone being more heavily impacted. As inflation subsides, we see the US Federal Reserve pivoting from interest rate hikes to cuts and markets shifting focus to 2024 recovery, unlocking more potential opportunities for investors. As the markets continue to swing, timely guidance has become even more valuable. Our insights help us engage in deeper client conversations and create strategies that achieve your investment objectives. The value of keeping JIM O’DONNELL portfolios fully invested remains increasingly important – CEO of Citi Global Wealth market timing can come at a great cost, as turning points Welcome to Outlook 2023, our annual publication that often arrive with little warning. sets out our expectations and key investment themes For your convenience, we have also created helpful for the coming year and beyond. This edition, “Roadmap summaries, including Findings & Opportunities and a new to recovery: Portfolios to anticipate opportunities,” version of this publication in just two sides. highlights steps that we believe you should consider to help seek returns. We look forward to continued partnership and success in the new year. Investing over the past year has come with its challenges and uncertainties due to inflation, monetary tightening, Citi Global Wealth | 4 Investments

Citi Global Wealth Investments CONTENTS 1 Overview 1.1 From the desk of the CIO: Our Wealth Outlook 2023 1.2 Roadmap to recovery: Markets lead, the economy follows 1.3 Expect the unexpected: How we might be wrong 1.4 Is your portfolio ready for a year of change and opportunity? 1.5 Better long-term returns ahead

1.1 FROM THE DESK OF THE CIO: Our Wealth Outlook 2023 For investors, 2022 will not be missed. The year presented a series of firsts and worsts. The tragic war in Ukraine hugely distorted global food and energy supply chains, further emphasized the divide between the US and China – see A greater separation between East and West: G2 polarization intensifies – and accelerated the onshoring of critical business infrastructure. The Fed instigated its fastest set of interest rate increases ever. In doing so, it responded to the inflation it caused by adding excessive liquidity to counteract the effects of the pandemic. As the safe- haven US dollar strengthened, goods almost everywhere else became more expensive, adding to global central bank tightening pressures. These are all sources of instability. In this environment, equities and bonds declined in tandem by the most ever in 2022, with joint losses of about 20% at the low point. DAVID BAILIN Cash outperformed almost every asset class. As we look ahead, Chief Investment Officer however, we need to remember that markets lead economies. The and Global Head of Investments poor market returns of 2022 anticipate the economic weakness Citi Global Wealth we expect in 2023 – see Roadmap to recovery: Markets lead, the economy follows. Citi Global Wealth overview | | 6 Investments

Citi Global Wealth overview | | 7 Investments We believe that the Fed’s rate hikes and shrinking bond portfolio have been First, though, we need to get through a recession in the US that has not stringent enough to cause an economic contraction within 2023. And if started yet. We believe that the Fed’s current and expected tightening will the Fed does not pause rate hikes until it sees the contraction, a deeper reduce nominal spending growth by more than half, raise US unemployment recession may ensue. The most recent inflation data and Fed minutes above 5% and cause a 10% decline in corporate earnings. The Fed will likely suggest that the Fed is aware of these risks. Yet Fed policymakers’ tendency reduce the demand for labor sufficiently to slow services inflation just as toward excess gives us pause as we plan for 2023. high inventories are already curtailing goods inflation. With perfect hindsight, sitting out 2022 would have been worthwhile. But The relative health of corporate and personal balance sheets has delayed to think that way is dangerous for wealth preservation and creation. One an economic downturn, for now. Household borrowing is sustaining growth year is just a “moment” in the lifetime of a portfolio. Sidestepping the presently, but this dissaving is likely unsustainable, especially given financial pandemic and war-laden past three years would have been a major mistake market and real estate price deflation. Also, when short-term rates are for equity investors. Between December 2019 and November 2022, the S&P higher, there is a natural bias to deferring purchases. 500 Index rose 25% and the MSCI World 15.4%. For 2023, we reiterate the fundamental wisdom of keeping fully invested portfolios – see for example, It We remind investors that over the past 100 years, no bear market associated is time to put excess cash to work. with a recession has bottomed before the recession has even begun. (Of course, there is a first time for everything.) We believe that the current bear Remember, the world economy is highly adaptive and resilient. So too market rally is based on premature hopes that the recession will not occur – are markets. a so-called “soft landing” – and that there will not be a meaningful decline in corporate earnings. Thinking about 2023 Second, we need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a Markets in 2023 will lead the economic recovery we foresee for 2024. sustained economic recovery in China, whose prior regulatory policies and Therefore, we expect that 2023 may ultimately provide a series of current COVID policies curtail domestic growth. meaningful opportunities for investors who are guided by relevant Third, we need to see the Fed truly pivot. Ironically, when the Fed does finally market precedents. reduce rates for the first time in 2023 – an event that we expect after several negative employment reports – it will do so at a time when the economy is already weakening. We think this will mark a turning point that will portend the beginning of a sustained economic recovery in the US and beyond over the coming year.

Citi Global Wealth overview | | 8 Investments Higher returns may be on the horizon If the economy does go into a mild recession, the US yield curve will initially invert more deeply. We can imagine thus that longer duration bonds may After the big drop in valuations in 2022, our 10-year return forecasts – or perform well at the stage. After this stage, we would look to redeploy assets “strategic return estimates” (SREs) – have risen. A year ago, our strategic more widely. asset allocation methodology pointed to annualized returns for Global Equities over the coming decade of 6.1%. Today, that stands at 10%. SREs Broadening equity exposures for Private Equity and Real Estate are higher still. Likewise, the Global Fixed Income SRE has climbed from 3.7% to 5.1%. Even Cash now has an SRE of In the near term, we believe equities in companies with strong balance 1 3.4%, up from 1.5% – see Better long-term returns ahead. sheets and healthy cash flows will provide investors with greater portfolio resilience – see Why dividend grower “tortoises” may be core holdings. A “sequence of opportunities” We expect that as 2023 progresses, opportunities to increase portfolio risk While no one can know the precise timing and sequence for selecting will evolve. Once interest rates peak, we will likely shift toward non-cyclical investments globally at a time of significant uncertainty, we think that there growth equities. These have already repriced lower, and we expect them to are numerous data points to suggest that a potential set of opportunities will begin performing once more before cyclicals. Among non-cyclical growth arise in 2023. equities are many exposed to our Unstoppable Trends – see Deepening digitization. Subsequently, early in the recovery period, we will also seek Ahead of the expected recession, we are committed to selectivity and a reentry opportunity in cyclical growth industries, as value equities may quality. This begins with fixed income, which we believe offers genuine prosper when supply pipelines are unable to meet revived demand. portfolio value now for the first time in several years. Short-duration The dollar could continue rallying for longer than fundamentals justify. US Treasuries present a compelling alternative to holding cash. For US Overshoots have been a characteristic of prior periods of dollar strength. investors, municipal bonds also seek better risk-adjusted after-tax returns. Around a durable dollar peak, we will look to add more non-US equities Broader investment-grade bonds offer a range of higher yields at every and bonds. maturity. And loans in private markets – think private equity lending – offer larger yield premiums with lower loan-to-value ratios than at any time since 2008-09. 1 Source: Citi Private Bank Global Asset Allocation team. 2023 SREs are based on data as of 31 Oct 2022. Global Equity consists of Developed and Emerging Market Equity. Global Fixed Income consists of Investment-Grade, High-Yield and Emerging Market Fixed Income. Strategic Return Estimates are in US dollars; all estimates are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Strategic Return Estimates are no guarantee of future performance. Citi Private Bank Global Asset Allocation Team. SREs for Mid-Year 2022 are based on data as of 30 Apr 2022. Returns estimated in US dollars. Strategic Return Estimates (SRE) based on indices are Citi Private Bank’s forecast of returns for specific asset classes (to which the index belongs) over a 10-year time horizon. Indexes are used to proxy for each asset class. The forecast for each specific asset class is made using a proprietary methodology that is appropriate for that asset class. Equity asset classes utilize a proprietary forecasting methodology based on the assumption that equity valuations revert to their long-term trend over time. The methodology is built around specific valuation measures that require several stages of calculation. Assumptions on the projected growth of earnings and dividends are additionally applied to calculate the SRE of the equity asset class. Fixed Income asset class forecasts use a proprietary forecasting methodology that is based on current yield levels. Other asset classes utilize other specific forecasting methodologies. Each SRE does not reflect the deduction of client advisory fees and/or transaction expenses. Past performance is not indicative of future results. Future rates of return cannot be predicted with certainty. The actual rate of return on investments can vary widely. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index. SRE information shown above is hypothetical, not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. See Glossary for definitions.

Citi Global Wealth overview | | 9 Investments Alternative investments As we look ahead to 2023, it is a time for pragmatism and practicality. There has been no economic period like this one, buffeted by the collective impact In our view, 2023 will potentially be a great vintage for alternative of a pandemic, a war and a highly reactive Fed. That said, we maintain investments. Higher interest rates have caused a repricing of private our realistic view that the world will see businesses improve the lives of assets amid much higher borrowing costs. As such, specialist managers customers across the world. For example, we believe that the climate will be able to deploy capital into areas of distress and illiquidity – see challenges will ultimately be addressed and provide fuel for profits along Alternative investments may enhance cash yields. Across the venture the way – see Energy security is vital. We believe that the post-pandemic capital industry, capital is now being deployed more judiciously and at more period will accelerate the development of new treatments for disease and favorable valuations for investors – see Digitization and the growth in new tools to prevent future calamities – see Seeking to boost portfolio alternative investments. immunity with healthcare. We believe that new global macro realities will present opportunities to reshape supply chains and alliances. And we also For real estate, a higher bar is now in place for new investment across believe that a return to a “new normal” is the likeliest outcome for the global almost all markets and property types. We see this as a favorable backdrop economy – though not the only one. for real estate investors in 2023 – see How unstoppable trends are redefining real estate. Our strategic return estimates in these areas are now It has been a great honor to work with a highly capable team in our Office materially higher than they were just a year ago when interest rates were of the CIO these last years as we provide you, our valued clients, with much lower, indicative of how much value may be earned over time by taking insights designed to make your lives better as we make your portfolios illiquidity risk when others are less willing to do so. more resilient. Wishing us all a better, healthier and peaceful 2023. Toward a new normal with new risks Over the past six months, we have written about the “little fires” burning DAVID BAILIN across the globe.2 No one knows how or when the war in Ukraine will end. Chief Investment Officer and We cannot be sure of China’s trajectory given its election of like-minded Global Head of Investments leadership. And we certainly do not know what political events will unfold Citi Global Wealth in response to the recession itself, as governments will lack the resources needed to support individuals and companies as they did through the pandemic. In short, markets today are assuming that none of these little fires grow bigger or come together in an untimely way – see Expect the unexpected: How we might be wrong. That itself means that investors need to think of “sequencing” as a useful investing discipline. 2 The Squeeze Is On - CIO Strategy Bulletin, Citi Global Wealth Investments, 9 Oct 2022

1.2 Roadmap to recovery: Markets lead, the economy follows We expect global growth will deteriorate for some of 2023. Markets will then increasingly focus on the recovery that lies beyond. We enter the year defensively positioned but expect to pivot as a sequence of potential opportunities unfolds. STEVEN WIETING Chief Investment Strategist and Chief Economist ƒ The Fed’s cumulative monetary tightening will likely stifle the world economy no later than mid-2023 ƒ For portfolios now, we remain cautious, seeking returns through high-quality equities and bonds, as well as capital markets and alternative strategies for suitable investors ƒ Markets will start focusing on 2024’s recovery sometime in 2023, enabling us to take greater investment risks across a variety of asset classes ƒ As interest rates peak, we would expect to shift first to quality growth equities in non-cyclical industries ƒ A 10% decline in broad corporate profits in 2023 should hit many cyclical industries before any recovery takes hold ƒ As unemployment rises, we expect the Fed to reverse course by the second half of 2023, with fixed income yields dropping ƒ The US dollar’s bull market could overshoot even higher, but chances are building of non-US assets and currencies finding a “deep value bottom” in 2023 ƒ While Fed drama has distracted many investors, we call for renewed attention on the unstoppable trends transforming the world economy Citi Global Wealth overview | | 10 Investments

Citi Global Wealth overview | | 11 Investments The post-COVID economic boom of 2021 has FiGUre 1. How THe Cov iD SHoCK HAS DiSTorTeD GrowTH AND iNFLATioN given way to a bad “hangover” as we head into 2023. As with any day-after pain, today’s 25% Post WWII CPI-U Real US GDP headache will not last. But many investors find boom it difficult even to imagine recovery. We believe 20 "Great inflation" change for the better will come in 2023, even as 15 WWII Korean OPEC COVID, e War embargo Ukraine markets face challenges along the way. g n a 10 Vietnam Gulf War Growth and inflation were never destined to Ch War 5 stay in their previous narrow ranges given the % COVID shock and war in Ukraine – FIGURE 1. /Y 0 Much of today’s economic distortion derives Y from unusual disruptions to supply and vast, -5 unpredictable swings in demand. Aggregate Arrows show historically wide range demand stimulus was not the right medicine -10 for these problems. Stimulating demand '40 '47 '54 '61 '68 '75 '82 '89 '96 '03 '10 '17 '24 without stimulating supply generates painfully Source: Haver, as of 29 Sep 2022. high inflation. Chart shows year-on-year (%) changes in consumer price inflation and real US GDP, with arrows around the 2020-2023 period to denote historically One way to avoid compounding a hangover is to wide ranges in real GDP. stop drinking. Tightening fiscal and monetary policy is the economic equivalent of that. US FiGUre 2. FiSCAL AND MoNeTArY reSTrAiNT reTUrN federal spending has fallen 11% year to date, for example – FIGURE 2. Real consumer goods 150% spending has fallen about 1% in 2022 to date Reserve bank credit outstanding with the bulk of Fed monetary tightening’s 125 impact yet to come. The slowdown in consumer e 100 g spending and the sharp rise in goods inventories n 75 a will put the brakes on global trade growth and Ch50 corporate profits in 2023 – FIGURE 3. % 25 /Y 0 Y -25 -50 Federal outlays '72 '77 '82 '87 '92 '97 '02 '07 '12 '17 '22 Source: Haver, as of 29 Sep 2022. Chart shows US Federal spending and Federal Reserve credit Y/Y%.

Citi Global Wealth overview | | 12 Investments FiGUre 3. SoAriNG iNveNTorieS, weAKeNiNG TrADe AHeAD We expect a global recession in 2023 – FIGURE 4. Indeed, the 1.7% annual global growth we expect is likely to be weakest in forty Recession Real manufacturing & trade Nominal retail 25% years outside of the Global Financial Crisis year of 2009 and the COVID shutdown year of 2020. 20 Among the major economies, the eurozone and 15 the UK are likely to come out worst, with full- year contractions of 0.5% and 1% respectively 10 as they contend with sky-high energy costs, as 5 well as policy tightening. 0 China looks to be one year ahead of the US and -5 may provide some diversification to portfolios in the years to come. Amid weak labor markets and % change year-on-year-10 a real estate crisis, the world’s second-largest -15 economy is already in monetary easing mode. After two dismal years, we expect low Chinese -20 profits to rise along with expanding money '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 supply, just as US profits and money supply contract. However, its near-term prospects rely Source: Haver, as of 29 Sep 2022. on the ongoing relaxation of its strict COVID Chart shows year-on-year percentage changes in real manufacturing and trade inventories and nominal changes in retail inventories. Gray shaded measures and continued support for its nascent areas are recessions. real estate recovery – see Asia: Broader re- opening to enable regional recovery. FiGUre 4. reAL GDP AND CiTi GLoBAL weALTH iNveSTMeNTS’ ForeCASTS With the US likely entering a mild recession and Citi Global wealth investments unemployment probably exceeding 5%, we see the greatest surge in inflation as largely behind real GDP Forecasts (Updated as of August 2022) us in 2022. That said, US inflation is unlikely 2020 2021 2022 2023 2024 to reach pre-COVID norms in 2023. We see it China 2.4 7.5 3.5 4.5 4.0 retreating to 3.5% by end-2023 and 2.5% by US -3.4 5.7 1.6 0.7 2.0 end-2024, while averaging higher during those calendar years. Our estimates are unchanged eU -6.5 5.3 3.0 -0.5 1.0 despite our reduced economic growth forecasts UK -9.3 7.4 3.4 -1.0 1.0 since June 2022 and slow recovery expectation Global -3.2 5.7 3.3 1.7 2.3 for 2024. Source: Citi Global Wealth Office of the Chief Investment Strategist assumptions, as of June 24, 2022. Chart shows real GDP changes in percentage for China, the US, EU, UK and world between 2020 and 2024, with forecast data from 2022 onward. All forecasts are expressions of opinion, are subject to change without notice are not intended to be a guarantee of future events. Indices are unmanaged.

Citi Global Wealth overview | | 13 Investments The Fed has not been able to end recessions What might mark the bottom for markets amid reports of falling inventories. Such datapoints quickly once underway. However, it does have a the coming recession? As usual, producers will will be among the preconditions for recovery. history of frequent policy reversals. In the past overreact to demand weakness, cutting output Earnings per share will likely only follow equities 45 years, peak policy rates have been sustained too far. Within several months of that moment, higher, with the past lag having been about six for only seven months on average before cutting the “excessive caution” will be followed by months – FIGURE 5. rates. If the Fed can soon find a balance between the excessive easing of 2021 and the rapid tightening it has “rhetorically” encouraged in FiGUre 5. eArNiNGS Per SHAre BoTToM LATer THAN MArKeTS 2022, it might avoid amplifying financial and economic excesses. EPS estimate MSCI World AC (6-month lead) 90% Positioning for a year of 70 challenges and change r 50 Across 2022, investors braced for the forecast a e 30 2023 recession. The resulting bear market is r-y well underway, although incomplete. A new bull e v 10 market has never begun before a recession has r-o even started. Most typically, a bull market begins a -10 e at around the mid-way stage of a recession. Y The very strong communications of the Fed’s -30 intentions and a year of bearish anticipation may see markets bottom somewhat sooner -50 than usual. However, as of late November 2022, -70 a recessionary decline in employment and corporate profits has not even begun. '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23 Within 2023, we expect investors to start discounting 2024’s recovery. Only twice in the Source: Haver, as of 30 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes past century – including the Great Depression only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. – did US equities take more than two calendar All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. years to find a lasting bottom. But further losses might still come first.

Citi Global Wealth overview | | 14 Investments FiGUre 6. DoLLAr reACHiNG HiSToriC eXTreMeS The US dollar may overshoot 140 In the coming environment, we look for an end to the US dollar’s mighty ascent. This period of strength has been its third such secular bull market since it began floating freely in 1971 – 130 FIGURE 6. However, there is a risk that it will overshoot, rising for longer than is justified by fundamental drivers. There are precedents for such an overshoot. 120 While the Fed began easing during the 1982 recession, the dollar continued rising sharply until 1985. And the currency’s strength persisted through much of 2002, despite the 2001 tech 110 bubble burst. The US experienced an asset bubble-induced recession in 2001. Despite sharp declines in real 100 interest rates and a dramatic drop in equity valuations during the period, the US dollar Dollar Index (Jan 2006 = 100) continued to rise through much of 2002. Given this, predicting a peak in the US dollar is 90 tricky. We feel confident in our view that US and global equities will find a bottom and US rates a peak. Nevertheless, present circumstances suggest a peak value for the dollar – and trough 80 values for major currencies – will be reached in 75 80 85 90 95 00 05 10 15 20 the coming year. This will have lasting positive implications for returns in non-US assets for Source: Haver, as of 30 Oct 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes many investors for years to come. only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. Chart shows US dollar index between 1973 and 2022. Gray areas represent US recessions.

Citi Global Wealth overview | | 15 Investments A possible path through: FiGUre 7. oUr PoTeNTiAL “GLiDe PATH” For 2023 opportunities now, THE GLIDE PATH THROUGH 2023 opportunities later In the year of challenges and change that we expect, we see various potential opportunities for investors. A sharp fall in valuations across FEDERAL RESERVE FED HALTS MARKET ANTICIPATES ECONOMY many markets have driven up our ten-year RAISES RATES TO RATE RISES RECOVERY BOTTOMS strategic return estimates – see The brighter 4.75-5.0% (AND EVENTUALLY CUTS) long-term outlook for asset classes. On a tactical view, the opportunities may present themselves in a sequence, some sooner and others later. In early 2022, rapidly rising interest rates created uncertainty for valuing any financial asset. The rough doubling in POSITIVE EMPLOYMENT US AND GLOBAL government bond yields over the past year has TURNS TO NEGATIVE RECESSION UNDER- THE DOLLAR boosted higher quality fixed income yields to EMPLOYMENT WAY BEGINS TO FALL a more appropriate level for the first time in several years. Given a slowing cyclical backdrop, we see a stronger potential opportunity for fixed income assets within overall portfolio construction and to earn income on excess cash – see Pursuing portfolio income with short- term bonds. In the environment we expect, US 10-year Treasury yields may end 2023 at 3.0%. Heading into 2023, we believe defensive equities may perform best near term and we remain Source: CGWI Office of the Chief Investment Strategist, as of October 11, 2022. All forecasts are expressions of opinion, are subject to change overweight US dollar assets. By contrast, we without notice, and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. remain cautious on Europe and Japan. However, we note that most non-US equities’ poor performance in 2022 was owing to collapsing local currencies rather than local returns falling. This may start correcting in 2023 as peak fear and peak policy divergence with the US sets in – FIGURE 8.

Citi Global Wealth overview | | 16 Investments If so, long-lasting income-producing assets in Although the valuations of many innovative such as cybersecurity and green tech – Energy Europe, Japan and others might be bought companies and sectors are under pressure, security is vital. By contrast, at the end of the at unusually depressed values – see Europe: there is no fundamental change in their “dot-com” bubble in the early 2000s, both Bracing for winter recession and Asia: Broader prospects. While there were many distortions in valuations and fundamentals unwound very re-opening to enable regional recovery. Just as the COVID economy, we do not expect a global sharply together. a single example, German REITs have returned reduction in expenditures in essential areas negative 40% in US dollar terms in 2022 and now yield 12%. If Europe were to recover half of its losses of the past two years, the annualized FiGUre 8. US DoLLAr SUrGe CoULD reverSe AFTer overSHooT return would be 19% in US dollars, even assuming no change in REITs’ price. Country/region YTD return (local ccy) YTD return (USD) YTD FX return (vs USD) For many cyclical industries, however, a Brazil 7.7 12.5 4.8 bottom may occur late in 2023. Before then, US -15.9 -15.9 0.0 economic weakness will depress interest rates. Switzerland -13.7 -17.7 -4.0 Industry-leading growth equities may bottom Canada -3.3 -9.1 -5.8 before cyclicals, however. We also look for the China (A shares) -22.1 -30.9 -8.8 recessionary conditions to create potential europe -7.3 -16.7 -9.4 opportunities for certain alternative strategies – see Alternative investments may enhance Australia 4.8 -5.0 -9.8 cash yields. Korea -19.1 -29.2 -10.1 We continue to focus on what drives economic india 3.5 -5.7 -9.1 growth over time and generates real investment Taiwan -18.6 -27.8 -9.2 returns. Apart from population growth, real UK 5.6 -8.0 -13.6 economic growth is entirely determined by Japan 0.5 -18.6 -19.0 innovation. Developing new tools or better processes leaves us with means to create Source: Haver, as of 24 Nov 2022. more output per person. Money – what central Table shows the performance of various national equity markets in local currency terms, US dollar terms and the contribution to return of foreign banks give and take away – provides us none exchange movements. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do of it. In general, the information technology not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. and healthcare sectors have capitalized most on innovation and enjoyed the most potent demographic forces to drive superior long-run returns – FIGURES 9 AND 10. We explore these in How unstoppable trends are redefining real estate and Digitization and the growth in alternative investments.

Citi Global Wealth overview | | 17 Investments FiGUreS 9 AND 10. iT AND HeALTHCAre’S wHAT To Do Now? GrowiNG iMPorTANCe While investing in 2022 was deeply challenging, any one year IT Recession Share of EPS Share of Mkt Cap represents a mere “moment” in the lifetime of a portfolio. And even 40% though the economic environment in 2023 may prove to be difficult, 35 the greatest risk at times like these comes not from enduring the turbulent conditions but from trying to avoid them by market timing. 30 025 Given the high probability of recession in the US and elsewhere in 0 2023, we enter the year with a defensive asset allocation, albeit fully 5 20 &P invested. However, as 2023 unfolds we will take a dynamic approach S15 to tactical asset allocation. As markets ultimately find a bottom, f our positioning is set to evolve toward equities and alternatives that o 10 % anticipate a recovery. 5 As a first step toward building portfolios for the year ahead and 0 beyond, investors should assess their present positioning. To help our '85 '90 '95 '00 '05 '10 '15 '20 existing clients in this review, our Outlook Watchlist report can review HEALTHCARE your exposure to key sources of potential risk and return, including 20% our long-term investment themes. We can then discuss actionable 18 strategies to help you adjust your allocation for the coming year and 016 beyond. Please note this is not available to prospective clients at 0 this time. 5 14 &P12 Outlook 2023 is your roadmap to understanding the route to economic S f recovery. Let us be your partner and guide on this road to recovery. o10 %8 6 4 '85 '90 '95 '00 '05 '10 '15 '20 Source: FactSet, as of 21 Nov 2022. Charts show the rising trend of the market capitalization and earnings per share for the IT and healthcare sectors, expressed as a % of the total S&P 500 Index. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary.

1.3 Expect the unexpected: How we might be wrong While we expect recession in 2023, it STEVEN WIETING could be deeper than we expect – or not Chief Investment Strategist and Chief Economist happen at all. We consider this and other risks to our views in both directions. ƒ Monetary tightening amid ongoing supply shocks will likely hurt economic growth in 2023, albeit with inflationary pressure diminishing ƒ Self-reinforcing, 1970s-style inflation would force key central banks to drive a much harder economic landing than we expect ƒ But if inflation fades quickly, the US economy particularly has a small chance of avoiding recession ƒ US-China military escalation or a complete breakdown of trade relations are major if improbable risks for the world economy ƒ Issues over Russia’s oil exports and Ukraine’s agricultural exports could still cause disruptions ƒ A large-scale cyberattack also could potentially create widespread economic damage ƒ In the face of all these and other risks, we advocate globally diversified asset allocation, in line with your specific investment objective Citi Global Wealth overview | | 18 Investments

Citi Global Wealth overview | | 19 Investments The past three years have seen both the fastest including WWII have not caused turning points in on “unlicensed” US citizens from working for pace of economic contraction on record and economic activity – FIGURE 1. Chinese firms in producing advanced chips. the fastest recovery. The period has also seen a new ground war in Europe on a scale not But what about the exceptions? World War II was As COVID-related supply chain disruptions seen since World War II, with nuclear warnings a grave catastrophe for humanity that deserves highlight, there are acute vulnerabilities in from global leaders for the first time since the special consideration. That conflict aside, the the trade of intermediate products such as 1980s. Relations between the US and China are OPEC oil embargo of late 1973 catalyzed a world- semiconductors. Disruptions could hamper a critically important to both sides yet precarious. wide recession and higher consumer prices at much larger share of the economy than the In short, this is not an environment in which to the same time. value of individual components might imply. The have overly confident views. world’s vast dependency on Taiwan-sourced The present Russia-Ukraine war – along with semiconductors represents such a concentrated In response to nuclear rhetoric from Russia, the first Gulf War of 1990 and Iraq-Iran war supply risk in our view – FIGURE 2. President Biden drew parallels with the Cuban beginning in 1980 – has strong similarities to Missile Crisis. The 35-day standoff in October- the OPEC embargo shock. Each of these events November 2022’s meeting between Presidents November 1962 arose when the USSR sought to had significant negative regional impacts and Biden and Xi helped boost confidence that station nuclear weapons on the island just 90 some notable global effects. Importantly, central neither side seeks immediate escalation – see miles (145 km) from the US mainland. It stands banks have never been able immediately to Asia: Broader re-opening to enable regional as a powerful example of binary geopolitical risk. offset the inflationary impact of supply shocks recovery. The world can only hope that the G2 It is widely regarded as the closest the world has no matter what their hoped-for inflation targets superpowers continue to prevent their strategic come to nuclear warfare since the end of World might have been. competition from evolving into conflict. War II. The leaders of the US and USSR pulled back The risk of overlapping shocks If inflation persists from the doomsday scenario. Subsequently, the world economy grew strongly between 1963 and Today, we worry about overlapping shocks and Massive fiscal and monetary stimulus in 1969. The US economy grew an average 4.3% the willingness of the US to pursue multiple response to the COVID shock tested the global annually during the period, including a recession problems at the same time, creating “joint economy’s “speed limit.” Policymakers took that began fully eight years later. With one probability risk.” Monetary tightening, strategic too much for granted, and inflation surged short bear market to endure, investors enjoyed competition with China and isolating Russia worldwide. Large shifts in demand within the strong equity market returns over most of the are all being pursued simultaneously, raising economy led to shortages of goods. Some remaining decade. the likelihood that a trigger event will cause consumers were willing to purchase these goods a cascade of impacts that ripple across world at much higher prices. Within the short period of grave nuclear risk markets and the economy. that could have ended very differently for all of Following a surge in goods prices and a humanity, US equities dropped less than 10% The decision of the US administration to limit temporary drop in employment, US consumers before regaining it all and more. So, what is the US content in China’s computing industry – turned their sights on labor-intensive services. lesson of the Cuban Missile Crisis for investors? particularly advanced semiconductor equipment Demand persistence – and a labor force still Among many conclusions, we would highlight – was expected. However, the extent of the suffering from COVID distortions – has had that 90% of geopolitical shocks since and US’ actions went much further than most second-order impact on wages. These have risen investors ever expected. It included prohibitions by the most on a per-person basis since the early 1980s.

Citi Global Wealth overview | | 20 Investments FiGUre 1. SeLeCTeD HiSTorY oF GeoPoLiTiCAL CoNFLiCTS, SHoCKS AND MArKeT reACTioNS S&P 500 (% since Nikkei (% since event date) MSCi world ex USA DXY Dollar index Geopolitical event Date event date) (% since event date) initial 30 days 90 days initial 30 days 90 days initial 30 days 90 days initial 30 days 90 days reaction reaction reaction reaction Cuban Missile Crisis 19 oct 1962 -3.78 7.61 17.16 JFK assasination 21 Nov 1963 -2.81 3.06 8.28 US bombs Cambodia 29 Apr 1970 -15.30 -6.43 -4.94 -15.93 -12.49 -7.64 -10.45 -17.01 -16.07 -0.20 -0.23 -0.51 Arab oil embargo 18 oct 1973 -16.23 -8.45 -13.04 -1.81 -1.44 -4.47 -14.68 1.96 -18.53 7.48 5.28 14.04 USSR invades 24 Dec 1979 -2.27 5.37 -7.78 0.57 2.63 0.68 3.94 3.94 11.85 -1.06 -0.71 5.91 Afghanistan US bombs Libya 15 Apr 1986 2.95 -1.39 0.16 3.09 3.73 16.08 0.00 6.19 8.16 -4.15 -4.80 -5.30 US invades Panama 15 Dec 1989 -2.06 -3.73 -3.43 0.63 -3.71 -14.63 0.00 3.67 -7.04 0.31 -1.69 -0.44 Gulf War 24 Dec 1990 -4.16 0.09 12.10 -6.95 -4.43 10.47 1.75 1.75 15.97 -0.21 -3.61 4.90 World Trade 26 Feb 1993 -0.31 1.67 2.04 -0.44 12.36 23.00 0.00 8.52 18.62 0.18 -1.15 -4.79 Center bombing 911 11 Sep 2001 -11.60 0.45 4.34 -6.28 1.48 3.68 -8.48 3.24 5.48 -1.08 0.29 1.85 US invades Iraq 20 Mar 2003 2.49 2.06 15.57 4.77 -1.02 12.94 1.53 4.58 22.05 0.84 -1.85 -7.89 NorTH KoreA-reLATeD Korean War 23 Jun 1950 -12.80 -8.67 1.20 Operation 18 Aug 1976 -3.15 1.64 -4.32 -0.75 -0.21 -4.52 0.00 -0.26 -7.60 0.07 -0.57 -0.12 Paul Bunyan 2009 nuclear test 25 Apr 2009 -1.28 5.09 13.05 -2.46 6.92 14.20 -2.32 12.28 21.21 0.52 -5.54 -7.04 2016 nuclear test 9 Sep 2016 -2.55 -0.81 2.97 -2.03 0.39 10.65 -2.06 -0.81 -0.72 -0.01 1.36 6.05 2017 escalation 7 Jul 2017 -0.24 -0.64 4.44 -0.30 -3.89 12.43 -0.26 -0.49 3.60 0.23 -1.22 1.62 PoLiTiCAL eveNTS Nixon/Watergate 15 Mar 1974 -1.72 -7.28 -8.04 -1.80 1.05 4.42 0.00 -2.57 -6.12 -1.04 -1.57 -2.12 Clinton 20 Aug 1998 -12.30 -6.20 5.59 -8.34 -11.66 -6.74 -12.75 -12.75 -6.37 -1.76 -5.18 -6.58 intern scandal Brexit 23 -2.30 4.30 3.72 -6.93 3.50 4.62 -5.31 -0.37 1.70 1.85 4.00 2.46 Jun 2016 Source: Haver, as of 14 Oct 2022. Table lists select geopolitical events since the Pearl Harbor attacks of 1941 until Russia’s invasion of Ukraine, and the associated initial, 30-day and 90-day performances of the S&P 500 Index, crude oil, the MSCI World Index ex USA and US dollar Index. Past performance is no guarantee of future results. Real results may vary. Indices are unmanaged. An investor cannot invest directly in an index. Index returns do not include any expenses, fees or sales charges, which would lower performance. They are shown for illustrative purposes only.

Citi Global Wealth overview | | 21 Investments FiGUre 2. US DePeNDeNCY oN iMPorTS oF TAiwANeSe SeMiCoNDUCTorS US labor markets today are more competitive and the economy is more open than in the 1000 1960s-1980s period. Nonetheless, many Fed 900 Recession policymakers fear inflation will develop “a life of 800 Taiwan exports of its own” and persist beyond the initial sources of semis to US instability. Indeed, if wages and services prices 700 beyond shelter costs fail to decelerate, the Fed n 600 would likely maintain a restrictive monetary b 500 policy deep into a US economic contraction and $ 400 with little regard for wider global impact. This 300 is the most likely path to a deeper economic contraction than we expect, and one that does 200 not depend on any new external shocks. 100 0'02 '05 '08 '11 '14 '17 '20 If inflation slows quickly Source: Haver, through 10 Nov 2022. Given our pessimistic near-term outlook, we Chart shows US imports of advanced technology from Taiwan, including semiconductors. Gray shaded periods denote recessions. must acknowledge upside risk to our views. Since early 2020, US employment has only grown 0.7%, far from a boom. Exogenous FiGUre 3. Fewer HoUSeS SoLD, Fewer CoNSTrUCTioN worKerS NeeDeD inflation – arising from a variety of outside shocks including pandemic impact and conflict- 1100 1400 driven trade disruptions – held the economy New single family back but this drag on consumer incomes is 1000 houses sold (right) 1200 already diminishing. While the most reliable long-term leading indicator of the US economy s 900 1000 s – the yield curve – is signaling recession for the d d coming year, no indicator is flawless. The near- n n a a term outlook is one of still-rising US employment s 800 800 s u u and falling inflation. This is a brief window for o o h h the Fed to “de-escalate” its tightening campaign. T 700 600 T Residential After all, unlike the 1970s-1980s period, inflation 600 constructions 400 expectations remain very contained. Price- employment (left) resistant consumers are likely to help the Fed 500 200 by reining in demand and will not assume wages will accelerate. '86 '90 '94 '98 '02 '06 '10 '14 '18 '22 Unfortunately, the most likely case for the Source: Haver, as of 24 Nov 2022. economy is one of both weakening growth and Chart shows new home sales in thousands compared to residential US construction employment in thousands, both series seasonally adjusted Gray slowing inflation. We believe the lagged impact shaded periods denote recessions. of the Fed’s very potent action to date will

Citi Global Wealth overview | | 22 Investments find its way into economic activity and trigger adjustable rates – the housing market of 2023 wHAT To Do Now? 1 an employment contraction within 2023. The doesn’t support the same level of employment – Fed is also tightening further and will continue FIGURE 3. While we do not have the same There are various major risks to the world shrinking its balance sheet until something detailed history of construction categories, economic outlook. The future could involve changes its policy. since the end of WWII, all periods of at least a many different outcomes, not just the year or more of broad construction employment one best expressed in our existing asset After a more than doubling of mortgage decline have seen total private employment drop allocation or where we expect to take it. As rates in the US in 2022 – and even more in – FIGURE 4. the COVID pandemic so brutally reminded some other economies with heavy reliance on us, major but improbable risks are always with us. We thus seek to preserve and FiGUre 4. wHeN CoNSTrUCTioN eMPLoYMeNT FALLS, So DoeS THe overALL grow wealth by way of a diversified asset JoBS MArKeT allocation rather than taking highly concentrated risks in pursuit of the highest Construction employment (left) Total employment (right) returns. While there are specific hedging techniques that your relationship team 20% 10% may recommend based on your suitability 15 8 and objectives, our analysis shows that 6 strong risk-adjusted returns over the 10 past 80 years have been earned from e 4 e g 5 g investment allocations including lowly n 2 n a a correlated or negatively correlated assets.2 Ch Ch 0 0 Such an allocation can be constructed % % around suitable risk and return objectives. /Y -5 -2 /Y Y -4 Y -10 -6 -15 -8 -20 -10 '47 '53 '59 '65 '71 '77 '83 '89 '95 '01 '07 '13 '19 Source: Haver, as of 24 Nov 2022. Chart shows percentage year-on-year changes in construction employment and total private industry employment between 1947 and 2022. 1 Haver, as of 20 Nov 2022 2 Our analysis is based on Adaptive Valuation Strategies, the Private Bank’s proprietary strategic asset allocation methodology that has a historical database dating back to 1926. Our analysis was performed at an asset class level using indices as a proxy for each asset class. For more details, please see https://www.privatebank.citibank.com/insights/a-new-approach-to-strategic- asset-allocation. All forecasts are expressions of opinion, are subject to change without notice are not intended to be a guarantee of future events. Past performance is not indicative of future returns.

While global growth is set to worsen for For current clients, our personalized Outlook some of 2023, we also expect markets Watchlist compares your portfolio to the Is your portfolio ready to start focusing on the recovery that allocation we recommend for you. And our lies beyond. Global Investment Lab’s wider range of tools We believe this calls for dynamic portfolios can highlight other potential opportunities to for a year of change that are ready to pivot as a sequence of prepare your portfolio for the years ahead. and opportunity? potential opportunities unfolds. This includes Please request your personalized Watchlist quality investments amid the present report from your relationship team today. uncertainty and exposure to the sources of long-term growth. 1/1 1/1 1/1 Citi Global Wealth | 23 Investments

Citi Global Wealth overview | | 24 Investments OUR POSITIONING DECEMBER 2021 DECEMBER 2022 Opportunities GLOBAL EQUITY -2.0% More defensive equities for the near term, including 6.0% dividend growers Developed Equities 1.7% -6.6% Quality short- to intermediate-term US dollar fixed income, such as Treasuries and investment-grade Large US 1.5% 0.5% rated corporates/munis/preferreds Large Developed ex-US 1.2% -2.1% Various “deep value” non-US dollar assets (such as income-producing real estate) once the US dollar peaks Developed Small- and Mid-Cap -1.0% -5.0% Tailored investments that take advantage of higher rates Thematic Equities 4.0% 3.0% and volatility to provide yield and/or market participation with embedded downside hedges Emerging Market Equities 0.3% 1.6% Tailored investments delivering immediate yield or exposure to markets at entry points below current spot prices GLOBAL FIXED INCOME -5.0% 1.0% Digitization, such as robotics, semiconductor equipment, cyber security, fintech and real estate Developed Investment Grade -8.0% 1.3% Strategies around e-commerce logistics, multifamily US Investment Grade 1.9% 11.7% homes and quality, sustainable offices Alternative strategies positioned for distressed lending/ Developed High Yield -1.5% -1.5% recapitalization Thematic Fixed Income 4.0% 2.0% Companies driving the transition to secure cleaner sources of energy Emerging Market Debt 0.5% -0.8% Healthcare equities, including pharmaceutical biologics, life science tools, value-based care and agetech Overweight Cash -1.0% -1.0% Potential beneficiaries of G2 polarization as supply Underweight chains are reconfigured, including sectors in India, Thematic Commodities: Gold 0.0% 2.0% Southeast Asia and Mexico Neutral Figures are active over- and underweights on our GIC Risk Level 3 Portfolio. Source: Office of the Chief Investment Strategist, as of 1 Dec 2022.

1.5 Better long-term returns ahead 2022 saw valuations fall across asset GREGORY VAN INWEGEN Global Head of Quantitative classes. This points to potentially higher Research and Asset Allocation, returns over the coming decade, according Citi Investment Management to our proprietary methodology. PAISAN LIMRATANAMONGKOL Head of Quantitative Research ƒ Our strategic asset allocation methodology and Asset Allocation, Citi Investment Management predicts higher returns over the decade ƒ Meanwhile, many investors are sitting on excess cash in their portfolios ƒ History suggests this is likely to prove a costly mistake over time ƒ Our Investment Philosophy calls for fully invested, globally diversified portfolios throughout economic cycles Citi Global Wealth overview | | 25 Investments

Citi Global Wealth overview | | 26 Investments Being an investor was very tough in 2022. A rare simultaneous selloff FiGUre 1. AvS’ LoNG-TerM oUTLooK For ASSeT CLASSeS across many risk assets and the highest quality government bonds meant diversification failed for a time. Put simply, there was almost nowhere 2023 2022 Mid-Year 2022 return to hide, as the final column in FIGURE 1 shows. However, this cloud has Sre * Sre a long-term silver lining. The broad-based declines have driven many Global equities 10.0% 8.3% asset valuations down to levels that imply more rewarding future returns, Global Fixed income 5.1% 3.7% according to our proprietary strategic asset allocation methodology. Developed Market equities 9.5% 8.0% -19.22% Adaptative Valuation Strategies (AVS) looks out over a ten-year horizon. It emerging Market equities 13.6% 10.5% -30.86% uses current asset class valuations to produce annualized return forecasts investment-Grade Fixed income 4.6% 3.4% -14.57% or “Strategic Return Estimates” (SRE) for the decade ahead. This is based High-Yield Fixed income 7.4% 5.2% -12.35% on the insight that lower current valuations have given way to higher returns over time, whereas higher valuations have been followed by lower returns. It emerging Market Fixed income 7.8% 6.0% -23.32% then allocates to each asset class according to its outlook for returns. Cash 3.4% 1.5% 1.42% Hedge Funds 9.5% 6.5% -6.68% For Global Equities, AVS has an SRE of 10.0% out to 2033 – FIGURE 1. Within Private equity 18.6% 15.7% -15.50% this, Emerging Market Equities – shares from economies such as China, India and Brazil – have an SRE of 13.6%. Developed Market Equities – shares from real estate 10.6% 9.4% -27.89% economies such as the US, most of Europe and Japan – have an SRE of 9.5%. Commodities 2.4% 2.0% 17.65% For context, the SRE for Global Equities in the middle of 2022 was 8.3%. Cheaper bond valuations also point to higher returns. Investment-Grade Source: Citi Global Wealth Investments Global Asset Allocation team. Fixed Income – which includes bonds from the most creditworthy sovereign 2023 SREs are based on data as of 31 Oct 2022. Global Equity consists of Developed and Emerging Market and corporate issuers – now has an SRE of 4.6%. This is up from 3.4% Equity. Global Fixed Income consists of Investment-Grade, High-Yield and Emerging Market Fixed Income. in mid-2022, mainly due to interest rate hikes which pushed bond yields Strategic Return Estimates are in US dollars; all estimates are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Strategic Return Estimates are no up globally. Despite selling off alongside equities in 2022, this asset class guarantee of future performance. Citi Private Bank Global Asset Allocation Team. SREs for Mid-Year 2022 has been less correlated to equities over time, helping investors to build are based on data as of 30 Apr 2022. Returns estimated in US dollars. Strategic Return Estimates (SRE) diversified portfolios. based on indices are Citi Private Bank’s forecast of returns for specific asset classes (to which the index belongs) over a 10-year time horizon. Indices are used to proxy for each asset class. The forecast for each The SRE for High-Yield (HY) Fixed Income – bonds issued by less specific asset class is made using a proprietary methodology that is appropriate for that asset class. Equity creditworthy corporate borrowers – has increased to 7.4%. Similarly, the asset classes utilize a proprietary forecasting methodology based on the assumption that equity valuations SRE for Emerging Market Fixed Income – bonds issued by emerging country revert to their long-term trend over time. The methodology is built around specific valuation measures that require several stages of calculation. Assumptions on the projected growth of earnings and dividends are governments and companies – has increased to 7.8%. The SRE for Cash has additionally applied to calculate the SRE of the equity asset class. Fixed Income asset class forecasts use a risen to 3.4%, meanwhile. proprietary forecasting methodology that is based on current yield levels. Other asset classes utilize other specific forecasting methodologies. Each SRE does not reflect the deduction of client advisory fees and/or In alternative asset classes, the SRE for Hedge Funds has risen to 9.5%. transaction expenses. Past performance is not indicative of future results. Future rates of return cannot be As at the mid-year stage, Private Equity remains the asset class with the predicted with certainty. The actual rate of return on investments can vary widely. This includes the potential highest SRE at 18.6%. This SRE is derived from small-cap public equity loss of principal on your investment. It is not possible to invest directly in an index. SRE information shown valuations, which are at historically cheap levels. By contrast, the SRE for above is hypothetical, not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can Real Estate has only edged up to 10.6%. completely account for the impact of financial risk in actual trading. See Glossary for definitions. * AVS SRE methodology was enhanced in 2022 and mid-year SREs reported reflect this enhancement.

Citi Global Wealth overview | | 27 Investments FiGUre 2: GLoBAL MULTi-ASSeT CLASS Having been the top performing asset class in 2022, Commodities are not DiverSiFiCATioN vS A CASH-HeAvY ALLoCATioN expected to do so well over the next ten years. Indeed, its SRE of 2.4% is the SiNCe 1985 lowest of the ten asset classes that AVS addresses, even below Cash. 31 Dec 1985 to 31 AvS risk Level Cash-heavy The perils of hoarding cash oct 2022 3 allocation allocation Developed Market equity 27% 34% The turmoil in 2022 has left many investors in a highly cautious mode. A emerging Market equity 5% - common reaction we encounter is holding large amounts of cash, perhaps investment-Grade 33% 33% as much as one-third of a total portfolio, with equal proportions in equities Fixed income and fixed income. And in fact, certain financial professionals, influenced by High-Yield Fixed income 3% - clients’ behavior, may be tempted to recommend such an allocation in the emerging Market Fixed income 3% wake of market shocks. How would such an allocation have performed over Cash 2% 33% time compared to one created by AVS? Hedge Funds 12% FIGURE 2 shows an AVS Global US dollar allocation at Risk Level 3. This is Private equity 10% intended for an investor seeking modest capital appreciation and capital real estate 5% preservation. Given this investor’s moderate appetite for risk, some Commodities 0% allocation to alternative and illiquid asset classes are suitable. ANNUALiZeD MeAN reTUrN 6.2% 3.9% The bottom two rows in FIGURE 2 show the hypothetical performance of ANNUALiZeD voLATiLiTY 9.0% 5.5% these two allocations over the past 37 years. Over the entire period, the AVS Risk Level 3 allocation would have outperformed the cash-heavy allocation portfolio by an annualized 2.3%. Hypothetically in dollar amounts, an initial Source: Citi Global Wealth Investments Global Asset Allocation team, as of 31 Oct 2022. investment of $1 million would have become $7.5 million for the Level 3 The performance of the AVS Global USD Risk Level 3 and the cash-heavy portfolio was calculated on an asset allocation, while the “cash-heavy” allocation would have grown to just $3 class level using indices to proxy for each asset class. million. That said, its volatility is also lower, at 5.5% versus 9.0%. However, 1 Net performance results for both portfolios reflect a deduction of 2.5% maximum fee that can be charged this is less risk than an investor at Risk Level 3 could take. As a result, they in connection with advisory services that covers advisory fees and transaction costs. Individuals cannot are inappropriately sacrificing performance potential by having too little directly invest in an index. The performance is for illustrative purposes only. risk exposure. 2 These are preliminary asset allocations for 2023. All performance information shown above is hypothetical, not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. For example, there are numerous factors related to the equities, fixed income or commodities markets in general which cannot be and have not been accounted for in the preparation of hypothetical performance information, all of which can affect actual performance. The returns shown above are for indices and do not represent the result of actual trading of investable assets/securities. The asset classes used to populate the allocation model may underperform their respective indices and lead to lower performance than the model anticipates.

Citi Global Wealth overview | | 28 Investments At moments of crisis, a cash-heavy approach FiGUre 3. GLoBAL MULTi-ASSeT DiverSiFiCATioN vS CASH-HeAvY ALLoCATioN has tended to outperform, but this can come AFTer THe GLoBAL FiNANCiAL CriSiS at great cost. For example, consider these two sets of allocations in August 2008, just before CUMULATIVE RETURN AFTER GFC 2008 the major selloff in risk assets – FIGURE 3. By the subsequent market lows seven months later 200% Recover from trough (March 2009), the cash-heavy approach would AVS Risk Level 3 have declined only by 17%, compared to 27% for Gain 10% the AVS Risk Level 3 allocation. However, after 180 Gain 30% this point, both began to recover and reached Gain 50% breakeven in 20 and 13 months respectively. 160 Thus, the AVS Risk Level 3 allocation recovered much faster than the cash-heavy allocation. Ten years later, the cash-heavy allocation would 140 have returned only 21%, compared to 50% for the AVS Risk Level 3 allocation. 120 Cash-heavy wHAT To Do Now? 100 Forecast 10-year returns have risen across 80 all asset classes, albeit in some cases more than others. Nevertheless, many investors are sitting on excess cash, whose 60 outlook has also improved from very low to modest levels. Our Investment Philosophy ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ‘21 ‘22 suggests this will prove an expensive mistake over time. We advocate fully Source: Citi Global Wealth Investments Global Asset Allocation team, as of 31 Oct 2022. invested, globally diversified portfolios for The performance of the AVS Global USD Risk Level 3 and the cash-heavy portfolio was calculated on an asset class level using indices to proxy for each the long term, aligned to an appropriate asset class. strategic asset allocation. 1 Net performance results for both portfolios reflect a deduction of 2.5% maximum fee that can be charged in connection with advisory services that Is your portfolio following a customized covers advisory fees and transaction costs. Individuals cannot directly invest in an index. The performance is for illustrative purposes only. long-term plan? 2 These are preliminary asset allocations for 2023. All performance information shown above is hypothetical, not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. For example, there are numerous factors related to the equities, fixed income or commodities markets in general which cannot be and have not been accounted for in the preparation of hypothetical performance information, all of which can affect actual performance. The returns shown above are for indices and do not represent the result of actual trading of investable assets/ securities. The asset classes used to populate the allocation model may underperform their respective indices and lead to lower performance than the model anticipates.

Citi Global Wealth Investments CONTENTS 2 Putting your cash to work in a higher rate environment 2.1 It is time to put excess cash to work 2.2 Pursuing portfolio income with short-term bonds 2.3 Why dividend grower “tortoises” may be core holdings 2.4 Why capital markets are more important than ever 2.5 Alternative investments may enhance cash yields

2.1 It is time to put excess cash to work Rising rates and volatile markets unsettled STEVEN WIETING Chief Investment Strategist investors in 2022. The new resulting and Chief Economist higher rate environment creates potential for seeking portfolio income. ƒ Difficult market conditions increased the temptation to sit on excess cash ƒ But 2022’s turmoil has also created more possibilities for putting cash to work ƒ Our expectation is for interest rates to peak and inflation to decline before long ƒ We favor various short-term US dollar–denominated bonds and dividend grower equities ƒ Suitable clients may consider select alternatives and capital markets strategies Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 30 Investments

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 31 Investments Seeking refuge from stormy conditions is a FiGUre 1. THe CoST oF MArKeT TiMiNG fundamental human instinct. When financial markets are in turmoil, this often manifests itself HYPOTHETICAL GROWTH OF 10,000 USD IN S&P 500 SINCE JAN 1990 as an urge to switch from risk assets to cash. After all, sitting on the sidelines in cash can help 50 $16,130 you avoid the emotions that come from seeing a big drawdown in your portfolio’s value. It can also give you hope of buying risk assets later at a lower price. 30 $35,715 In 2022, the temptation to sit in cash was powerful for many investors. A rare 10 $95,205 simultaneous selloff in equities and bonds – as well as in many other asset classes – made Missing top # days the environment especially difficult. Cash did $131,251 generate a small gain in nominal terms, making 5 it the year’s second-best performer of ten broad asset classes – see Better long-term Full returns ahead. Period $207,811 With recession likely in the US and elsewhere in 2023, heightened uncertainty looks set to persist for now. Nevertheless, we believe Source: Haver and Bloomberg, as of 29 Sep, 2022. Hypothetical performance results have many inherent limitations. The portfolio performance that holding excess cash is risky. History has and return information reflects the benefit of hindsight and does not reflect the impact that material economic and market factors might have had shown that trying to time an entry into the on decision making of the Investment Lab or its affiliates were actually advise an investor in investing in these investments or managing an actual portfolio. Since the trades of the simulated performance results have not actually been executed, the results may have under- or over-compensated markets almost always fails. One reason for for the impact of certain economic and market factors, such as lack of liquidity. Also, hypothetical trading cannot fully consider the impact of financial this is that missing out on the gains at the risk, such as ability to withstand losses. An investor‘s investment in an actual portfolio will be made in different economic and market conditions start of a market recovery can seriously dent than those applicable during the period presented. It should not be assumed that an actual investor portfolio will experience returns comparable to long-term performance. the portfolio performance and return information presented herein. As a result of market activity following the date of the period presented, current performance may be different from that shown herein. All forecasts are expressions of opinion, are subject to change without notice and are not Amid the uncertainty, we see various ways to intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative put cash to work and seek portfolio income. purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Indeed, we believe the conditions that made life Chart shows the hypothetical performance of a market timing investor. Had such an investor missed only the ten highest returning days in the S&P so challenging for investors in 2022 have also 500 Index since 1990 – a period encompassing almost 8,000 trading days – their overall return would have been less than half of that of an investor created potential opportunities. who stayed fully invested. The short-term comfort of holding cash at stressful moments comes at a disproportionately large cost.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 32 Investments The US Federal Reserve’s interest rate hikes FiGUre 2. HiGHer rATeS, BUT NoT For MoNeY MArKeT STrATeGieS in 2022 were the fastest in its history. This proved painful for many assets, but particularly 6.0 for growth equities and longer term bonds. Fed funds rate (upper target) However, the resulting higher interest rate US Money Market Fund rate environment has left certain yields looking 5.0 2yr US Treasury yield attractive once more. As FIGURE 2 shows, though, these are not to be found in money market funds. 4.0 When it comes to certain US dollar-denominated bonds, however, it’s a different story. Yields ) on a range of assets have risen to levels not % ( seen in some years. And with the interest rate 3.0 te hiking cycle perhaps nearing completion and Ra inflation set to retreat in 2023, we see potential for Pursuing portfolio income with short- and 2.0 intermediate-term bonds. We also favor dividend growth equities, those with a track record of growing shareholder 1.0 payouts throughout economic cycles. Over time, these consistent dividend equities have outperformed their more dynamic 0.0 “growth” counterparts, rather like the tortoise '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 beating the hare – see Why dividend grower “tortoises” may be core holdings. Source: Haver Analytics, as of 22 Oct 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to For suitable investors, we see potential for be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes seeking to turn equity market volatility into a only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which source of income – see Why capital markets are would lower performance. Past performance is no guarantee of future results. Real results may vary. more important than ever. Likewise, we set out the case for various private market strategies – see Alternative investments may enhance cash yields. Higher interest rates have reshaped the investment landscape. Do not assume you will get security from holding excess cash. Rather, this is a time for putting liquid resources to work.

2.2 Pursuing portfolio income with short-term bonds Yields have risen sharply across 2022. This BRUCE HARRIS has created income-seeking opportunities Head of Global Fixed Income Strategy in US dollar short-term issues. KRIS XIPPOLITOS Global Fixed Income ƒ Fed tightening has driven bond prices down sharply, Portfolio Strategist, driving short-term rates to their highest since 2008 Citi Investment Management ƒ We believe the peak of the Fed hiking cycle may be coming into view ƒ As such, 2023 could bring opportunities to add shorter term, less volatile US-denominated bonds to portfolios ƒ Potential opportunities include shorter term US Treasuries, investment-grade credit, munis and preferred securities Citi Global Wealth PUTTiNG CASH To worK iN A HiGHer iNTereST rATe eNviroNMeNT | | 33 Investments

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 34 Investments Yesterday’s bad news may be today’s FiGUre 1. FeD FUNDS rATe iMPLieD BY eUroDoLLAr FUTUreS opportunity. US dollar-denominated fixed income suffered its worst total return in many 6.0 decades in 2022. As of 22 November 2022, the Eurodollar Bloomberg US Aggregate Index total return for December yield the year was negative 13.3%, with sub-indices 2022 representing US investment-grade debt negative 5.0 2023 by 16.1%, US high yield shedding 11.2% and the US dollar-denominated emerging markets debt 2024 index 17.6% lower. Even US Treasury Inflation Protected Securities (TIPS) were down 12%. 4.0 In sum, fixed income investors had nowhere to hide. What caused the selloff? From a starting level ) % 3.0 ( of almost 0%, the Fed has raised its policy rates d 375 basis points (bps) in an effort to choke off l e i stubbornly high inflation, as of 3 November Y 2022. The market expects a bit more to come, 2.0 with the Fed funds rate seen ending 2022 at 4.5%. Potential additional hikes in 2023 would take the terminal rate – the peak of the rate- hiking cycle – to about 5.0%. 1.0 Unlike the Fed, the market has priced in a very brief stay at the terminal rate in 2023, followed by at least one rate cut by the end of 2023 – FIGURE 1. We believe the impact of 0.0 higher rates will hurt global economic growth May 21 Jul 21 Sep 21 Jul 21 Jan 22 Mar 22 May 22 Jul 22 Jul 22 Nov 22 as more cashflow goes to servicing debt, while also raising US unemployment as discretionary spending falls and sectors such as housing see a collapse in demand and construction. Source: Bloomberg, as of 21 Nov 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Chart shows the Fed funds rates for periods ahead as implied by Eurodollar futures contracts.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 35 Investments As the Fed funds rate is likely to be around 4.5% FiGUre 2. TreASUrY rATeS HiGH CoMPAreD To eXPeCTeD HeADLiNe iNFLATioN by the end of 2022, we think the rate-hiking 8 cycle will be nearing completion. As such, 2023 2yr US TIPS yield could bring a major opportunity to add shorter term, less volatile bonds to portfolios to lock in 6 peak interest rates. “Shorter term” in this case means any issues with four years to maturity or less, although this will depend on your overall 4 2yr US nominal investment objectives and suitability. If rates Treasury yield keep rising, longer duration bonds will suffer ) greater losses. % (2 d l The main reason we prefer shorter term e i instruments – in addition to their high historical Y 0 yields – is that typically mark-to-market losses experienced in these instruments will be earned back once the bonds repay at maturity. Below, -2 we present some alternatives to consider for investing in shorter term bonds. -4 US Treasuries '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 US Treasuries come in many different maturities, but the shorter maturities offer high rates by Source: Bloomberg, as of 21 Nov 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be recent past standards. Also, Treasuries offer a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only more liquidity and generally more yield than and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. bank certificates of deposit (CDs), which typically Chart shows the nominal yield on 2-year US Treasuries and the yield on 2-year US Treasury Inflation Protected Securities (TIPS). can pay 50-100bps less than the same maturity Treasury. In addition, US Treasuries of course are issued by the US government so, unlike bank CDs, do not carry credit risk. These nominally high risk-free US government rates are also high compared to expected headline inflation as measured by TIPS – FIGURE 2.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 36 Investments Investment-grade credit FiGUre 3. SHorT-TerM CorPorATe YieLDS HAve CLiMBeD SHArPLY Corporate bonds have higher rates than 10 Treasuries, depending on their relative credit 9 risk. From a repayment perspective, the least US Corporate risky of these would be short-term investment- 8 Bond (1-3yr) yield grade–related (IG) bonds issued by large, healthy companies with low levels of debt compared 7 to earnings. In contrast, lower rated high-yield bonds with higher levels of debt to earnings ) 6 generally have more repayment risk. The short- % term IG index comprises debt of 1- to 3-year ( 5 d maturities, with low average duration – or price l e sensitivity to interest rate changes – of about i Y 4 1.9 years. The IG index currently yields about 5.34%, almost 1% above comparable maturity 3 (i.e., 2 year) Treasury bonds – FIGURE 3. 2yr US Besides investing in an index, investors may 2 Treasury consider owning individual bonds, as there may 1 yield be higher yield levels on individual IG-rated bonds for investors who understand the credit 0 risk of the issuer. An index is an “average” of '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 yields, so today there are numerous examples of high-quality credits that pay above index yields. Source: Bloomberg, as of 21 Nov 2022. Past performance is no guarantee of future results. Real results may vary. Indices are unmanaged. An For example, many of the largest US banks investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific currently have bonds of less than three years’ investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. See Glossary for definitions. maturity that yield near or above 5%. For those Chart shows the yields on US short-term investment-grade corporate fixed income and 2-year US Treasuries. wishing to seek returns above those of the index, actively managed fixed income strategies are a wise consideration.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 37 Investments US municipals Historically, issuers have always refinanced not to return principal to investors, most of preferreds when interest rates were falling these securities – which were issued when rates For investors eligible for the tax advantages, rather than rising. As such, investors who were much lower – would see their coupons highly rated US municipals (“munis”) may be an received principal back today would have an either float or get reset at higher coupon levels. interesting short-term fixed income opportunity. opportunity to reinvest money back into the Preferreds can be bought both individually and Munis generally pay a “tax-equivalent yield” market at much higher yields. If issuers choose through funds. near the equivalent Treasury yield – FIGURE 5 – but sometimes that tax-adjusted yield can be FiGUre 4. MUNi YieLDS Are ATTrACTive For TAX-ADvANTAGeD iNveSTorS higher than Treasuries, as it was earlier this year. When that occurs, the tax-equivalent yield, especially for US taxpayers in high-tax states, 14 2yr AAA-rated muni yield (TEY) can offer similar yields to investment grade, for 12 government credit risk. Muni Swap Index yield (TEY) 2yr US Treasury yield Floating/short-callable 10 preferred securities ) 8 % ( Investment-grade preferred securities may d l e also add yield to portfolios, albeit with some i 6 Y additional risk. These securities are typically issued by banks, utilities and insurance 4 companies. If the issuer went into liquidation, preferred holders would rank below owners of the company’s senior debt but just above equity 2 owners when it came to repayment. By design, most global preferred securities 0 do not have a maturity date. However, most '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 variable-rate preferred securities have the right to return principal to a preferred investor on a Source: Bloomberg, as of 23 Nov 2022. Note: Tax-equivalent yields (TEY) adjust for top Federal and Affordable Care Act tax rate (40.8%). The pre-determined “call” date. What if the issuer SIFMA Municipal Swap Index is a 7-day investment-grade market index comprising tax-exempt VRDOs reset rates that are calculated weekly. All chooses not to call in the security and return forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of principal at that time? Future coupon payments any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no will either float in line with a benchmark such as guarantee of future results. Real results may vary. See Glossary for definitions. The information contained herein is not intended to be an exhaustive SOFR or would be reset at prevailing Treasury discussion of the strategies or concepts mentioned herein or tax or legal advice. Readers interested in the strategies or concepts should consult yields. The details depend on the issuer and the their tax, legal or other advisors, as appropriate. preferred involved. Chart shows the yields on municipal bonds and 2-year US Treasuries between 2000 and 2022.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 38 Investments FiGUre 5. US iG PreFerreDS YieLDS HAve CLiMBeD LATeLY wHAT To Do Now? 9 We believe that investors should review their asset allocations presently and consider adding highly rated short-term 8 fixed income securities to a diversified portfolio. These may offer high income 7 even after expected inflation, with low credit risk. In addition, should 6 opportunities arise in 2023 in other asset classes such as equities or lower ) IG Capital rated credit, short-term securities are % 5 typically liquid and can be sold quickly to ( Securities yield generate cash to redeploy into these new d l e (CIPS) potential opportunities. i 4 Y 3 2 5yr US 1 Treasury yield 0 '16 '17 '18 '19 '20 '21 '22 Source: Bloomberg, as of 24 Nov 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. See Glossary for definitions. Chart shows the yields for IG Capital Securities as represented by the ICE BofA US Investment Grade Capital Securities Index and 5-year US Treasuries.

2.3 Why dividend grower “tortoises” may be core holdings Consistently dividend-paying equities may JOSEPH FIORICA continue strongly into 2023. And while Head of Global Equity Strategy history points to weaker performance once investors anticipate economic recovery, we believe these income-producing assets should be considered for the long term. ƒ Dividend grower equities have outperformed growth and other styles amid 2022’s turmoil ƒ Historically, over the long run, such equities have also performed better than their growth counterparts, like the tortoise outpacing the hare ƒ Early-stage recoveries, however, are typically the one period of the cycle where the tortoise typically loses to the hare ƒ Given our outlook, we would expect a shift in equity market leadership at some point in 2023 but continue to see long- term value in dividend growth for core portfolios Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 39 Investments

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 40 Investments Amid 2022’s turbulence, the global equity tortoises. Since the start of 2022, however, the Quality equity income as a market offered few refuges. Aside from certain tables have turned. The world’s most consistent core portfolio allocation commodity-related sectors, equities broadly fell dividend growers had outperformed the MSCI as interest rates rose and earnings expectations AC World Index by 7% as of 1 December 2022. for 2023 wilted. In this environment, equity And high dividend yielders – companies with the On a multi-year view, dividends can be critical investors have prized current income from firms highest yields but without dividend growers’ to total returns – FIGURE 2. Over the past 90 with strong profits and a record of increasing track record of consistent payout growth – years, dividends have contributed nearly 40% payouts. They have favored such dividend- had outperformed by 8%. Likewise, dividend of total returns in the S&P 500 Index. Dividend growing “tortoises” over capital growth-seeking growers have delivered stronger returns than growth equities – as represented by the S&P “hares,” often speculative, early-stage ventures. the tech-laden Nasdaq Composite, wsignificantly Dividend Aristocrats Index – have outperformed less volatility – FIGURE 1. the S&P 500 over the past 30 years with lower Of course, this follows a prolonged period where volatility. Even after this year’s outperformance, the hares dashed ahead of dividend-growing dividend-paying equities still trade at a 19% discount to broader market indices. FiGUre 1: QUALiTY DiviDeNDS HAve oUTPerForMeD GrowTH SToCKS Seeking quality income, 180 not just high income 160 Nasdaq Not all equity income is created equal. We 0 140 believe quality equity income to be a core 0 1 allocation within a diversified portfolio. We = therefore not only seek out decent dividend 0 120 2 yields but also consider payout sustainability. 0 2 The best run companies generate enough free 100 S&P 500 Dividend Aristocrats n cash flow to increase dividend payouts while a J maintaining reinvestment in their operations. 80 Firms that find themselves forced to choose 60 between future business growth and current Feb 20 Aug 20 Feb 21 Aug 21 Feb 22 Aug 22 payouts face more skepticism, as few business models are sustainable without regular cash Source: Bloomberg, as of 23 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative injections to keep assets up to date while purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results retaining talent. may vary. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Chart shows the performance of the S&P Dividend Aristocrats vs Nasdaq since pre-pandemic peak.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 41 Investments FiGUre 2: THe CriTiCAL iMPorTANCe oF DiviDeNDS AND reiNveSTeD DiviDeNDS conditions may arrive at some point in 2023, so we cannot simply extrapolate dividend grower 4500 equities’ 2022 performance throughout 2023. 4000 True, we may see dividend grower “tortoises” S&P 500 total return continue to exhibit lower volatility and stronger 3500 performance for a time, particularly if a global recession takes hold next year. Thereafter, 3000 though, the most beaten-down parts of the 0 equity markets – including firms with less of 0 2500 a track record of dividend payments – could 1 = rally hard as investors anticipate an eventual 2000 8 corporate profits recovery. The hare may be 8 9 1 1500 poised for a comeback, in other words. 1000 500 wHAT To Do Now? S&P 500 price return At some point in 2023, we envisage early- 0 cycle dynamics taking hold. If so, high- '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 quality dividend growers may rally but less so than racier “hare” equities with high- growth characteristics, which have greater Source: Bloomberg, as of 24 Nov 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be rebound potential given the extent of their a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only selloff. We will likely shift our tactical asset and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would allocation in favor of such shares once lower performance. Past performance is no guarantee of future results. Real results may vary. we think conditions are right. Throughout Chart shows the performance of the S&P 500 Index since 1988 on a price and total return basis. the economic cycle, however, we believe clients seeking both portfolio income and A quality investment approach also focuses on The hare might surge principal growth should seek to maintain firm profitability, leverage and rate sensitivity, strategic allocations to quality dividend especially as higher interest rates will make ahead in 2023 payers throughout the economic cycle. debt costs more onerous in the years ahead. As always, qualitative factors like strong We have high conviction in dividend growers as corporate governance and quality management a core allocation. However, the one environment teams are additional considerations that are where this category tends to underperform is hard to quantify but often align with long-term immediately before and in the early stages of dividend sustainability. a new economic cycle. There is risk that such

2.4 Why capital markets are more important than ever Capital markets offer access to potential unique IAIN ARMITAGE opportunities in 2023. Global uncertainty has Global Head of Citi Global Wealth Investments Markets unleashed greater volatility across many asset classes. Some capital markets strategies seek to convert this volatility into a source of income. ƒ Owing to geopolitical, economic and COVID uncertainty, equity volatility is well above average ƒ Amid high inflation, sitting in cash waiting to buy after further equity declines risks loss of purchasing power ƒ Certain capital markets strategies enable seeking an income while waiting to buy in at lower levels ƒ We believe “getting paid to wait” can be an attractive opportunity in today’s environment Citi Global Wealth PUTTiNG CASH To worK iN A HiGHer iNTereST rATe eNviroNMeNT | | 42 Investments

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 43 Investments War in Eastern Europe, intensifying US-China FiGUre 1. THe New HiGHer voLATiLiTY reGiMe polarization, supply chain dislocation and pandemic aftershocks. Many of us sense that the VIX INDEX Volatility Average Average world is more uncertain today than it has been pre-COVID post-COVID for many years. And the truth is that financial markets reflect these concerns. 90 The volatility of the US stock market – as 80 measured by the VIX Index, the market’s estimate of expected volatility in the S&P 500 Index – averaged 15% between 2015 and 2020. 70 Since 2020, that number has risen to 24%, even after stripping out the extraordinary spikes in the early pandemic stages of March and June 60 2020 – FIGURE 1. y Such volatility extends beyond equity markets. ilit50 t As central banks have increased interest rates, la o fixed income markets and foreign exchange have V 40 reacted, with market volatility surging to levels not seen since before the global financial crisis in 2007-08. 30 The perception and reality of today’s volatility presents challenges for us as investors. When 20 is the right time to invest? What if I invest right before another move-down? Should I just stay in 10 cash for now? 0 2015 2016 2017 2018 2019 2020 2021 2022 Source: Bloomberg, as of 24 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. Chart shows the VIX Index between 2015 and 2022, with the average levels before and since COVID.

WHY CAPITAL MARKETS MATTER MORE THAN EVER Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 44 Investments Volatility as an investor wHAT To Do Now? opportunity In an uncertain market, strategies such as However, what if you could make this volatility “getting paid to wait” present a compelling work for you rather than against you? Consider proposition for suitable investors with two investors, Jack and Jill. Both Jack and Jill undeployed cash. With inflation at double- are keen to enter the equity market and have digit levels in many countries, the cost cash waiting on the sidelines to do so. Jack of holding cash has risen dramatically. anxiously watches the markets, hoping for the Investors who refrain from investing now market to drop to a level where he would like to for fear of a further leg down in equities buy. Jill, on the other hand, enters a strategy should consider the erosion of their cash’s where she gets paid an income on her cash while purchasing power. she waits, in return for potentially buying into Suitable investors seeking to increase their the equity market at lower than today’s level, equity exposure should consider their cash where she would be happy to have exposure. position and explore appropriate capital Six months later, the market has indeed markets strategies for putting it to work. dropped, and Jack invests. Jill automatically Such opportunities may offer above- buys at this level also, and they both have the average yields or the opportunity to gain same equity exposure that they initially wanted. exposures to markets at more attractive Jill, however, has income already banked. levels, a trade-off worth considering for sophisticated, suitable investors. But what if the market had never dropped and instead had gone up? Both Jack and Jill are left kicking themselves, as they have missed out on making their investments. But Jill can console herself, as she has income that she received as “payment for waiting,” as well as her originally invested cash. Jack simply rues his lost opportunity, having neither his desired equity exposure nor any income. 11

2.5 Alternative investments may enhance cash yields An indiscriminate selloff across fixed income may DANIEL O’DONNELL Global Head of have created potential opportunities in income- Alternative Investments generating alternative investments. For suitable investors, we believe certain strategies may offer MICHAEL YANNELL Head of Hedge Fund Research diversified ways to enhance portfolio income. ƒ The great bond selloff has expanded the universe of debt trading at stressed or distressed levels. ƒ Given difficulties in issuing fresh debt, some companies may have to find other ways to raise capital ƒ Forced selling of debt by certain holders creates potential opportunities for specialist strategies ƒ We believe managers specializing in credit underwriting, the ability to facilitate capital solutions, and those with distressed restructuring expertise may be best placed for opportunities Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 45 Investments

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 46 Investments While painful for traditional investors, we believe FiGUre 1. ProPorTioN oF HiGH-YieLD BoND AND LoAN MArKeTS iN DiSTreSS fixed income market turmoil in 2022 has created a favorable landscape for alternative managers going into 2023. Specifically, we see potential Bond default rate Loan default rate opportunities to take advantage of volatility, Bond forecast Loan forecast capital shortages and episodes of outright stress 18% and/or distress. Specialist managers will use 16 their expertise in underwriting new issues and pursuing event-driven strategies in both public and private credit markets. 14 Lately, the universe of debt trading at stressed and/or distressed levels has expanded – te12 FIGURE 1. This is a result of tighter central t ra l bank policy, restrictions on the deployment of u 10 bank capital, higher bond yields and widening fa credit spreads – the latter owing to recessionary de o 8 fears. We see this bond selloff as broadly m indiscriminate, with investors overlooking firm- 2 1 specific factors that may influence when and g n i 6 l how borrowers repay their outstanding debt. i a As a result, we believe that managers who have r T insight into issuer quality and potential capital 4 structure events – including refinancings, debt exchanges and outright restructurings – may be 2 able to generate strong total returns. Spooked by this shakeout and the uncertain 0 outlook for corporate profits, certain capital markets have largely closed to some companies wishing to raise capital. Issuance of high-yield 1/01 3/03 5/05 7/07 9/09 11/11 1/14 3/16 5/18 7/20 8/21 9/22 bonds and loans through the end of the third quarter of 2022 stood at just 78% and 61% below levels respectively in the same period Source: Citi Research, Citi Leveraged Loan Tracker, FTSE, as of 30 Sep 2022. All forecasts are expressions of opinion, are subject to change without in 2021 – FIGURE 2. Given such severe debt- notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown issuance constraints, many companies may need for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or to explore alternative ways of raising capital. sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. See Glossary for definitions. Chart shows the percentage of US high-yield loans and bonds in distress. Distress is defined here as a bond trading below $60 and a loan trading below $80, where par is $100.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 47 Investments Active alternative investment managers can provide anchor capital for a new collateral. And private credit managers can work with companies on private debt issue and initiate exchanges of public debt directly with issuers where financings where terms and collateral packages can be negotiated to provide borrowers receive maturity relief in return for higher yield and/or additional favorable yields as well as covenants and seek downside protection. FiGUre 2. HiGH-YieLD AND LoAN iSSUANCe FeLL HArD iN 2022  Expected remaining  Total issuance  YTD IF ISSUANCE THE REST OF THE YEAR FOLLOWS POST-CRISIS IF ISSUANCE THE REST OF THE YEAR FOLLOWS POST-CRISIS 500 AVERAGE, GROSS ISSUANCE MAY REACH $112BN. 700 AVERAGE, GROSS ISSUANCE MAY REACH $244BN. (MAX/MIN PACE +$137BN/ +$93BN) (MAX/MIN PACE +$274BN/+$215BN) 450 600 400 350 500 $ bn300 $ bn400 250 200 404 300 358 488 150 274 267 200 405 263 366 360 100 227 225 198 333 186 158 235 237 100 205 207 207 190 50 88 0 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 0 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 Source: Citi Research, S&P/LCD, as of 30 Sep 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Charts shows issuance of high-yield bonds (left chart) and loans (right chart) in 2022 compared to years going back to 2012.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 48 Investments Opportunistic and special FiGUre 3: HiSToriCAL AND ForeCAST HiGH-YieLD AND LoAN DeFAULT rATeS situation credit investing PORTION OF HIGH-YIELD AND LOAN MARKETS TRADING IN DISTRESS Some managers seek to take advantage of forced selling by debt holders. For example, 45% 18% certain mutual funds may experience investor outflows that leave them needing to raise capital, therefore selling debt at prices that 40 16 entice opportunistic capital from hedge funds or HY CCC private equity vehicles. 35 below $60 14 Also, some banks have lately been forced to sell loans they committed to make to private equity 30 12 managers. To clear this arranged debt off their balance sheets, such banks have had to offer substantial price discounts on quality debt that 25 10 would have previously been syndicated at or near par. 20 8 Loans These cases highlight the potential opportunity HY CCC below $60below $80 Loans below $80 to acquire good credits at distressed price levels. 15 6 For now, of course, default rates remain low. However, the impact of higher yields and slowing economic growth may well be rising default rates 10 4 over the next year – FIGURE 3. In 2020, the speed of the pandemic-induced market decline 5 2 and the central bank reaction led to a short-lived distressed cycle. This time, we believe it possible that corporate defaults stay elevated for longer. 0 0 If so, it would create an extended window for 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 specialist managers to take troubled companies through the restructuring process. Source: Citi Research, Moody, as of 30 Sep 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Chart shows the historical and forecast bond and loan default rates between Jan 2001 through Sep 2022, as represented by trailing 12-month default rate.

Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 49 Investments FiGUre 4: DiSTreSSeD HeDGe FUND PerForMANCe wHAT To Do Now? AFTer DiFFiCULT PerioDS For HiGH-YieLD BoNDS Given today’s heightened level of uncertainty, we do not see a case DRAWDOWN ANALYSIS HFRI ED: DISTRESSED/RESTRUCTURING for being overweight high-yield credits in general. Instead, we favor HFri selective exposure via skilled bond picking managers, who seek to BeGiN eND HY iNDeX ForwArD exploit the wide dispersion in the best and worst performing bonds. DrAwDowN 24M reTUrN We believe those specializing in credit underwriting, those able to Global work with companies on capital solutions and those with distressed financial crisis 31 May ‘07 30 Nov ‘08 -33.2% 34.8% restructuring expertise may be best placed to achieve this. early CoviD 31 Jan ‘20 31 Mar ‘20 -13.1% 48.2% In the public markets, we prefer managers who can evaluate absolute pandemic and relative value, and who focus on events that will seek idiosyncratic Dot-com 30 Apr ‘00 31 Jul ‘02 -12.0% 46.3% returns and upside capture along with downside protection. bust early 90s In private markets, we believe that managers with flexible capital may recession 31 Jul ‘90 31 oct ‘90 -11.2% 66.0% be rewarded, allowing them to evaluate financing solutions across energy sector’s the continuum while patiently awaiting the emergence of potential wave of defaults 31 May ‘15 31 Jan ‘16 -9.8% 27.8% distressed opportunities. AverAGe -15.9% 44.6% Managers without the requisite scale may be at a competitive disadvantage in this market. We have seen this occur in 2022 in Source: Bloomberg, HFR, as of 18 Oct 2022. All forecasts are expressions of opinion, are subject to change priming transactions. These are where big new or existing lenders that without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor negotiate directly with the company receive new debt with additional cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the collateral that is structurally senior to existing debt; i.e., it has a performance of any specific investment. Index returns do not include any expenses, fees or sales charges, higher priority of repayment if the borrower goes into liquidation. which would lower performance. Past performance is no guarantee of future results. Real results may vary. Also, in a heightened environment for defaults, managers that do not Table shows five significant selloffs in high-yield bonds and the subsequent 24-month returns of the HFRI have restructuring expertise and are unable to negotiate favorable ED Distressed/Restructuring Index. outcomes for their part of the capital structure will likely be left with lower recoveries on distressed debt. Previous periods of market stress have translated into opportunities for hedge fund managers with credit market expertise. We examined the Suitable investors should consider their investment objectives and how high-yield bond market’s five biggest declines: four recessions including these potential opportunities might complement their asset allocation. the global financial crisis as well as the 2015–2016 wave of energy sector defaults. Following those episodes, the average 24-month return for the HFRI ED (Distressed/Restructuring Index) was approximately 45% – FIGURE 4. And that is simply at the index level; in periods of credit market stress and distress, we believe that skillful manager selection may translate into return capture.

Citi Global Wealth Investments CONTENTS 3 Unstoppable trends 3.1 The transformative power of unstoppable trends 3.2 A greater separation between East and West: G2 polarization intensifies 3.3 Energy security is vital 3.4 Deepening digitization 3.5 Digitization and the growth in alternative investments 3.6 How unstoppable trends are redefining real estate 3.7 Seeking to boost portfolio immunity with healthcare

3.1 The transformative power of unstoppable trends Unstoppable trends are reshaping the world STEVEN WIETING around us. As well as transforming the ways we Chief Investment Strategist and Chief Economist live and work, they are creating potential long-term opportunities and risks for portfolios. ƒ Unstoppable trends are powerful long-term forces that are transforming the world economy and everyday life ƒ They are inherently disruptive, creating both risks and opportunities for your wealth ƒ We explore the potential of digitization, innovative healthcare, the transition to cleaner and more secure energy and US-China rivalry Citi Global Wealth UNSToPPABLe TreNDS | | 51 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 52 Investments The world economy routinely faces minor G2 POLARIZATION examines the the greatest risk of all for investors is having disasters and disappointments, with multiple consequences of the increasing economic and insufficient exposure to unstoppable trends and conflict zones at any one time. Economic geopolitical rivalry between the G2 powers of too much exposure to areas most vulnerable to setbacks and recoveries are routine. So are China and the US. disruption by these forces. bull and bear market excesses of panic and euphoria. In this environment, it is all too easy GREENING THE WORLD sets out the need for a One way to illustrate this is to consider the to get distracted by developments that seem transition to a more sustainable existence across outcome of two different portfolios. For newsworthy but have little lasting significance. multiple spheres while still delivering continuity illustrative purposes, imagine an investor The challenge for us as investors is to try to rise of existing energy supplies. with perfect insight into the near future. They above the din and focus instead upon the forces foresaw the tech collapse of early 2000 and INCREASING LONGEVITY explores how the “cashed out” of a 100% US equity portfolio with the greatest potential to drive long-term aging of the world’s population will impact economic growth and portfolio performance. after five years of 29% average returns and future growth and consumption patterns, with never reinvested, preferring to sit in interest- An unstoppable trend is a major, multi-year an emphasis on healthcare. bearing cash. Now consider another investor phenomenon that is likely to transform the In Outlook 2023, we update and reemphasize with the same portfolio who remained invested world around us. These trends take many forms, our case for these unstoppable trends. This throughout the 78% collapse of Nasdaq from including technological advances, demographic reflects ongoing advances in many of the 2000–2002, the 49% drop in the S&P 500 developments and new behaviors. They often sectors with exposure to these trends. We also during 2008/2009 and 2022’s double-digit seem relatively slow moving, although they tend acknowledge the falling asset price values loss. In this example, the investor who suffered to accelerate over time. Unstoppable trends’ associated with these trends in 2022, such as in the largest market losses in modern times but effects present a fundamental challenge or digitization and renewable energy. In Outlook stayed invested would today have nearly three threat to the status quo, ultimately impacting 2021, we noted that their strong performance times the level of inflation-adjusted wealth every industry and every investment portfolio. had left valuations high and that an unwinding than the market timer who dodged the great of market distortions was likely as the pandemic decline but missed the rebound - FIGURE 1. In recent years, we have made the case for This illustrates the potential value of long-term allocating to a variety of unstoppable trends: subsided. The rising interest rates that have accompanied COVID’s retreat have helped to investing in economic development. DIGITIZATION addresses how digital realize our expectations. technologies are fundamentally changing almost every industry and human activity, increasing As this experience highlights, investing in efficiency and convenience, and creating unstoppable trends comes with risks. And should possibilities that did not previously exist. interest rate rises continue for longer than we believe likely, related investments could suffer further downside. However, we believe that

Citi Global Wealth UNSToPPABLe TreNDS | | 53 Investments FiGUre 1. STAYiNG FULLY iNveSTeD wAS voLATiLe BUT BeAT SiTTiNG iN CASH wHAT To Do Now? 1000 Despite our longstanding message about the importance of unstoppable trends, 9 900 9 Stay invested portfolio we frequently encounter portfolios 9 1 with insufficient allocations. And the n 800 a bear market of 2022 has reduced f J700 overvaluation dramatically. o s a 600 Within digitization, we contemplate the 0 0 growing role of semiconductors, robotics 1 $ 500 and the metaverse for data creators in the o t years ahead. We consider how innovations d 400 e in healthcare could help address the s a needs of an aging global population and b 300 e r of Asia’s expanding middle class. With s greening the world, we make the case for n 200 r Market timer portfolio u accelerating the transition to clean energy t e to help bolster energy security as well as r 100 x fighting climate change. And we consider e d 0 the potential beneficiaries of the recently n I 1995 1999 2003 2007 2011 2015 2019 2023 escalated US-China trade war. Having read the analysis that follows, Source: Bloomberg, as of 22 Nov 2022. please contact your Private Banker about Chart shows the inflation-adjusted return of two hypothetical allocations, one a buy and hold portfolio (Stay Invested Portfolio) which remained actionable strategies for building exposure fully invested in the S&P 500 Index between Jan 1995 and Nov 2022, and the other portfolio (Timing Portfolio) which sold out of the S&P in Jan based on your individual needs. 2000, shifted entirely into 3-month Treasury Bills and remained there to Nov 2022. The hypothetical portfolios past performance information set forth above does not represent the performance of an actual portfolio and is no guarantee of future returns of any portfolio. As a result of market activity since the date above, current performance may be different from that shown. Indices on this page are widely recognized, unmanaged indices of major asset classes. For illustrative purposes only. Past performance does not guarantee future results. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged and an investor cannot invest directly in an index. All performance information shown above is hypothetical, not the actual performance of any client account. Hypothetical information reflects the application of a model methodology and selection of securities in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. See Glossary for definitions.

Citi Global Wealth UNSToPPABLe TreNDS | | 54 Investments Investing in affordable and clean energy, climate action, and Of course, not every asset or investment decent work and economic growth. related to unstoppable trends has sustainable characteristics. Nevertheless, it is possible unstoppable trends The SDGs also serve as a roadmap for investors to construct all or part of an allocation to when determining where to deploy their capital, unstoppable trends following sustainability for sustainable and they offer targets by which to evaluate principles. Individual securities, managed outcomes. They highlight areas where capital public and private market strategies and capital outcomes is needed most, with global investment needs markets strategies can all help to build exposure, around the SDGs estimated at as much as depending on the objectives and suitability of 1 HARLIN SINGH $7 trillion annually. We believe that many the investor. Global Head of assets and investment strategies linked to our Sustainable Investing unstoppable trends can contribute to the pursuit Our approach to investing in a sustainable of the SDGs. manner aligns with your worldview while seeking CATHERINE TURULLOLS to maintain quality and improve investment The link between certain unstoppable trend- outcomes. To identify suitable strategies, we Sustainable Investing related strategies and sustainability is obvious. employ an extensive due diligence process. Specialist for North America Equities in companies that enable the transition We work with third-party providers and Unstoppable trends are reshaping how we live to clean and secure energy are a case in point. sustainability data specialists to evaluate and and work. Ongoing digital disruption, the need The same applies to many healthcare firms, classify risks and attributes. This includes for innovative healthcare, and the transition to including providers that seek to improve patient seeking to mitigate exposure to “greenwashed” clean and secure energy are potential sources of outcomes, cut medical waste or broaden access investments – those that are marketed as both long-term economic growth and portfolio to treatment. sustainable but whose actual credentials returns. But that is not all: we believe that Superficially, the connection between fall short. investments relating to unstoppable trends digitization and sustainability may not be Whether you seek exposure to sustainable can help seek out opportunities generated by a quite as clear. However, digital technology is themes via unstoppable trends or your transition to a low-carbon economy and more pivotal to the pursuit of many of the SDGs. entire portfolio, we stand ready to empower just society that aims to deliver affordable and For example, digital solutions are helping to your efforts. accessible solutions across sectors. reduce greenhouse gas emissions and conserve Adopted in 2015, the United Nations’ Sustainable water in agriculture; some fintech firms are Development Goals (SDGs) aim to help safeguard extending banking and finance to marginalized people and planet. The 17 interrelated goals communities for the first time, such as female address a variety of pressing priorities for entrepreneurs in developing countries; and humanity. They include zero poverty, good online education and internet connectivity health and well-being, quality education, are enhancing the life chances of people the world over. 1 Banking on 2030: Citi & the Sustainable Development Goals, Citigroup 2022

3.2 A greater separation between East and West: G2 polarization intensifies The technology trade war marks an intensification DAVID BAILIN of US-China polarization. This increases the Chief Investment Officer and Global Head of Investments challenges facing investors, but also creates Citi Global Wealth parallel portfolio diversification potential. LIGANG LIU Head of Economic Analysis, ƒ An intense and strategic technology trade war Asia Pacific is underway between the US and China KEN PENG ƒ The US seeks to protect intellectual capital and Head of Investment Strategy, onshore production of critical technologies Asia Pacific ƒ China is likely to speed up its efforts to become more technologically self-reliant ƒ We expect upheaval within global supply chains, with security of supply prioritized over efficiency ƒ Potential beneficiaries include India, Indonesia, Malaysia and the Philippines but also the likes of Mexico ƒ We favor carefully diversified global allocations including both US and China allocations and exposure to potential third country beneficiaries Citi Global Wealth UNSToPPABLe TreNDS | | 55 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 56 Investments The rivalry between the world’s two leading including semiconductors. The government has Despite being the world’s biggest market for powers has grown more intense. As China’s already invested more than $150bn in the chip semiconductors, China currently meets little of economic and geopolitical influence keeps sector and we expect more to come as hi-tech its own needs. In 2015, the government’s Made growing, the US is responding vigorously to competition with the US intensifies. in China 2025 plan set a self-sufficiency target the challenge. The struggle is playing out in of 70% by 2025. many spheres including trade, finance, military capabilities and influence over other countries – see Accelerating G2 polarization in Mid-Year FiGUre 1. CHiNA’S DeCreASiNG reLiANCe oN overSeAS TrADe Outlook 2022. CHINA'S FOREIGN TRADE DEPENDENCY RATIO The latest battleground is technology, with the US restricting China’s access to sophisticated semiconductors and other vital components. 70  Exports We see this as the start of a lasting technology 64.2 trade war between the US and China, the “G2 ) 60  Imports powers.” What does this latest decoupling mean P Foreign trade for the G2 economies, the wider Asia region and D 50 dependency G investment portfolios? f o 40 34.2 % ( China’s drive for self-reliance 30 Even before the latest US technology 20 restrictions, China’s economy was becoming 10 more self-reliant. Its growth has already shifted somewhat from export-led to domestic demand- 0 led. Its foreign trade dependency ratio has fallen 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2020 from 62.2% in 2006 to 34.2% in 2021, resulting from weak global demand for its exports during the global financial crisis (2008-09) and its Source: National Bureau of Statistics of China, Citi GPS, as of Nov 2022. All forecasts are expressions of opinion, are subject to change without economic stimulus – FIGURE 1. Nevertheless, notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are this is way above levels for the US and Japan, shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. leaving China further to go. Chart shows Chinese exports, imports and its overall dependency on foreign trade expressed as a percentage of its GDP from 1978 to the present. We now expect China to double down on its drive for self-reliance on trade war fears, technology decoupling and ‘just-in-case’ supply chain risks. Areas of focus will include food, energy, secure supply chains and core technologies,

Citi Global Wealth UNSToPPABLe TreNDS | | 57 Investments Admittedly, China has various relative This would better manage domestic private and Amid the sharpening polarization, the US and strengths that could enable its ambitions in multinationals’ enterprises alike. China will likely make valuable technological semiconductors and other technologies in advances. We also envisage both powers the medium to long term. These include the The US chip technology restriction is a double- going further to keep their most sophisticated highest savings ratio of any leading economy, edged sword. It is not just Chinese chipmakers technologies out of the others’ hands. This the second-largest capital markets, the who stand to suffer. For US chipmakers, the could see pressure from each country upon second-largest consumer market, and the most new regulations mean less business near term. nations within its sphere of influence to pick a engineers and scientists working on applied They are also withdrawing US personnel from side and not to deal with the other insensitive innovation and scientific research. Government their operations in China and are expected also areas, just as the US is doing over sophisticated policies have helped various sectors become to redeploy certain equipment away there too, semiconductors and equipment. global leaders, including AI, 5G, quantum perhaps in the US. Some firms face potential computing, clean energy and electric vehicles. failure as they transition away from serving As part of this, we look for the redrawing/ China – see Deepening digitization. regrouping of global supply chains to accelerate. That said, China also faces major obstacles. This could see production of a variety of key Among them are limited support to basic We expect an escalation of this tech rivalry over inputs serving the western markets shift away research, distorted incentives, online time. Indeed, we see it as similar to the Cold from China and toward Southeast Asia but also information blockage and weak intellectual War “space race,” where the US and the USSR beyond. There is a case for leading Taiwanese property protection. Overall, we see the US sought to outdo each other in space exploration. and South Korean semiconductors to add to restrictions as likely to disrupt near-term And despite its near-term challenges, China has their capacity in Europe but mainly the US, means to retaliate if it so chooses. For example, 1 tech sector operations in China and hinder its helping to diversify and shore up supply chains. innovation ambitions for many years to come. the country dominates global mined production This will also lead to slower GDP growth in China and processing of rare earths, a group of The upheaval involved should not be in the coming decade, making China’s ambition materials critical to electric vehicles, wind underestimated. And bifurcating technology to become the largest economy difficult to turbines and energy storage, to name just a few. blocs, duplicate supply chains and diminished achieve if not impossible. cooperation are less economically efficient Might the G2 standoff evolve into open conflict, than a globalized system. Many companies To play to its strengths and offset its particularly over Taiwan? We believe China and sub-sectors worldwide that have done well weaknesses, China may take certain actions. is unlikely to take the military route unless from serving China will have to seek business First, we think markets may play a more provoked further by foreign interference or elsewhere because of the technological important role, even amid government-led Taiwan unilaterally declaring independence. bifurcation. Restricted markets mean diminished industrial policy. Second, innovation policy US legislative changes offering military and overall opportunities compared to free markets. and funding support from the government other support to Taiwan and next year’s should be equally accessible to private and Taiwanese presidential election could both also foreign companies. Third, the government increase friction. should communicate its economic thinking and consider external interests more transparently. 1 Citi GPS: Global Perspectives & Solutions, October 2022, CHINA’S INWARD TURN The Pursuit of Economic Self-Reliance

Citi Global Wealth UNSToPPABLe TreNDS | | 58 Investments Opportunities for investment Of course, ongoing polarization between the amid higher G2 competition G2 powers creates risks for many companies and sectors. For example, business lost in one market is unlikely to be replaced instantly The US-China technology decoupling is at by activity elsewhere. Chipmakers unable to the intersection of the unstoppable trends of sell certain products to China are currently digitization and G2 polarization. We expect learning this the hard way. We believe that this to find potential investment opportunities favors a selective approach over broad-based on both sides of the competitive divide. Our passive exposure. approach therefore stresses globally diversified exposure, including to key US and Chinese A less globalized, more polarized world presents technology producers. challenges for investors. But weaker economic ties may also mean less correlated assets. Over Beyond semiconductors, we envisage an time, this may mean potential diversification ongoing drive to diversify and reinforce supply opportunities for portfolios. chains on both sides, with potential beneficiaries outside both China and the US. These include the trading partners of both G2 powers in Southeast Asia, as well as India and Mexico. Over the coming decade, we expect potential growth in emerging Asia to be led by India and then the likes of Indonesia, Malaysia and the Philippines. While the potential growth in China is set to slow further as its population ages faster, its economic size of over $18trn will still be an important market for others to rely upon.

3.3 Energy security is vital Fossil fuel energy dependence is not only HARLIN SINGH Global Head of fueling climate change but also threatens the Sustainable Investing economy and national security. We believe this MALCOLM SPITTLER strengthens the case for the transition to clean Senior US Economist and Strategist energy and for positioning portfolios accordingly. CATHERINE TURULLOLS Sustainable Investing Specialist ƒ The global energy crisis is causing inflation and lost output, especially in Europe, and deepening deprivation in some of the world’s poorest countries ƒ Dependence on fossil fuel can also compromise energy importers’ national security priorities ƒ We favor long-term investments in a variety of energy-related technologies ƒ Nevertheless, we recognize that natural gas has a continued role for now and related investments may see further near-term upside Citi Global Wealth UNSToPPABLe TreNDS | | 59 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 60 Investments The world is in the grip of an energy crisis. FiGUre 1. NATUrAL GAS’S UNSTABLe PriCe MoveS Consumers and businesses across multiple regions are already suffering heavier costs for electricity and gas – FIGURE 1. The epicenter 1,400 of the crisis is in Europe, where Russia’s near- halting of its natural gas exports has sent prices dramatically higher. Among the consequences Dutch TTF Nat. Gas are lower economic growth, higher inflation and 1,200 greater human deprivation. What does this mean Asia LNG (ex-shipping costs) for the still early-stage transition from fossil US Nat. Gas (Henry Hub) fuels to clean energy sources? 1,000 On one level, it might appear as if the energy crisis is unhelpful to the transition. After 0 all, public and government are focused on 0 800 1 immediate imperatives such as keeping = businesses powered and homes heated. This has 1 2 seen a resurgence in fossil fuel usage, including 0 2 600 of coal, the dirtiest of all. The crisis has also e n emboldened some – including certain fossil fuel u J executives and skeptical populist politicians – to claim that the transition will need to happen 400 much more slowly than previously envisaged. The case for an 200 accelerated transition At Citi Global Wealth Investments, we take 0 the opposite view. Today’s difficulties call not Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 for slowing but for accelerating the transition toward renewable energy sources such as solar and wind. Indeed, we believe that failing to do so Source: Haver, as of 31 Oct 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes would create even greater risks. only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. For illustrative purposes only. Past performance is no guarantee of future results. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. See Glossary for definitions. Chart shows spot prices for gas prices between Jun 2021 and Nov 2022 in Asia, Europe and the US.

Citi Global Wealth UNSToPPABLe TreNDS | | 61 Investments Above all, the objective is to limit greenhouse As a result, the number of people with access shortfall made up by coal burning. For now, gas emissions to avert a climate catastrophe. In to electricity worldwide has seen a decline greater energy security thus means having 2022, summer heat records in multiple regions, for the first time ever. The longer the crisis diverse sources of supply, of which more comes Arctic wildfires and disastrous floods in Nigeria persists, the greater the risk of social unrest from renewables. and Pakistan were the latest reminders of and political instability, as in 2011 when soaring the intensifying threat to people and planet. food prices stoked the “Arab spring” uprisings We believe that diversity of supply will be However, it has become even clearer that and revolutions. essential to longer term energy security too. other forms of our security also depend on Today, much of that diversity comes from fossil the transition. Fossil fuel dependence can threaten national fuels. However, this must change radically security as well as economic well-being. Russia’s if the world is to have a chance of limiting attempt to use its gas supplies as leverage has climate change. Fossil fuel reliance, at times complicated Europe’s response to the war in Ukraine. Massively increasing renewables’ share within economic vulnerability power production is clearly critical to the drive Over time, some fossil fuel–importing nations toward energy security. And yet it is still only The economic damage of Europe’s reliance on have found themselves having to adapt their part of what is needed. Electrification and Russian natural gas is mounting. With energy foreign policy in ways they would rather improving energy efficiency are also essential. prices more than 40% higher than a year not have. By striking compromises with earlier, inflation in the eurozone hit an all-time authoritarian regimes or engaging in overseas Switching from fossil fuel burning to electricity high of almost 11% in October 2022. Amid military ventures, for example, they have from renewable sources in heating and cooling the uncertainty, households and businesses suffered reputational consequences on the buildings, transport and industry has great are retrenching.1 world stage. potential to lower emissions. The same goes for increased efficiency – using less energy to do Both the eurozone and the UK look set to Shifting toward renewable energy can help more. The less energy intensive we become, the suffer recession, despite government initiatives mitigate such issues. By generating cost- more our energy security increases. to subsidize energy bills amounting to many efficient, clean energy locally, countries can hundreds of billions of euros – see “Europe: strengthen their economic resilience and their As in in the 1970s oil shocks, the drive for Bracing for winter recession”. Globally, the national security. efficiency is increasing because of the current cost of such initiatives has already breached crisis. In Germany, for example, households are $500bn.2 Deprivation is nonetheless on This is not to say that renewable energy is rapidly replacing gas heating with heat pumps. the increase. fail-safe, however. These electrical devices – which take in air from outside a building and raise its temperature Seeking high prices for their output, liquid At times, for example, the UK’s still-growing to heat the building inside – are already 300% natural gas suppliers have diverted cargoes windfarm network can already supply over half efficient. This means it takes one-third of the away from other destinations and toward of the nation’s electricity needs. But unusually energy to heat a home compared to one with a Europe. Shortages in certain developing calm and cloudy conditions in 2021 saw a countries are already a reality. dip in its renewables’ consumption, with the 1 Bloomberg, as of 4 Nov 2022 2 IEA (2022), World Energy Outlook 2022, IEA, Paris https://www.iea.org/reports/world-energy-outlook-2022, License: CC BY 4.0 (report); CC BY NC SA 4.0 (Annex A), as of Oct 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 62 Investments completely efficient combustion-based heater. Experimental designs may FiGUre 2. CLiMATe FiNANCe GAP $1.7 TriLLioN Per boost this to one fifth before long. YeAr (2021-25) The potential here is substantial. A complete transition to next-generation heat pumps would reduce total energy use 40%, all else equal.3 ($ TNS) Admittedly, this would take a very long time, as it would require replacing heating  Africa  Asia Pacific  Central and systems in every building globally. However, with governments subsidizing South America adoption of these devices, uptake could increase rapidly.  Eurasia  Europe 6  Middle East  North America  Global Despite such encouraging progress, there is a very long way to go indeed in the quest for cleaner and more secure energy. Over the next thirty years, $125 trillion may be required to achieve net zero emissions. To get on track, 5 Citi GPS estimates that $2.6 trillion a year annually needs to be mobilized between 2021 and 2025, $1.7 trillion a year more than of late – FIGURE 2. Aside from the amount of capital required, there are many risks along 4 the way. Trade wars and other supply chain disruptions, technological Investment disappointments and policy reversals driven by populist skeptics represent gap just some of the potential challenges. But if these or other factors were to 3 $1.7 trillion frustrate the transition, the resulting insecurities would be far worse than anything we have so far seen. 2 1 0 2016-2020 2021-2025 2026-2030 2031-2040 2041-2050 Source: UNFCCC Race to Zero campaign with support and analysis from Vivid Economics, Citi GPS. From Citi GPS: Global Perspectives & Solutions – Climate Finance, November 2022. Chart shows the required climate finance by global region for periods out to 2050. Note: Current annual climate flows are estimated on average at between $600 billion and $900 billion depending on the data source used. CPI estimates climate finance flows in 2020 amounted to $640 billion, including both mitigation and adaptation. BNEF estimates total investment in Energy Transition was $611 billion in 2020 and increased to $798 billion in 2021. Vivid Economics estimates total investment averaged $900 billion annually between 2016 and 2020. 3 According to the IEA World Energy Outlook 2022, heat accounted for 50% of global final energy consumption in 2018, and 40% of global carbon dioxide emissions.

Citi Global Wealth UNSToPPABLe TreNDS | | 63 Investments FiGUre 3. CLeAN eNerGY’S LoNG-TerM GAiNS wHAT To Do Now? Since 2021, the publicly traded green 450 infrastructure sector has sold off, underperforming infrastructure investments more generally – FIGURE 3. 400 However, this does not reflect any change Nasdaq Smart Grid in the fundamental case for the clean Infrastructure Index energy transition. Instead, we think it 350 reflects the high valuations reached in the sharp rally in 2020 and the subsequent rise in interest rates that have hurt all 300 growth-oriented assets. The selloff may present a potential long-term entry point. But we cannot rule out further downside, x 250 especially if we are wrong about a peak in e interest rates in 2023. d In Accelerating the transition will involve a 200 wide variety of companies. These include S&P Global Infrastructure Index specialists in renewable energy technology, 150 energy storage, electric vehicles and heat pumps, sustainable materials and carbon capture. In aggregate, we believe such 100 companies are likely to be significant winners over the medium term and bear much less long-term risk than fossil fuel 50 assets. In the meantime, we recognize that liquid natural gas can serve as a transition '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 fuel. New and existing supplies of this fossil fuel will be key to helping meet European energy needs – representing another kind Source: Haver, as of 24 Nov 2022. Past performance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor of opportunity for investors. cannot invest directly in an index. They are shown for illustrative purposes only. All forecasts are expressions of opinion, are subject to change In the long term, clean energy can be more without notice and are not intended to be a guarantee of future events. See Glossary for definitions. Chart shows the performance of the Nasdaq Smart Grid Infrastructure Index and S&P Global Infrastructure Index between Jan 2011 and Nov 2022, secure energy. We believe that related with both series rebased to 100 at the start. technologies can help generate portfolio returns as well as sustainable power.

3.4 Deepening digitization The unstoppable trend of digitization is WIETSE NIJENHUIS Senior Portfolio still in force and has far to go. We believe Manager, Global Equities, current equity weakness may offer potential Citi Investments Management for building long-term exposure JOE FIORICA Head of Global Equity Strategy ƒ Digitization assets suffered sharp drawdowns in 2022 owing to rising rates and previously high valuations ƒ The transformative potential of digitization has not changed, however, and we see related investments as core long-term holdings ƒ We highlight semiconductors, robotics and automation and the metaverse, while reiterating our conviction in areas such as fintech and cybersecurity Citi Global Wealth UNSToPPABLe TreNDS | | 64 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 65 Investments Investing in digitization was tough in 2022. Despite recent performance, though, the digital Given our view, we do not see the selloff in Equities relating to the likes of fintech, cloud revolution has not gone into reverse. Indeed, digitization assets in 2022 as reflecting the computing and semiconductors – FIGURE 1 – these technologies are becoming ever more sector’s prospects. Instead, it resulted from experienced sharp falls, alongside many other deeply embedded in how we live and work. aggressive interest rate hikes and the valuation growth-oriented assets. This marked a sharp In the years ahead, we expect intensifying frothiness that had previously accumulated. reversal from the lockdown period in 2020. innovation driven by well-funded research and Following the steep drop in valuations, we During that time, such investments soared as development. And we believe that businesses believe there may be opportunities to build long- businesses and consumers relied more than will have to either embrace new technologies term portfolio exposure to this transformative ever on digital technologies in response to tight and processes or face extinction. Put simply, theme. While we retain our conviction across restrictions on daily life. the unstoppable trend of digitization remains in digitization broadly, we highlight three areas full force. for consideration. FiGUre 1. DiGiTiZATioN’S vALUATioN DeCLiNe Semiconductors are Digitization theme EV/EBITDA (now vs November 2021) powering digitization Theme Nov 21 Now % Derating Semiconductors are the brains of the Payments 16.3 11.4 -29.9% digital revolution. e-commerce 16.0 11.4 -28.6% The little chips that store and process data S&P 500 14.3 11.9 -16.8% are all around us, enabling every digital task Metaverse 21.4 12.6 -40.9% however trivial or sophisticated. Indeed, Social media 20.8 12.7 -38.6% there is no aspect of the unstoppable trend of digitization – from cybersecurity to robotics to robotics 17.5 13.2 -24.7% artificial intelligence to the metaverse – that Fintech 24.1 13.9 -42.5% does not depend heavily on this technology. And Cyber security 23.1 16.2 -30.1% we envisage the role of semiconductors only Ai & cloud computing 32.7 17.4 -46.9% increasing further over the coming years. Healthcare tech 35.8 25.6 -28.5% The continued rollout of fifth-generation – or “5G” – data networks and thereafter 6G will see Source: Haver, as of 15 Oct 2022. Past performance does not guarantee future results. Investors cannot invest in an index. All forecasts are billions of devices connected to the internet for expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events. See Glossary for definitions. the first time ever and a vast increase in data Table shows valuation multiples - enterprise value (market capitalization plus debt) divided by earnings before interest tax depreciation and produced – see 5G and beyond: Connection to amortization) - for a selection of sub-themes within digitization, comparing levels in November 2021 with those a year later. Sub-themes: the future in Outlook 2022. e-Commerce: Solactive E-commerce Index; Payments: Prime Mobile Payments Index; Metaverse Ball Metaverse Index; Robotics: ROBO Global The upsurge in connectivity that we expect will Robotics and Automation Index; Social media: Solactive Social Media Total Return Index; Fintech: Indxx Global FinTech Thematic Index, Cyber security: Nasdaq CTA Cybersecurity Total Return Index; AI & cloud computing: Indxx Global Cloud Computing Index; Healthcare tech ROBO Global require semiconductors to be incorporated into Healthcare Technology and Innovation Index. everything from mundane household objects to the smart cities and autonomous vehicles of

Citi Global Wealth UNSToPPABLe TreNDS | | 66 Investments tomorrow. The vast “cloud” storage facilities the adoption of robots and automation. automated processes, suppliers of components where the newly created data will be held are The pandemic lockdowns reinforced the such as chips and sensors, and software makers. also chip intensive. vulnerabilities that arise from overdependence And there may be an even wider range of on human labor in everything from logistics to companies that could achieve productivity gains This potential growth is not without risks, of advanced healthcare delivery. It also led to a by integrating robotics into their business. course. The US’ moves to block Chinese access surge in industrial robot installations, especially to the most sophisticated chips and related in Asia. In 2023, industrial robot installations equipment also means less business for US are expected to grow by 10% to almost The internet’s new dawn and other manufacturers for the foreseeable 570,000 units.2 future – see A greater separation between The worldwide web has become an ever-more East and West: G2 polarization intensifies. Nevertheless, we think that much more is ubiquitous feature of daily life since it first Tough competition and sharp cyclical swings needed. Currently, just five countries account went mainstream in the mid-1990s. Of course, have long impacted the industry. But given our for 78% of global installations: China, Japan, today’s internet experience is much slicker outlook for chip demand, we believe equity price the US, South Korea and Germany. Assuming than in those early days of dial-up connections, weakness may represent a way to build long- continued gains in innovation, we expect the basic webpages and little functionality beyond term portfolio exposure. robots of tomorrow to be able to undertake browsing information. Now, though, cyberspace many more tasks than they already do, either may be on the cusp of a much greater The age of automation independently or alongside human workers. As leap forward. such, the global market size for industrial robots could slightly more than double from $92.8bn to Widely considered the next generation of Slow productivity growth and labor shortages $165.3bn by 2028. the internet, the metaverse is an immersive are intensifying challenges for many countries, 3D world that brings together physical and especially in the developed world. From a Aside from labor force shrinkage and upward digital realities. Within this world, avatars pre-global financial crisis peak of in 2007, pressure on wages, the trend toward onshoring of ourselves will interact with one another productivity growth worldwide has slowed. manufacturing activity argues for more and businesses in a landscape that draws Meanwhile, aging populations are contributing automation. The US and other nations are keen strongly from the physical world but with many significantly to a dearth of workers. By 2030, to secure their supply chains for certain vital hi-tech enhancements. there could be a global deficit of some 85.2 products. Using robots could ultimately mitigate million workers globally, causing a shortfall the costs of relocating production facilities While still in its infancy, the metaverse or in output of $8.5 trillion, according to a from low-wage to high-wage countries. Further “Web 3.0” may in time prove transformative report by Korn Ferry, a global organizational progress in robot capabilities will also make for consumers, technology companies and 1 adoption more attractive. investors. By 2030, Citi Research estimates consulting firm. that the metaverse economy may be worth Given the threat to growth and living standards, Among the potential investments we see in between $7.7 trillion and $12.8 trillion.3 In we believe it essential that the world accelerates this area are in the creators of robotic and 1 Future of Work: The Global Talent Crunch – Korn Ferry, as of Oct 2022 2 Executive Summary World Robotics 2022 Industrial Robots – International Federation of Robotics Executive_Summary_WR_Industrial_Robots_2022.pdf (ifr.org) 3 Citi GPS report: Metaverse and Money: Decrypting the Future, June 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 67 Investments this environment, we see a broad range of companies that may be able to wHAT To Do Now? capture some of that value. For now, we see limited ways to gain exposure to the rise of the metaverse. We reiterate our long-term conviction in the transformative potential Telecom operators and equipment vendors may be best placed initially, of digitization. And we favor long-term exposure to this unstoppable given the greater data usage that is required to support this virtual world. trend in portfolios. Despite the sharp selloff in related assets to date, Looking out somewhat further, makers of hardware components that however, further near-term downside cannot be ruled out. That said, enable the metaverse experience – such as optics/sensors, displays and we believe a peak in interest rates to be likely in 2023 and that rate semiconductors – are also placed to benefit. cuts should follow thereafter. If so, this would enable investors to focus more on digitization’s long-term prospects. While we see attractions to investing in hardware which will serve as building blocks to future virtual worlds, investability within the metaverse is much We see a variety of possibilities for building exposure to more challenging at present. Admittedly, there are competing visions of how semiconductors, robotics and automation and the metaverse, as the metaverse may evolve. Large incumbents today – such as leading social well as in other areas such as fintech, cybersecurity and artificial media platforms – are keen to retain their dominance in tomorrow’s world intelligence. While broad-based passive exposure is one option, we and are investing heavily accordingly. But others favor a decentralized model favor equity strategies from specialist managers, as well as private where users have greater power over their data. market strategies for suitable investors – see Digitization and the growth in alternative investments. FiGUre 2. THe riSe oF THe roBoTS Digitization has far to go. Get ready for the next stage of GLOBAL INDUSTRIAL ROBOTICS MARKET the revolution. 180 160 140 120 n 100 $b80 60 40 20 0 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 Source: Statista and Citi Global Insights, as of 28 Oct 2022. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Chart shows the estimated size in billions of dollars of the global industrial robotics market, with forecasts out to 2028.

3.5 Digitization and the growth in alternative investments ƒ Falling tech valuations in public markets have also begun to hit many DANIEL O’DONNELL private companies needing equity capital in the second half of 2022 Global Head of ƒ With tech firms still needing to raise equity and debt Alternative Investments capital, we see opportunities for alternative managers to make potentially attractive add-on investments JEFFREY LOCKE Global Head of Private Equity ƒ Once rates peak and then reverse, investors are and Real Estate Research likely to refocus on digitization’s long-term potential and Management once more as public valuations recover ƒ For suitable investors, we favor technology-focused strategies MEGAN MALONE from venture capital, growth, buyout and private debt managers Head of Private Equity and Real Estate, Americas STEFAN BACKHUS Head of Private Equity, Americas Citi Global Wealth UUNSNSTTooPPPPABLABLe Tree TreNDNDSS | | || 68 68 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 69 Investments The increasing role of for VC-backed tech firms seeking to sell their For US VC-backed companies that previously alternatives in digitization shares to the public via an initial public offering went public within the past two years, the (IPO). As a result, there have been only 60 such valuation declines are especially pronounced. public listings in 2022, compared to 303 VC- Such firms’ price-to-sales multiples – a metric Innovation is the beating heart of the digital 1 expressing a company’s market capitalization in backed IPOs in 2021. The IPO route is likely to revolution. But developing new ideas and remain largely closed to tech companies until relation to its revenues – fell some 60% to 67% establishing a viable business around them markets stabilize. through 17 August 20222 – FIGURE 1. requires significant amounts of capital over fairly long periods. The selloff in publicly traded technology equities in 2022 has made raising FiGUre 1. PoST-iPo BLUeS For vC-BACKeD CoMPANieS capital for private firms harder. At the same time, we believe these difficulties may create potential opportunities for the managers of 183.2x various alternative strategies. Price-to-sales multiple one year ago Venture capital, growth and buyout managers Current price-to-sales multiple make up an important ecosystem for financing e l p digital innovation. Venture capital managers i t l incubate companies from initial idea and product u m development through all their expansion stages, typically called early-stage to late- es al 64.4x stage venture capital. Growth managers select o-s from some of the most successful private e-t 42.9x technology companies and support significant c i scale expansion. Buyout managers acquire more r P 15.5x 17.3x established businesses, often taking them from 5.6x 4.6x 1.8x 1.5x public to private ownership. 0.5x Valuations decline but 90th 75th 50th 25th 10th deals hold up Percentile The selloff in publicly traded technology Source: Pitchbook/Morningstar Quantitative Perspectives, as of Q3 2022 equities has driven valuations substantially Chart shows price-to-sales multiples of the constituents of the Pitchbook/Morningstar VC-backed IPO index in the third quarter of 2022 versus lower – see Deepening digitization. Market one year earlier. Index constituents are VC-backed companies >$50 million that have completed a public offering within the prior 2 years. The volatility and falling valuations pose challenges companies are grouped by percentile according to their starting price-to-sales multiple, starting with the most expensive on the left. 1 Q3 2022 Pitchbook-NVCA Venture Monitor 2 Pitchbook Q3 2022 Quantitative Perspectives – Silver Linings on the Time Horizon

Citi Global Wealth UNSToPPABLe TreNDS | | 70 Investments This public market weakness has seeped i.e., when they sell ownership stakes to venture year, as valuations in late-stage private markets through to late-stage VC companies. The median capital firms – are not heavily based on valuation and public markets reset. Nevertheless, pre-money valuation – or valuation just prior to multiples. Instead, they focus more on factors technology deal activity has remained robust in an IPO or funding round from private investors such as the size of the market they’re involved 2022. Although down 10% from 2021’s elevated – was 9% below 2021’s level at $91m, as of the in, whether their product fills a gap in the levels, it still stands significantly above any third quarter 2022.3 market, their market leadership potential and previous year. And while overall VC deal activity growth rate. has fallen for three straight quarters from those For seed and early-stage VC companies – those 2021 highs, VC activity has already exceeded all at an earlier stage of development – valuations That said, even seed and early-stage VC prior years except for 2021 – FIGURE 2. have held up better. Deals involving such firms – valuations will likely decline over the coming FiGUre 2. US veNTUre CAPiTAL DeALS FALL FroM THeir HiGHS $100 Deal value ($B) Deal count Angel & seed Early-stage VC Late-stage VC 5,000 $90 4,500 $80 4,000 $70 3,500 $60 3,000 $50 2,500 $40 2,000 $30 1,500 $20 1,000 $10 500 $0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2015 2016 2017 2018 2019 2020 2021 2022 Source: Pitchbook, as of 30 Sep 2022. Chart shows US venture capital deal activity by quarter since 2015, with the green bars denoting total deal value and the lines showing deal counts across angel & seed, early-stage VC and late-stage VC categories. 3 Source: Pitchbook/NVCA. as of 30 Sep 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 71 Investments With valuations coming down, we expect to see an increase in buyout wHAT To Do Now? managers taking listed companies private. IT deal value accounted for 31% of PE deal activity in the third quarter of 2022, near the highest level Given the decline in tech valuations and our positive long-term outlook ever.4 Technology is now a core focus for many buyout managers, given the for digitization, we see a case for investing in such companies via early- sector’s growth prospects and today’s lower valuations. and late-stage venture capital managers as well as growth and buyout With the IPO market effectively shut off for now, late-stage, growth and managers. We also favor lending to late-stage, growth and pre-IPO pre-IPO companies will need to access capital from private sources, companies via private credit managers. Once interest rates peak, we including private lenders. Private equity’s appetite for IT acquisitions did believe investors will focus more on digitization’s growth prospects not significantly decline in the first three quarters of 2022 compared to the again. As valuations recover over time, private managers will have same period in 2021. Capital still flowed into the sector, with 1,239 deals scope to sell their stakes at higher prices. closed globally during 2022 as of the third quarter, with an aggregate deal While we believe a counter-cyclical approach of buying when others value of $128.9 billion.5 are fearful makes sense, these strategies come with risks, beyond However, leveraged loan and high-yield issuances are near the lowest levels that of rising interest rates undermining valuations. As private market since the global financial crisis6 at a time when rates and spreads have strategies, they are illiquid, requiring investors to commit for a period increased meaningfully, allowing alternative private credit providers to step of several years. For example, private technology investing typically in and provide financing to select deals – see Alternative investments may involves investing in companies that are generating negative free cash enhance cash yields. flows and can require additional capital to fund growth. Many suitable clients’ portfolios do not have much exposure to private equity as an asset class. Indeed, many lack any exposure at all. We also note many of the same clients may be underinvested in digitization. Such clients should consider their current portfolio positioning and how they might add the potential for further return and diversification. 4,5 Source: Preqin, as of 30 Sep 2022 6 S&P LCD Quarterly Review, Q3 2022

3.6 How unstoppable trends are redefining real estate Amid macroeconomic difficulties, long- DANIEL O’DONNELL term forces are continuing to create Global Head of Alternative Investments potential opportunities within real estate. JEFFREY LOCKE Global Head of Private Equity ƒ Real estate came under pressure in 2022 from and Real Estate Research inflation and higher interest rates and Management ƒ Unstoppable trends such as digitization are helping to drive certain areas within real estate MEGAN MALONE Head of Private Equity and Real ƒ We also see some areas of real estate as Estate, Americas better placed to cope with inflation ƒ We favor strategies from specialist managers BURKE ANDERSON focusing on multifamily homes, e-commerce–related Head of Real Estate, Americas properties and quality offices in select locations Citi Global Wealth UNSToPPABLe TreNDS | | 72 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 73 Investments Almost no asset class escaped the turmoil of That is more than double the level six years However, they are still broadly cheaper than 2022. That includes real estate, where pressures earlier. Compared to previous generations, getting a new mortgage. On average, a typical included increased financing costs, rising millennials – those born from the early 1980s to monthly mortgage payment was $904 more capitalization rates and inflation. Looking ahead, around 2000 – are likely to end up renting for expensive than a typical monthly apartment 1 there is potential opportunity to exploit market longer before buying their first homes. rental payment as of Q3 2022. Four years ago, inefficiencies, invest in assets at potentially a mortgage cost only $387 more than renting – cheaper levels and reposition properties to meet That said, renting is not especially easy now FIGURE 1.2 shifting consumer demand. Also, long-term either. Rents too have risen sharply since 2021. trends such as digitization, more flexible working and delayed household formation are continuing FiGUre 1. MorTGAGe PAYMeNTS Go THroUGH THe rooF to transform real estate. Inflation poses a particular challenge. The MORTGAGES SUBSTANTIALLY OUTPACE RENTSMORTGAGES SUBSTANTIALLY OUTPACE RENTS cost of renovating and developing has risen sharply since the start of the pandemic. And the $2,800 consequent rise in interest rates has made it more expensive to finance real estate projects. All this can potentially reduce returns for 2,350 Mortgage payment investors. That said, continued rent growth in certain sub-sectors like multifamily apartments $904 and e-commerce–related industrial properties are mitigating headwinds. 1,900 We thus look to sub-sectors of real estate that Monthly Payment we think may be best placed to perform under $387 $222 these conditions. 1,450 Apartment rent Resilient multifamily homes 1,000 15 16 17 18 19 20 21 22+ Getting on the housing ladder is challenging right now. The US mortgage rate sat near a Source: Marcus & Millichap, as of September 2022. 20-year high of 7.14% as of 9 November 2022. 3 To buy a property, the minimum annual income Chart shows average mortgage payments and rental payments on an apartment from 2015 through September 2022. needed was over $120,000 as of June 2022. 1 US Bureau of Labor Statistics, September 2022 2,3 Marcus & Millichap, September 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 74 Investments Multifamily rental properties – such as low-rise significantly alongside inflation. The average National Apartment Association, the US will “garden style”, mid-to-high-rise apartment effective rental rate for multifamily rental need 4.3 million new apartment units in the towers and townhouse complexes – have proven properties in the US had risen almost 17% year next twelve years to meet increasing housing resilient during periods of high inflation. That on year as of the second quarter of 2022.4 demand.5 The insufficient supply of housing, is because their rents may reset every time coupled with less attainable home ownership their short-duration leases – typically one year Supply considerations also favor both and inflation limiting new build, is expected to – expire. In 2022, multifamily rents have risen developers and landlords. According to the continue to sustain robust rental demand. FiGUre 2. roBUST DeMAND For iNDUSTriAL ProPerTieS INDUSTRIAL SUPPLY & DEMAND 480 Completions (L) Net absorption (L) Availability rate (R) 12.0 400 10.0 Avaailability rate (%) 320 8.0 240 6.0 160 4.0 80 2.0 Completions and Net absorption (MSF) 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 2019 2020 2021 2022 Source: Crow Holdings, as of Oct 2022. Chart shows completions of new industrial properties in millions of square feet, the absorption rate – a metric which looks at how much space was occupied versus how much became available – and the availability rate or how much space was available. 4 Marcus & Millichap, as of August 2022 5 National Multifamily Housing Council & National Apartment Association (US apartment demand through 2035)

Citi Global Wealth UNSToPPABLe TreNDS | | 75 Investments Identifying markets with favorable supply and three times the warehouse space of traditional will be required globally over the next five years 9 14 demand fundamentals and strong demographic retail. Each 1% increase in e-commerce sales as to support the growth of internet sales. tailwinds will be critical, as increased financing a proportion of overall retail sales is expected to costs may impact the profitability for both new result in over 65 million square feet of demand Like multifamily, the industrial sector has held developments and existing assets with near- for industrial space. E-commerce demand has up well amid inflation. Rent growth within term debt maturities. particularly increased the need for larger, more logistics has outpaced inflation due to strong sophisticated and centrally located distribution tenant demand and to the shorter lease terms centers to enhance “last-mile” facilities for – typically 3-5 years – which has allowed rental Enabling the e-commerce same-day or next-day delivery. This will continue rates to keep pace as the current market 10 rate adjusts. revolution to be the case in 2023. With demand outpacing supply, overall US Despite higher interest rates, US commercial E-commerce took a great leap forward during vacancy rates are historically low at below capitalization rates continued to edge down the pandemic. With restrictions on in-person 4%.11 across industrial property types in the The US industrial real estate sector – shopping, consumers pivoted to ordering more which includes storage and distribution as well second quarter of 2022, hovering around 15 goods online. These habits have stuck: US as manufacturing, production and research 5.1%. Capitalization rates are measured as a e-commerce sales grew 32% year-on-year in & development facilities – remains strong property’s net operating income, expressed 2020, 14% in 2021 and 9% between the first and stable. as a percentage of the property’s value. In and second quarters of 2022.6 2023, industrials’ capitalization rates may And they are forecast to grow at 10% to 15% annually after Industrial properties’ overall availability rate rise, but its stability to date speaks for the the pandemic, gaining more market share from dropped by 60bps in 2022 in the US compared sector’s resilience. 7 to mid-year 2021 due to robust demand and brick-and-mortar stores. The same story applies globally, as e-commerce sales have increased a large amount of preleased construction The industrial market is not immune to increased 12 financing costs nor to slowing growth. But while 133% over the past five years, and 46% in the completions – FIGURE 2. Year-on-year rent first two pandemic years of 2020 and ‘21.8 13 the outsized e-commerce growth over the last growth surpassed 21%. As much as 2.1 billion square feet (0.64 billion square meters) of two years may moderate, the long-term outlook While e-commerce may reduce the need for additional e-commerce-dedicated logistics space for the industrial sector remains positive. retail floor space, online transactions require 6 US Department of Commerce, as of Q2 2022 7 CBRE Global E-commerce Outlook, as of Q2 2022 8,14 CBRE Global E-commerce Outlook 2022 Update, June 2022 9 Prologis, as of Q3 2020 10 United States Industrial Outlook, Q2 2022, JLL Research 11 CBRE, “Global Real Estate Remains an Attractive Investment Despite Economic Headwinds”, August 31, 2022, https://www.cbre.com/insights/viewpoints/global-real-estate-remains-an- attractive-investment-despite-economic-headwinds 12 Crow Holdings, as of Oct 2022 13 United States Industrial Outlook, Q2 2022, JLL Research 15 Real Capital Analytics. Capital Trends: U.S. Big Picture. Q2 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 76 Investments The workplace of the future This appetite for quality is evident in office wHAT To Do Now? markets around the world, including Sydney, Since the pandemic struck, the way we work London, Seoul, Dubai, Shanghai and Berlin. We believe suitable investors should has changed drastically. Many employers and In the US, the leasing of new-vintage offices consider adding appropriate exposure to their employees have enthusiastically embraced is unfolding alongside ongoing migration to select multifamily, industrial and office flexible, digitization-enhanced working practices, secondary markets. Companies and workers real estate to their portfolios. To do so, we with some firms going wholly remote and many are increasingly attracted to places such as favor strategies from specialist managers more choosing a hybrid model. The new patterns Austin, Texas, Raleigh, North Carolina and with deep expertise in these segments in of work – and changing priorities – are creating Phoenix, Arizona. Such places offer favorable particular geographies. Such strategies strong demand for certain types of offices. employment prospects, a potentially better may help mitigate the effects of inflation quality of life and lower costs of living. upon returns while helping to mitigate the Overall, there is a marked preference for risks of a globally diversified allocation. quality. This means offices in highly connected locations, complete with market-leading Of course, private investments in real amenities, including outdoor space and fitness estate come with various risks. These centers, and good sustainability credentials include illiquidity, with investors typically such as LEED platinum, a green certification having to make a commitment for some standard. Meanwhile, older, outdated premises years. A deeper economic contraction that do not accommodate new ways of working than we expect might also moderate rent are struggling. growth and demand in the near term. For example, since the start of the pandemic, 84% of total leasing activity in midtown 16 Manhattan has occurred in Class-A assets. Over the last two years, new Class-A offices in the US are the only office vintage with positive absorption, a metric which looks at how much space was occupied and how much was vacated. Whereas such offices saw 61.6 million square feet (18.8 million m²) net absorption, those built 17 in 2014 or before suffered negative absorption. 16 Cushman & Wakefield, Q4 2021 Office Overview, January 2022 17 JLL, “The Workplace Evolution,” June 2022

3.7 Seeking to boost portfolio immunity with healthcare Aging populations and the expanding global ROB JASMINSKI middle class are likely to boost demand Global Head of Citi Investment Management for healthcare over many years. DIANE WEHNER Senior Portfolio Manager, ƒ With increasing age and wealth comes greater demand for healthcare Citi Investment Management ƒ We believe rising spending on research and development globally will drive the sector’s innovation WIETSE NIJENHUIS Senior Equity Portfolio Manager, ƒ Among the areas we favor are biologics, life science Citi Investment Management tools, value-based care and agetech JOSEPH FIORICA Head of Global Equity Strategy Citi Global Wealth UNSToPPABLe TreNDS | | 77 Investments

Citi Global Wealth UNSToPPABLe TreNDS | | 78 Investments The world’s population is FiGUre 1. GrAYiNG oF THe worLD undergoing profound change POPULATION % AGED OVER 65 YEARS  2022  2030  2050 Not only are there more people on Earth than at any time previously, but their average age is 30 now older than ever before. This pattern is set to intensify. By 2050, more than a quarter of citizens in certain global regions may be over 65 – FIGURE 1. This change is the result of life 25 expectancy and fertility patterns established over many generations, which would take at least as long to reverse. At Citi Global Wealth Investments, we thus regard aging populations 20 as an unstoppable trend. At the same time, the world’s middle class is on the rise. This phenomenon is largely driven by 15 Asia, where economic development and rising incomes are enabling hundreds of millions of people to live and consume in ways they never have before. In mid-2017, the emerging world’s 10 middle class was around 3.3 billion people – a 1 number that may hit 5 billion by 2027. These two major shifts have far-reaching implications for societies, industries and 5 investors everywhere. Among the consequences we expect is growing demand for healthcare. As people get older, the 0 amount of spending required on their healthcare Global Europe & North America E & SE Asia increases. And with rising incomes and wealth comes the tendency to spend more on staying Source: World Population Prospects 2022: Summary of Results by Department of Economic and Social Affairs. © United Nations 2022. Reprinted well and getting better from illnesses. with the permission of the United Nations. Chart shows the rising percentage of the population aged over 65 globally, in Europe & North America and East & Southeast Asia in 2022, 2030 and 2050. 1 Haver, as of 27 Oct 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 79 Investments FiGUre 2. reSeArCH DriveS HeALTHCAre iNNovATioN Developing biologics is now a major focus for biopharmaceutical companies. Around 60% TOTAL GLOBAL PHARMACEUTICAL R&D SPENDING of all drugs in development in 2022 may be 300 biologics, up from 20% two decades ago, according to Danaher Corporation. While just 250 500 such products have been approved by US regulators to date, there are some 20,000 in 200 the pipeline.2 n $b 150 From an investment perspective, we find the potential growth compelling. Evaluate Pharma, 100 an industry intelligence provider, forecasts that new biological drugs – excluding COVID- 50 related therapies – will represent $541 billion in sales by 2026, an annualized growth rate of 0 10% from current levels. Risks faced include '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 clinical development failures, delays and stiff regulatory hurdles. Source: Statista and Citi Global Insights, as of 28 Oct 2022. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Life science tools Chart shows global spending on research and development since 2014, with forecast data from 2022 until 2028. We see healthcare as well placed to meet the arthritis, osteoporosis and diabetes. Some of Developing cutting-edge treatments such as challenge. The sector has a strong record of the most novel treatments for these conditions biologics is intensely demanding. So much innovation, driven by increasing spending on are biologics. so that biopharmaceutical companies often research and development, a trend that seems outsource parts of the long and intricate likely to continue – FIGURE 2. While we see Biologics are complex drugs made from parts of process. They do so to take advantage of growth potential for healthcare broadly, there or complete living cells from humans, animals or specialist skills at certain stages and to seek are certain areas of particular focus for us. microorganisms. This “bioproduction” process manufacturing efficiencies. This trend is on differs from traditional “small molecule” drug the rise. development, where drugs are synthesized via Some 86.9% of qualified bioprocessing Biologics and bioproduction chemical processes without living cells. Biologics respondents in the 19th annual industry have proven superior to many small molecule survey conducted by BioPlan Associates, a With advancing years comes greater incidence drugs in addressing many difficult-to-treat biotechnology market and information provider, of many illnesses. These include various forms illnesses. And they may hold the key to treating indicated they planned to outsource at least of cancer, Alzheimer’s disease, rheumatoid or curing diseases that are today untreatable. 2 Source: Danaher Analyst Day – Cytiva HQs, as of Sep 2022

Citi Global Wealth UNSToPPABLe TreNDS | | 80 Investments “some” bioprocessing activities over the next 24 to how many services they provide to patients. Agetech months. This is up from 82.6% the year before.3 This creates an obvious incentive for as many treatments to be supplied as possible. Caring for rapidly growing elderly populations Around a third of the most frequently An increasingly popular alternative to this – both in sickness and health – is an enormous outsourced steps are entrusted to life science “fee-for-service” approach is “value-based challenge. Already, certain countries are feeling tools (LST) companies. LST companies create care,” where providers get paid according the pressure of shrinking workforces combined and deploy instruments and tests that empower to patient outcomes. The emphasis here is with large numbers of people requiring the research and development process. The on results, including disease prevention and monitoring, companionship and help with daily LST business model can be compared to that of promoting wellness. functions. We believe that agetech – hardware suppliers of picks and shovels to miners during and software that address old age challenges – 19th century extractive booms. Irrespective Over time, we believe that companies that seek may ultimately have an important role to play in of whether the miners struck gold, the to enhance patient experience and improve addressing this situation. hardware suppliers made money from selling health outcomes are likelier to gain market them hardware. share. This may be especially true in the US, the Wearable devices – such as smartwatches – are world’s largest market. US healthcare spending already widely used to help people track their The global LST market was estimated at around per head is greater than in any other country wellness. Increasingly, they may be used to $92.2 billion in 2020. This may increase at a while patient satisfaction with their experience monitor the health and well-being of seniors, compound annual growth rate (CAGR) of 11.9% can sometimes be found wanting. giving early warnings of heart attacks and between 2021 to 2028, according to Grand strokes and alerting emergency services. And by View Research.4 Technology could play a leading role in driving Some of the key drivers could monitoring for falls, they could also help support be from creating or adopting new solutions for advances in value-based care. Capturing and those living independently. Likewise, robots analyzing and separating chemicals as well as analyzing vast amounts of patient data could may be able to provide vital companionship and genetic and other sequencing. make preventative measures and treatments stimulation, both for those living in their own increasingly personalized. Given their expertise homes and in retirement homes. Risks to this growth potential include slowing in artificial intelligence, big technology demand from biopharma companies, softer companies may enter the healthcare industry Agetech is closely related to several aspects academic demand due to reduced government and act as disruptors. of our unstoppable trend of digitization, funding, and an inability to execute on mergers including robotics, automation and artificial & acquisitions integration. Risks to the leading incumbent providers of intelligence. Given the amount of data captured value-based care include competition from and stored – and the often personal nature of Value-based care new entrants outside the healthcare space and it – cyber security presents one risk to many potential government regulation, which could related companies. restrict flexibility and innovation. The way that patients receive healthcare is changing. Traditionally, physicians and other healthcare providers have been paid according 3 Source: Langer, E.S., et al., Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, 19th annual edition, BioPlan Associates, Rockville, MD, April 2022, 500+ pages. From article entitled 2022 Outsourcing Trends In Biopharmaceutical Manufacturing by Smita Khanna, Ph.D., BioPlan Associates` 4 Source: Grand View Research, as of Sep 2022. Science Tools Market Size, Share & Trends Analysis Report By Technology (Cell Biology, Genomics), By Product (Flow Cytometry, Mass Spectrometry), By End-use, By Region, And Segment Forecasts, 2021 - 2028

Citi Global Wealth UNSToPPABLe TreNDS | | 81 Investments wHAT To Do Now? FiGUre 3: PHArMACeUTiCALS BeAT BioTeCH iN 2022’S ToUGH CoNDiTioNS We believe that demand for healthcare will likely grow faster than the economy 675 over time. And we see a compelling case Russell 3000 Pharma Russell 3000 Biotech for portfolio exposure to this source 375 of long-term growth. Healthcare is the least cyclical of all economic sectors: 575 the least tied to economic performance. Major pharmaceuticals firms have 325 routinely raised their dividends through turbulent times. a 475 h m c Amid 2022’s difficult conditions, for r 275 e a t o example, large-cap pharmaceuticals h i P B showed comparative resilience, falling 0 0 by less than broad market indices. 0 375 0 0 225 0 They may continue to perform this role 3 3 l l in 2023, should volatility persist. By l l e e s s contrast, life sciences and small-cap s s u u indices underperformed – FIGURE 3 – R 275 R but may potentially perform strongly 175 once the Fed ceases raising and then starts cutting interest rates. Further selloffs in the meantime may present us 125 175 with opportunities to build longer term positions in innovative segments such as life sciences, medical technology and biotech. 75 75 We see many possibilities for gaining '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 exposure to this vital industry for the years ahead, including strategies from Source: Haver, as of 14 Oct 2022. specialist managers and capital markets Chart shows the performance since 2010 of the Russell 3000 Pharmaceutical and Biotech sub-indices, noting the former’s outperformance of the strategies for suitable investors. With latter in 2022. Past performance does not guarantee future results. Investors cannot invest in an index. All forecasts are expressions of opinion, the unstoppable trends of aging and the are subject to change without notice and are not intended to be a guarantee of future events. rise of Asia’s middle class continuing, the prognosis for healthcare looks positive. Is your portfolio taking the prescription?

Citi Global Wealth Investments CONTENTS 4 Regional asset class previews 4.1 Asia: Broader re-opening to enable regional recovery 4.2 Europe: Bracing for winter recession 4.3 Latin America: Selective opportunities amid cheap valuations 4.4 North America: The hunt for quality and yield

4.1 Asia: Broader re-opening to enable regional recovery Asia is likely to face pressure from potential KEN PENG US recession, but it is also likely to see Head of Investment Strategy, Asia Pacific some lift from China’s recovery. BRUCE HARRIS Head of Global Fixed ƒ Regional prospects for 2023 look mixed, with potential Income Strategy US recession weighing on sentiment, while China’s potential re-opening could support regional growth ƒ In equities, we seek exposure to recovery in China and Hong Kong, with initial focus on re-opening beneficiaries, followed by industries that have policy support ƒ In fixed income, we favor higher rated financials, energy, materials and tech/telecom ƒ The weakest currencies of 2022 may gain most in 2023, including the Japanese yen, Australian dollar and Chinese yuan Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 83 Investments

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 84 Investments Even as global markets struggled in 2022, many debt by more than one year. This curbs Fed Amid deeply negative sentiment toward global parts of Asia experienced a boom. As the US tightening’s spillover effect on Asia. equities, Indonesia was the only Asian market potentially enters a recession in 2023, broader to produce positive returns in US dollar terms in re-opening in Asia could increase resilience and Together, we believe Asia could avoid recession 2022, up 2%. India (down 6% in US dollar terms) create opportunities. in 2023, even considering potential external and Thailand (down 5%) managed positive local weakness. We expect emerging market (EM) currency returns. China (down 32%), Taiwan Asia saw north-south divergence in economic Asian real GDP growth to reach 5.0% in 2023 (down 30%) and Korea (down 28%) suffered and market performance in 2022. Thailand after dipping to just below 4.0% in 2022. falling local equities and currencies. Earnings enjoyed a strong revival of tourism that is likely The key turnaround is China where growth results for the year seem to corroborate the to accelerate. India saw a notable investment is likely to rebound from 3.5% to 4.5%. equity returns, with Indonesia, Thailand and boom and capital inflows. Indonesia and Hong Kong’s economy may reverse from India leading, while China and Korea lagged. Malaysia rode the commodities boom. North 2.6% contraction to 2.8% growth. Among Asia, meanwhile, was generally slower in re- developed Asia, Japan is likely to be the most Performance in 2023 will depend much on the opening, which weighed most on Hong Kong and resilient, holding above-trend growth at 1.6%, timing of US and China’s cycles. Markets that mainland China. Geopolitical escalation weighed which contributes to our preference for this are most insulated from potential external on Taiwan, while Korea was also hit by the tech market. Most other economies are likely to see economic weakness may do best. China may do bear market, especially in semiconductors. moderate deceleration. better after two dire years of negative earnings and equity performance. Even though China’s In 2023, Asia is likely to see broader re-opening, longer term outlook seems uncertain – see A including China. Recent medical developments Equities greater separation between East and West: and changes in government messaging suggest G2 polarization intensifies – the leadership has substantial easing in zero-COVID policy lies Our favored markets clearly shown that it plans to restore economic ahead, perhaps in spring 2023, after the winter activity after the passing of the pre-Congress wave of infections. SECTORS political struggle. China’s reopening could have positive A few weeks after the Communist Party effects beyond its borders. Reviving demand Financials 14.5% Congress, the leadership laid out a path to may boost Chinese imports from the wider exiting “zero-COVID” policies, announced region, offsetting some of the impact from Consumer disc 28.6% comprehensive measures to stabilize the the European and US downturns. Potential property sector and managed to tone down resumption of outbound Chinese tourism can IT -12.1% the confrontational rhetoric with the US. We help to extend recovery in markets like Thailand, expect additional progress to restoring capital where tourism recovered to 50% of 2019’s levels Telecom 15.5% market activity, including more IPOs from the without Chinese travel resuming. tech sector. Sources: 1 - FactSet consensus estimates, as of 25Nov Regional external resilience remains robust. 2022; 2 - Bloomberg, as of 23 Nov 2022. Past perfor- These measures could enable a more visible Asian markets have seen their FX reserves fall mance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor cannot recovery in 2023, restoring some investor in 2022, while their import bills rose and their invest directly in an index. All forecasts are expres- confidence. After 2022’s 7% decline in earnings, currencies weakened. But reserves can still sions of opinion, are subject to change without notice and are not intended to be a guarantee of future China is likely to see low double-digit growth. amply cover current account and short-term events. Valuations may also rise from distressed levels

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 85 Investments in the process, a powerful combination for FiGUre 1. ASiA vALUATioNS AND oUr FAvoreD ASiA SeCTorS potential returns in 2023. Free Pe ePS YoY % P/B roe Div CAPe Japan’s equity performance was around the MKT CAP Yid middle of the pack, as its 15% earnings growth in US $bn 22e 23e 24e 22e 23e 24e 22e 22e 22e 10yr 2022 beat expectations. The drag came mainly from a 30% depreciation in its currency through Japan 3175 13.0 12.2 12.2 4.4 5.9 5.9 1.3 9.5 2.5 20.8 October. Traditionally, Japanese equities have Asia Pac 6570 12.5 11.1 11.1 4.5 13.8 13.8 1.5 11.6 3.1 15.7 benefited from a weaker yen. However, 2022’s ex Jp depreciation came from a record tightening Australia 1152 14.6 14.6 14.6 -1.5 0.0 0.0 2.1 14.8 4.7 20.6 in US monetary policy, which weighed on all Hong Kong 387 12.7 11.4 11.4 26.0 11.4 11.4 1.0 6.1 3.6 13.5 assets. Meanwhile, Japan’s economy was largely Singapore 210 13.1 11.8 11.8 24.1 10.8 10.8 1.3 8.3 4.0 12.0 unscathed by inflation. The Bank of Japan’s controversial easing policy amid Fed tightening New 26 34.1 28.1 28.1 17.2 21.4 21.4 3.0 7.3 2.6 25.7 may be vindicated if the US dollar continues to Zealand weaken in 2023. The potential for yen recovery, China 1800 9.6 8.4 8.4 14.6 14.2 14.2 1.2 10.8 2.5 10.2 with relatively stable policy and growth, may Korea 747 10.7 8.8 18.9 -11.1 28.2 16.4 0.9 9.4 2.4 12.9 draw more investor inflows to Japanese equities. Taiwan 919 12.9 11.0 11.0 -13.0 16.8 16.8 2.1 19.0 4.0 21.6 Elsewhere in Asia-Pacific, countries more india 927 22.2 18.9 8.8 18.9 16.4 28.2 3.6 14.0 1.3 38.8 exposed to the global cycle may still feel Thailand 132 17.4 15.5 15.5 12.9 12.2 12.2 2.0 10.1 2.6 17.2 pressure, such as Korea, Taiwan and Australia, indonesia 126 13.9 13.0 13.0 5.3 6.6 6.6 2.5 17.4 3.2 21.1 where earnings are expected to fall in 2023. Malaysia 97 13.4 12.6 12.6 11.4 6.2 6.2 1.4 9.6 3.9 14.0 Indonesia’s commodity advantage may also fade in 2023. Others in Southeast Asia like Philippines 48 14.2 12.5 12.5 17.0 13.7 13.7 1.7 10.3 2.0 19.2 Thailand and Singapore may do well amid broader re-opening. Source: Citi Research, Worldscope, MSCI, FactSet, data as of 25 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee As Asia continues relaxing COVID restrictions, of future results. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be we favor re-opening beneficiaries in consumer, a guarantee of future events. e-commerce, pharma and medical tech. Longer Note: The above data are compiled based on companies in MSCI AC World Index. The market capitalization for regions, markets and sectors are term, as US-China rivalry persists, we expect a free-float adjusted. P/E, EPS Growth, P/B, Dividend Yield and ROE are aggregated from FactSet consensus estimate (calendarized to December year drive toward building more domestic production end) with current prices. CAPE is calculated by current price divided by 10-year average EPS based on MSCI index-level data. NM = Not Meaningful; capacity as well as those in friendly markets. NA = Not Available. This is likely to shift the investor mindset from focusing on companies that enable consumption to those that facilitate production, likely boosting industries like sustainable energy, telecom, core technologies and select infrastructure.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 86 Investments Fixed income experience very high levels of distress due in For investors with high risk tolerance, real estate part to government policies contributing to a can potentially offer tactical outperformance Asian fixed income was not spared the effects of continual loss of market confidence. This led to if policies enable a rebound in sales and cash rising global central bank policy rates in 2022. large sector price falls not only in high-yield but flows. For more conservative investors, US The Fed’s rate hikes of almost 400bps through also formerly investment-grade (IG) bonds. dollar-denominated investment-grade issuers November caused all fixed income valuations may offer interesting yield premiums to their US to fall. Higher US rates also pressured foreign Policies around the real estate sector have been counterparts of similar ratings and maturities, exchange values. The Bank of Japan (BoJ) improving since the third quarter of 2022. After such as those in higher rated financials, energy, reportedly intervened several times in recent the October Party Congress, China’s financial materials and tech/telecom. months to support the yen, as the BoJ remains authorities announced comprehensive measures unwilling for now to follow other G7 central to stop widening defaults, accelerate project Corporates aside, various Asian sovereigns banks in raising rates. completions, facilitate restructuring and restore with strong trade balances and healthy US housing demand. Market confidence rebounded dollar reserves may also be interesting for In US dollar-denominated corporate bonds, sharply in November and may mark the end of adding potential diversification to a global fixed China’s real estate sector continued to this round of crisis in China. income allocation. oUr FAvoreD ASiA SeCTorS (eX-JAPAN) Currencies Free Asian currencies – as represented by the MKT CAP Pe ePS YoY % P/B roe Div Yid CAPe Bloomberg JP Morgan Asia Dollar Index – US $bn 22e 23e 22e 23e 22e 21e 22e 10yr weakened 11.3% in 2022 through October. The Fed’s 400bps of rate hikes through November Financials 1540 8.8 8.1 14.3 8.5 1.1 11.0 4.1 11.9 left US yields much more attractive than many Consumer disc 795 15.3 12.6 28.6 21.2 2.0 10.0 1.1 14.6 local Asian sovereign yields. The resulting iT 1265 14.8 11.5 -12.1 28.3 2.1 16.0 3.0 23.9 negative carry caused capital outflows and Telecom 130 19.0 16.8 15.5 13.5 2.5 11.4 3.7 15.2 hit Asian currencies, with some central banks repeatedly intervening to support their Source: Citi Research, Worldscope, MSCI, FactSet, data as of 11 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. currencies, notably Japan, China and Hong They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee Kong. of future results. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Fed tightening may continue in early 2023, Note: The above data are compiled based on companies in MSCI AC World Index. The market capitalization for regions, markets and sectors are during which time the US dollar may remain free-float adjusted. P/E, EPS Growth, P/B, Dividend Yield and ROE are aggregated from FactSet consensus estimate (calendarized to December year supported. But when US economic data turn end) with current prices. CAPE is calculated by current price divided by 10-year average EPS based on MSCI index-level data. NM = Not Meaningful; weaker and the Fed pivots to cutting, the dollar NA = Not Available. may see substantial downside. Some early signs of this are already evident in late 2022.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 87 Investments The Japanese yen appears best placed among FiGUre 3. ASiA PACiFiC FiXeD iNCoMe YieLDS (%) Asian currencies for a snapback. Due to the Bank of Japan’s easing stance, short yen positions Japan 10y Sov 0.3 are at record levels. The reversal will likely be as dramatic as the yen’s 30% weakening through China 10y Sov 2.8 October in 2022. The Australian dollar may also reverse Thailand 10y Sov 2.9 substantially. After an 18% depreciation between April and October, it rebounded 8% in South Korea 10y Sov 3.8 one month on the first hints of peak in US yields. The Reserve Bank of Australia had also been Malaysia 10y Sov 4.4 consistently raising rates and may outlast the Fed’s hikes. China IG (USD) 6.2 The Chinese yuan saw 16% peak-to-trough depreciation in 2022 but could see a comeback Asia ex-Japan IG Corporates (USD) 6.6 in 2023. Some suspect that China’s recovery may weaken its currency because its import India 10y Sov 7.3 demand would rise, while exports fall as the US economy stutters. However, the Chinese yuan’s Indonesia 10y Sov 7.0 depreciation resulted mainly from Chinese government bonds’ 1% positive carry turning to Asia ex-Japan Sovereign (USD) 7.1 a 2% negative carry versus US Treasury bonds. This gap is likely to narrow if China stages a Asia ex-Japan HY Corporates (USD) 20.4 recovery and emerges from deflation, lifting Chinese yields in 2023, while US yields likely fall. China HY (USD) 27.8 0 5 10 15 20 25 30 Source: Bloomberg Barclays, Bloomberg and The Yield Book, as of 24 Nov 2022. Past performance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results.

4.2 Europe: Bracing for winter recession Amid the energy crisis, Europe looks set for GUILLAUME MENUET Head of Investment Strategy a difficult year. Despite cheap assets and and Economics, EMEA currencies, we remain cautious for now. JUDIYAH AMIRTHANATHAR EMEA Investment Strategy ƒ We expect both the eurozone and the UK to see slightly negative GDP growth in 2023 ƒ While valuations are low, we are neutral UK equities and underweight Europe ex-UK ƒ We are staying underweight European sovereign and credit ƒ The euro and sterling seem likely to remain at weak levels pending any decisive turn in the US dollar Citi Global Wealth reGioNAL PreviewS | | 88 Investments

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 89 Investments Overview creates risks of confrontation with the EU over As the global economy slows markedly in 2023, sovereignty-related issues. corporate revenues could come under pressure. Real GDP growth in the eurozone may fall 0.5% With various input costs including wages in 2023 after rising 3.2% in 2022. In the UK, Fiscal policy in 2023 is set to tighten, as set to increase further next year, operating we see a 1.0% drop in 2023 after a rise of 4.3% governments seek to shrink their budget margins are expected to narrow during the in 2022. Consumer spending should weaken deficits. However, the EU is unlikely to first half of 2023. This will likely translate into in coming quarters as household confidence reintroduce strict fiscal rules – suspended during lower expectations for corporate earnings per declines given high levels of inflation and the the pandemic – before 2024. The European share (EPS). ‘cost of living’ crisis. Elevated uncertainty and Central Bank (ECB) and others will probably the central bank-driven rapid tightening in tighten monetary policy further. But as inflation Bottom-up analyst consensus forecasts are financing conditions will likely induce firms to begins falling back from multi-decade highs, for European ex-UK EPS to grow 2.1% in 2023 trim hiring and investment in early 2023. A we expect policy rates to peak amid weakening after rising 15.8% in 2022. UK EPS are seen short-lived recession lasting between three or domestic demand. contracting 2.8% in 2023 after rising 36.8% four quarters is our baseline scenario for 2023. in 2022. We believe these expectations are Equities too optimistic, with further downgrades likely Some European countries could be at risk of in the coming quarters. Relative and absolute power shortages this winter as natural gas valuations remain cheap for 2023, with Europe storage facilities are not evenly distributed. Our favored European markets ex-UK on 12.7% forecast earnings and the UK Geopolitical risk is a clear and present danger on 9.6%. until the war in Ukraine ends. As a large exporter 1 SECTORS EPS GROWTH FORECAST In this challenging environment, we prefer firms of goods and services, Europe will be impacted with strong management, robust balance sheets, by the expected slowdown in global economic Consumer staples 9.3% plentiful cash flow and resilient earnings and activity, even if recent currency depreciation dividends. We favor defensive sectors such as against the dollar cushions the blow. Healthcare 7.8% healthcare and consumer staples, while being While no major elections are due in 2023, less constructive on energy and industrials. politics could pose a significant risk. The UK is Sources: 1 - FactSet consensus estimates, as of 23 Nov We continue to see upside potential for green struggling with the barriers that it now faces 2022; 2 - Bloomberg, as of 23 Nov 2022. Past perfor- energy and infrastructure going into 2023, given mance is no guarantee of future returns. Real results Europe’s need to diversify its energy mix away when trading with the European Union since may vary. Indices are unmanaged. An investor cannot Brexit. It is also suffering from temporarily invest directly in an index. All forecasts are expres- from Russian natural gas dependency. stressed public finances. It is not clear whether sions of opinion, are subject to change without notice and are not intended to be a guarantee of Persistently high inflation in early 2023 and the new prime minister (PM) Rishi Sunak future events. can establish a more constructive trading tighter central bank policies will likely challenge relationship with the EU. Europe ex-UK equities have been under pressure equities. By the second half, however, we expect amid the Russia-Ukraine war, gas supply issues, European and UK equities will likely be looking France and Germany – the EU’s foremost tighter financial conditions and higher-than- ahead to an early-stage economic recovery. powers – seem to disagree on many important expected inflation. UK equities have done much Key risks to our view are still skewed to the issues such as energy and defense. In Italy, better, thanks to higher weightings in stronger downside, ranging from a deeper recession, new PM Georgia Meloni leads a fractious far- performing sectors such as energy, healthcare higher inflation for longer, gas supply issues and right-led coalition. Her administration is keen and financials. For 2023/24, we remain delayed Chinese recovery. to receive cash from the NextGenEU COVID underweight Europe ex-UK equities and neutral Recovery Fund. However, her euro-skepticism on UK equities.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 90 Investments FiGUre 1. eMeA vALUATioNS AND oUr FAvoreD eMeA SeCTorS Priced as of close on 18 Nov 22 P/e ePS YoY % P/B roe Div Yld CAPe 22e 23e 24e 22e 23e 24e 22e 22e 22e 10yr europe 12.1 11.8 11.2 21.4 0.6 6.1 1.8 14.9 3.5 20.2 UK 9.4 9.6 9.4 36.8 -2.8 2.1 1.6 17.6 4.1 16.9 europe ex UK 13.3 12.7 11.8 15.8 2.1 7.7 1.8 14.0 3.3 21.6 France 11.7 11.9 11.3 34.2 -1.7 5.4 1.7 14.5 3.2 24.5 Switzerland 18.2 16.1 14.6 -7.2 13.2 9.9 3.0 16.6 3.1 23.7 Germany 10.9 10.8 9.8 4.9 2.1 10.5 1.3 12.1 3.7 16.3 Netherlands 23.0 18.0 15.2 -11.6 27.6 18.9 2.6 10.9 2.1 29.2 Sweden 14.8 13.8 13.0 4.0 7.3 8.3 1.9 14.6 3.3 20.0 Denmark 29.7 20.6 20.3 40.5 -29.1 1.8 4.7 28.9 1.3 37.0 italy 7.7 7.9 7.5 63.6 -2.6 5.6 1.1 14.2 5.2 20.0 Spain 9.7 9.9 9.3 20.0 -1.3 5.9 1.1 10.9 4.9 14.8 Finland 15.9 14.1 13.4 -6.1 12.3 5.2 2.2 13.6 3.5 26.1 Belgium 18.2 17.3 14.5 1.8 5.1 19.0 1.5 8.3 2.5 17.1 Norway 7.0 7.6 8.8 93.0 -8.2 -14.2 1.8 25.5 6.7 18.9 ireland 16.1 15.4 13.6 14.9 4.4 12.8 1.8 11.1 1.9 28.7 Portugal 18.5 15.7 14.8 29.9 18.1 5.9 2.3 12.3 3.3 24.6 Austria 5.5 6.1 6.8 39.0 -10.3 -10.1 0.9 16.3 6.2 13.0 Priced as of close on 18 Nov 22 P/e ePS YoY % P/B roe Div Yld CAPe energy 4.5 5.3 6.4 148.2 -14.8 -16.1 1.3 27.5 4.7 18.9 Consumer staples 17.9 16.4 15.0 11.0 9.3 9.4 3.2 17.6 3.0 22.8 Healthcare 16.9 15.6 14.0 11.3 7.8 11.8 3.5 20.2 2.5 26.5 Financials 9.0 8.0 7.1 0.2 13.2 12.1 0.9 9.5 5.2 13.2 Source: Citi Research, Worldscope, MSCI, FactSet, data as of 18 Nov 2022. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Past performance is no guarantee of future results. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Note: The above data are compiled based on companies in MSCI AC World Index. The market capitalization for regions, markets and sectors are free-float adjusted. P/E, EPS Growth, P/B, Dividend Yield and ROE are aggregated from FactSet consensus estimate (calendarized to December year end) with current prices. CAPE is calculated by current price divided by 10-year average EPS based on MSCI index-level data. NM = Not Meaningful; NA = Not Available.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 91 Investments Fixed income we anticipate an increase in 2023 that will increase investors’ appetite for higher quality issuers. We thus remain underweight European sovereign Developed European investment-grade and sovereign yields soared in 2022 and credit. as central banks hiked rates to tackle much higher-than-anticipated inflation. FiGUre 2: eMeA FiXeD iNCoMe YieLDS (%) After eight years, the ECB ended its negative rates experiment and two of its pandemic-era asset-buying programs. Ten-year Bund yields surged from -0.18% to 2.41% before slipping below 1.98% in late November. Swiss 10y Sov 1.01 The Bank of England (BoE) had already started hiking rates in December Germany 10y Sov 2.43 2021. This initiated a bear market in bonds, with 10-year UK gilt yields Netherlands 10y Sov 2.25 surging from 0.97% to a peak of 4.50% in late September. The rise was Austria 10Y Sov 2.43 exacerbated by unfunded tax cut proposals from short-lived prime minister Belgium 10Y Sov 2.45 Liz Truss. However, a change of PM, finance minister and a new autumn France 10y Sov 2.54 budgetary statement reassured financial markets, with 10-year gilt yields dropping toward 3.14%. Ireland 10y Sov 2.55 Portugal 10y Sov 3.91 We anticipate a further withdrawal of liquidity in 2023 as both the ECB Euro-Aggregate IG Index 3.14 and BoE shrink their balance sheets. We see policy rates peaking at 2.5% and 4.25% respectively. Lower inflation and restrictive policy stances UK 10y Sov 2.97 throughout 2023 will likely result in range-bound euro area and UK Euro IG Corporates 3.14 sovereign yields. Italy 10y Sov 3.91 However, recessionary conditions could create opportunities for local Spain 10y Sov 3.97 investors keen to increase their exposure to short-dated sovereign bonds Greece 10y Sov 4.24 while reducing portfolio volatility. By end 2023, we see 10-year yields at GBP IG Corporates 5.48 2.25%-2.50% for Bunds and 3.50%-3.75% for gilts. GBP HY Corporates (ex-financials) 7.79 For European corporate bonds, investors spent much of 2022 seeking out Euro HY Corporates 10.35 more creditworthy issuers. In 2021, they did the opposite, prioritizing yield Euro Capital Securities 10.80 over ratings. Corporate earnings were resilient in the first half of 2022, with companies refinancing most of their maturing debt early and at lower yields. 0 2 4 6 8 10 12 The second half was a different story in the European investment-grade market, amid a significant reduction in bond supply. Source: Bloomberg Barclays, Bloomberg and The Yield Book, as of 22 Nov 2022. Past performance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor cannot invest directly We anticipate this trend will likely continue in 2023. On the one hand, in an index. They are shown for illustrative purposes only and do not represent the performance of any specific fundamentals remain positive, with leverage ratios at an all-time low and investment. Past performance is no guarantee of future results. interest rate coverage ratios at all-time highs. On the other, profit margins are coming under pressure from higher debt servicing and input costs, which is impacting firms’ net income. From record low default rates in 2022,

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 92 Investments Currencies Like sterling, the euro faces multiple headwinds. The single currency zone also faces an The British pound has recovered somewhat from unfavorable mix of lower growth, high inflation the intense selling that greeted former PM Liz and rising rates in the months ahead. The ECB Truss’s unfunded tax cut proposals in September is expected to hike rates to 2.5% amid fears of 2022. For sterling to make sustained gains, a severe winter’s effect on energy consumption, though, the UK needs to present a sustainable China’s delayed recovery and likely recession in long-term growth strategy. The outlook for 2023 Europe. These forces suggest the euro staying is bleak, with recession likely, the developed weaker for longer in a $1.09-$1.14 average range. world’s worst external deficit and trade with the The caveat is the timing of a turn in the US EU hampered by Brexit. dollar. Should the Fed turn more dovish in its The BoE has an equally difficult task of trying to monetary policy, the US dollar could weaken lower a high inflation rate without deepening the across the board, including against the euro UK recession and home price declines. Against and sterling. The timing of such a move remains this backdrop, we see sterling vulnerable to difficult to forecast, however. further bouts of weakness against the US dollar. We expect an average range of $1.23-$1.28 until the longer term picture shows improvement.

4.3 Latin America: Selective opportunities amid cheap valuations With regional central banks having done their JORGE AMATO job in fighting inflation in 2022, our focus Head of Investment Strategy, Latin America is on individual countries’ fiscal policies, as well as political and social dynamics. Equity BRUCE HARRIS Head of Global Fixed valuations are attractive across the board, Income Strategy but upside could be limited by uncertainty around government spending policies. ƒ Amid a decelerating global economy, Latin America may grow around 1% in 2023 ƒ Equities in Brazil and Mexico are on low valuations while their fundamentals look solid ƒ We see Latin American fixed income as a “bond picker’s market” at the moment ƒ Conditions for regional currencies may be favorable in 2023, especially if the US dollar weakens Citi Global Wealth reGioNAL PreviewS | | 93 Investments

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 94 Investments Our favored markets Latin America’s largest economies could grow down inflation expectations, its success could be on average around 1% in 2023. This rate is at risk if Lula’s spending plans are undiluted. 1 lower than the 2.5-3.0% range for 2022. And EQUITY EPS GROWTH FORECAST it reflects our view that the global economy Colombia, Peru and Chile have unproven new will decelerate in 2023 as higher policy rates administrations, which face the challenge of Brazil -15% take effect. reconciling aggressive social spending promises with available resources. Chile and Colombia are In 2022, the region added two further left- the most uncertain here, as they are dealing with 1 SECTORS EPS GROWTH FORECAST leaning presidents: Gustavo Petro in Colombia proposals for more significant changes such as and Luis Ignacio Lula da Silva in Brazil. These constitutional reform and contentious pension, IT 38% two elections completed the wave of left-wing tax, labor and property rights reforms. populism across all the major economies. Telecom 84% Argentina, which often goes against the grain, Argentina will likely have another rough might break this pattern in 2023. year, with government spending and inflation Healthcare 20% accelerating as elections loom. Investors will Despite a shift in economic policy toward watch for a potential change in administration Consumer Staples 13% higher public spending among these countries, that could foster positive expectations. But the the magnitude of risks is quite different. Each macroeconomic adjustment required is massive FIXED INCOME YIELDS2 nation exhibits different political and economic and a challenge for any government. undercurrents, requiring investor discernment in Brazil investment portfolio construction. Equities grade and high yield 6% Mexico’s economy is likely to suffer the deceleration we expect in the US, its largest The MSCI Latin America Index is up nearly 4% Sources: 1 - FactSet consensus estimates, as of 23 Nov trading partner. López Obrador’s (“AMLO”) year to date, a strong performance compared 2022; 2 - Bloomberg, as of 23 Nov 2022. Past perfor- six-year term will end in 2024, suggesting to global equities, down around 18%. Excluding mance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor cannot he will focus more on building his legacy as Colombia – down 15% albeit still outperforming invest directly in an index. All forecasts are expres- he cannot be re-elected. Reduced economic global equities – every other major regional sions of opinion, are subject to change without notice activity constrained fiscal resources and political and are not intended to be a guarantee of future equity market saw positive returns to events. uncertainty could put pressure on Mexico’s varying degrees. solid market performance since the 2020 pandemic lows. Latin American earnings per share (EPS) growth was a solid 13% in 2022. And the absolute level The fate of Brazil’s fiscal accounts will remain of expected EPS of $287 is not far from the markets’ principal focus. Lula’s campaign commodity super cycle record of 2007-2011. pledges for social spending add up to roughly Forward price/earnings multiples going into $40bn, around 2% of GDP, such resources that 2023 are practically the same as last year, are unavailable within the current spending again suggesting the potential for attractive framework. The fiscal spending debate may valuations. For the region, a 12.5% decline in dominate economic headlines throughout 2023. EPS is forecast. While the central bank has managed to bring

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 95 Investments FiGUre 1. LATiN AMeriCA vALUATioNS MKT cap P/e ePS YoY % P/B roe Div Yld CAPe US$bn ‘23Fwd ‘24FwD ‘23e ‘24e ‘23e ‘23e ‘23e 10yr MSCi eM Latin America 541.2 7.9 7.9 -13.0% 0.3% 1.4 23.8 9.9 16.0 Argentina 5.9 4.4 5.8 NA -25.4% 0.3 9.6 NA NA Brazil 324.3 6.6 6.8 -15.0% -2.2% 1.3 30.1 12.8 15.2 Mexico 154.4 12.9 11.5 5.8% 12.4% 1.9 18.0 3.2 18.8 Chile 35.4 7.5 8.1 -26.8% -7.3% 1.4 18.2 15.1 14.6 Colombia 9.2 5.5 5.8 -18.2% -4.5% 0.4 36.6 8.8 11.6 Peru 17.8 11.8 10.2 -13.4% 16.0% 1.8 20.8 3.9 NA Source: FactSet Consensus, MSCI, as of 22 Nov 2022. Note: The above data are compiled based on companies in MSCI AC World Index. Free MC is free-float adjusted market capitalization for regions, markets and sectors. P/E (Price/Earnings), EPS growth (Earnings per share), P/B (Price/Book), Dividend yield (DY) and RoE (Return on Equity) are aggregated from FactSet consensus estimates. CAPE stands for Cyclically Adjusted Price to Earnings, and is defined as: Current price/ten-year average inflation-adjusted EPS. Indices all from MSCI. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only. Past performance is no guarantee of future returns. Real results may vary. FiGUre 2. oUr FAvoreD LATiN AMeriCAN SeCTorS MKT cap P/e ePS YoY % P/B roe Div Yld CAPe US$bn ‘23Fwd ‘24FwD ‘23e ‘24e ‘23e ‘23e ‘23e 10yr info technology 2.9 23.3 18.6 38% 25% 3.8 11.4 1.3 NA Telecom 10.2 18.5 14.1 84% 31% 1.4 0.7 1.7 NA Healthcare 39.1 13.4 11.4 20% 18% 1.8 20.7 2.8 NA Consumer staples 82.6 16.2 14.4 13% 12% 2.4 17.8 2.9 23.2 Source: Citi Research, Worldscope, MSCI, FactSet, as of 22 Nov 2022. Note: The above data are compiled based on companies in MSCI AC World Index. The market capitalization for regions, markets and sectors are free-float adjusted. P/E (Price/Earnings), EPS growth (Earnings per share), P/B (Price/Book), Dividend yield and RoE (Return on Equity) are aggregated from FactSet consensus estimates (calendarized to December year end) with current prices. CAPE is calculated by current price divided by ten-year average EPS based on MSCI index level data. NM = Not Meaningful; NA = Not Available. Indices all from MSCI. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only. Past performance is no guarantee of future returns. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 96 Investments The Brazil MSCI Index had a volatile but solid ahead of the 2024 elections, leading to capital impact from almost 400bps of Federal Reserve performance in 2022, gaining 9%. Of the large, outflows and currency weakness, the latter rate hikes. more accessible equity markets in the region, impacting equity returns in US dollars. it stands out again in 2023. By nature, a highly Not all countries or large issuers performed as volatile market, Brazilian valuations remain quite Our favored regional sectors are healthcare and well, however. Mexico’s state-owned oil company attractive. And despite fiscal policy uncertainty, consumer discretionary, energy and materials. PEMEX, for example, was unable to reduce its fundamental dynamics look fairly solid. These sectors should benefit from easier debt burden despite a very strong oil market. monetary policy and still robust external and Its 10-year credit default spread widened from While more concentrated than Brazil’s well- commodity sectors. 400bps to 760bps. Colombia elected a left- diversified economy, the MSCI Brazil Index leaning president whose initial platform included offers potential opportunities for global Fixed income eliminating crude oil exports. Given oil is one of portfolios to participate in agriculture, energy, Colombia’s primary exports, the country’s US financial, retail and materials. The large-cap dollar credit spreads also widened considerably, companies that dominate the index offer sizable Latin American US dollar–denominated fixed from 273bps to 425bps. revenue streams, improved balance sheets and income fared poorly in 2022, like bonds profitability, and generous dividend payout globally. However, for the two large bellwethers Throughout Latin America sovereign and policies. Despite their cyclical bent, forward in the region of Brazil and Mexico, poor total corporate bonds, there is a large disparity in price/earnings multiples of around seven return performance due to rising yields was credit performance. We think this will persist, compensate for this. Notwithstanding high almost entirely attributable to dollar rates so investors should consider the region a “bond expected volatility, Brazil could again prove an moving higher. picker’s” market. The region is reasonably well attractive play in 2023 as China reopens and the protected against a stronger dollar owing to its US economic cycle bottoms out. The credit risk of those two countries – as status as a commodity-exporting powerhouse, measured by credit spreads – did not increase along with its strong intermediate goods export The MSCI Mexico Index is up 108% from its much. Brazil 10-year credit spreads had risen sectors as well, both of which draw dollars into 2020 lows, compared with 82% and 67% for only marginally from 291bps to 352bps in the region. the S&P 500 and MSCI World respectively. the year to 23 November 2022. Likewise, the This is impressive both in absolute and relative Brazilian national oil company saw 10-year credit In addition, most countries’ central banks terms. While up nearly 2% year to date, Mexico spreads rise only about 70bps from 346bps to have acted speedily in raising rates to combat more importantly is down only 7% from its 413bps. Both Brazil and the national oil company inflation and stay ahead of the Fed’s hikes. This post-pandemic highs. That compares to a 20% are rated just below investment grade. So, has resulted in significant relative currency decline for the S&P. compared to US high yield index credit spreads strength against the dollar. which rose over 160bps from 280bps to 445bps, That said, commodity and other goods prices On around 11 times forward earnings, Mexico they clearly outperformed. trades below its historical average of around 13, may decline in 2023 if the US or Europe enter but above Brazil. We expect its strong economic Mexico – which has an investment-grade rating recession. Additionally, following Lula’s election ties to the US to hit profitability in 2023, – saw more credit spread deterioration, with in Brazil, all countries in Latin America are now although this is not yet visible in 2023 earnings 10-year credit default swaps (CDS) rising from run by left-leaning administrations, who may forecasts. Domestic confidence and investment 156bps to 229bps. Again, though, this was favor ramping up spending on social programs could also suffer from rising political uncertainty somewhat marginal when compared to the and tempering market-based outcomes in the

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 97 Investments corporate sector. Given this uncertainty around We expect the Brazilian real to range trade in policy mix within countries, we suggest investors 2023, capped by fiscal policy uncertainty but focus on sovereigns with stronger credit metrics. also supported by very high real rates. The For corporates, we suggest investors primarily Mexican peso could see depreciation pressure consider globally dominant companies and local as its economy and trade slow, while the political banks that finance them, with management who environment puts pressure on capital flows. have already exhibited balance sheet and capital allocation discipline. FiGUre 3. LATiN AMeriCA FiXeD iNCoMe YieLDS Currencies Chile 10y Sov (USD) 4.6 Most regional currencies had a solid 2022 Peru 10y Sov (USD) 5.2 thanks to strong trade flows and central bank Chile 6y Sov (local) 5.5 tightening. The exceptions to this were the Colombian and Chilean pesos, down 15% and Mexico 10Y Sov (USD) 5.6 4% against the US dollar respectively. These falls mostly resulted from domestic political and Brazil 10y Sov (USD) 6.0 structural reform uncertainty. Higher inflation Peru 4y Sov (local) that left real policy rates in slightly negative 6.8 territory was also a factor. But this is expected Colombia 10y Sov (USD) 7.2 to correct as 2023 inflation expectations are much lower. Latin America Agg (USD) 8.4 Broadly speaking, monetary policy in the region Mexico 5y Sov (local) 9.1 is likely to become less restrictive than in the developed world as nominal policy rates are Colombia 5y Sov (local) 12.8 now much higher than recent inflation. The Brazil 4y Sov (local) 13.8 challenge for central banks will be handling the inflationary risks from 2023’s looser fiscal 0 2 4 6 8 10 12 14 16 policy. As the US enters recession and markets look for Fed rate cuts, the US dollar could see a broad-based weakening. Latin American policy Source: Bloomberg Barclays, Bloomberg and The Yield Book, as of 23 Nov 2022. Past performance is no guarantee of future returns. Real results rates are likely to continue to provide attractive may vary. carry. Barring policy mistakes, the environment could be relatively benign.

4.4 North America: The hunt for quality and yield We enter 2023 positioned for end-of-cycle CHARLIE REINHARD conditions. But we expect to pivot in the Head of Investment Strategy, North America second half of the year toward falling interest rates’ potential beneficiaries. LORRAINE SCHMITT Equity Strategy, North America ƒ We expect 0.7% full-year average real GDP growth BRUCE HARRIS in the US and 0.9% in Canada in 2023 Head of Global Fixed Income Strategy ƒ In equities, we favor dividend growers, plus the consumer staples and healthcare sectors ƒ North American fixed income offers some of the world’s most attractive yields ƒ We look for the US dollar to peak and then weaken in 2023 Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 98 Investments

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 99 Investments Our Favored US Market Overview It has also separated parts of its cutting-edge technology ecosystem from that of China’s, with EQUITY 1 As Fed monetary tightening sequentially a special focus on semiconductors, renewable EPS GROWTH FORECAST energy and electric vehicles. These efforts hits housing, manufacturing, profits and employment, we see 70% odds of a recession include a lower corporate tax rate, accelerated US large-cap 6.4% in 2023. For the year overall, we look for full- depreciation schedules, tariffs on China, the equities year average real GDP growth of 0.7% before it US-Mexico-Canada trade agreement (USMCA), accelerates to 2.0% in 2024. 2021’s infrastructure bill, and 2022’s Chips SECTORS & Science Act and Inflation Reduction Act If we are correct, the unemployment rate should (renewable energy bill). rise toward 5.25%. The large fiscal measures Consumer staples 3.7% of 2020-2022 and split federal government Together, these initiatives represent the makings resulting from the midterm elections have of a nascent US industrial policy. They are Healthcare 0.9% reduced the appetite for big spending initiatives. amplified by incentives to substitute cutting- The fiscal response to a downturn is likely edge digital technology for labor. This policy FIXED INCOME to rest with automatic stabilizers such as should shape activity during the next economic unemployment insurance and perhaps some expansion and beyond. And its impact could well-timed spending derived from 2021’s intensify when the US dollar weakens, further US IG Preferreds 7.5% infrastructure bill. enhancing US competitiveness. US IG Corporates 5.4% The Fed is likely to stop raising rates in early In addition to central bank tightening, war in 2023 as signs of economic strain become more Ukraine, Chinese lockdowns, elevated European US Treasury (2-year) 4.5% apparent. After a pause in the policy rate near energy prices and potential geopolitical 5%, we expect the Fed to cut rates as inflation provocations are among the risks to monitor. and employment decline. We expect US inflation We are also watching the degree to which home to fall in 2023 to 3.5%. This should allow 10-year prices respond to elevated mortgage rates. Sources: 1 - FactSet consensus estimates, as of 23 Nov Treasury yields to slip lower toward 3%. Longer term, we cannot rule out that greater 2022; 2 - Bloomberg, as of 23 Nov 2022. Past performance is After growth near 3.3% in 2022, Canadian centralized planning and supply chains that no guarantee of future returns. Real results may vary. Indices are GDP may increase by just 0.9% in 2023 before prioritize resiliency over efficiency could lead unmanaged. An investor cannot invest directly in an index. All forecasts picking up in 2024. Like the Fed, the Bank of to a less dynamic allocation of resources. If are expressions of opinion, are subject to change without notice and so, a less favorable growth-inflation trade-off are not intended to be a guarantee of future events. Canada appears likely to stop raising rates in early 2023. could ensue. In recent years, the US has undergone a series of policy initiatives to address its competitiveness in manufacturing, bolster supply chain resilience and encourage onshoring and friend-shoring, or the relocation of activities to allied nations.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 100 Investments Equities by almost 10% in 2023 before growing again in We head into 2023 with end-of-cycle, defensive 2024, in our view. positioning. We see potential opportunities in US equities declined 18.8% in the year through high-quality US large-cap equities with dividend 31 October, as investors adjusted to a hawkish Canada’s market trades on a lower multiple of payments that have consistently increased over Fed trying to arrest inflation by slowing the 2023’s estimated earnings than the US market, time. These stocks tend to be less volatile than economy. This came after robust returns in given its higher weighting in value-oriented the overall market, and this approach generally 2019-2021. We expect early-year challenges in financials, materials and energy companies. We skews more toward consumer staples and 2023 followed by gains later in the year. Markets have a neutral stance on Canadian large caps. industrials than would result from investing in traditionally turn up a few months before the This is based on our view that oil prices may not the S&P 500 Index. We also favor healthcare economy pulls out of a recession. S&P 500 respond well to a recession. stocks. They have outperformed the broader earnings per share (EPS) is likely to contract market in seven of the past eight times the economy decelerated. FiGUre 1. NorTH AMeriCA vALUATioNS Priced as of close on 25 Free MC wgt P/e ePS YoY % P/B roe Div Yld CAPe Perf % (local) Perf % (USD) Nov 22 US$bn % 22e 23e 24e 22e 23e 24e 22e 22e 22e 10yr weekly YTD weekly YTD North America 37,492 64.5 18.3 17.4 16.1 5.6 5.4 9.5 3.7 20.0 1.7 32.1 1.5 -16.2 1.5 -16.5 USA 35,655 61.3 18.7 17.8 16.3 4.7 5.6 9.9 3.9 20.5 1.6 32.7 1.5 -16.8 1.5 -16.8 Canada 1,837 3.2 12.6 12.3 13.1 19.3 3.0 2.1 1.8 15.0 3.3 23.4 2.0 -4.1 2.1 -9.4 Source: FactSet Consensus, MSCI, as of 23 Nov 2022. Note: The above data are compiled based on companies in MSCI AC World Index. Free MC is free-float adjusted market capitalization for regions, markets and sectors. P/E (Price/Earnings), EPS growth (Earnings per share), P/B (Price/Book), Dividend yield (DY) and RoE (Return on Equity) are aggregated from FactSet consensus estimates. CAPE stands for Cyclically Adjusted Price to Earnings, and is defined as: Current price/ten-year average inflation-adjusted EPS. Indices all from MSCI. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only. Past performance is no guarantee of future returns. Real results may vary.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 101 Investments When rates do start falling, we see potential Longer term, we see opportunities in the smart technology offers industrial tech firms opportunity in technology, a sector that often intersection of technology and manufacturing the opportunity to re-engineer products, outperforms in the twelve months following – industrial technology – created by harnessing parts, materials, systems, processes and the first Fed rate cuts. Staples, retailers and the potential of robotics, artificial intelligence, transportation utilizing vast amounts of transportation stocks also tend to perform quantum algorithms, transportation logistics data. Tech-enabled industrial firms, as well well when the Fed lowers rates. In the first year and other elements of the digital age. as their supply chains, stand to benefit of a new bull market, small-cap stocks often from US industrial policy efforts and our outperform large-cap stocks. As the internet of things (IoT) offers consumers unstoppable trends. smart doorbells and temperature control, FiGUre 2. oUr FAvoreD NorTH AMeriCAN SeCTorS Priced as of close Free wgt P/e ePS YoY % P/B roe Div CAPe Perf % (local) Perf % (USD) on 25 Nov 22 MC Yld US$bn % 22e 23e 24e 22e 23e 24e 22e 22e 22e 10yr weekly YTD weekly YTD US 35,655 100 18.7 17.8 16.3 4.7 5.6 9.9 3.9 20.5 1.6 32.7 1.5 -16.8 1.5 -16.8 Consumer staples 2,410 6.8 21.9 21.1 19.6 3.4 3.7 7.7 6.2 29.1 2.5 29.7 2.1 -1.1 2.1 -1.1 Healthcare 5,378 15.1 17.5 17.9 16.5 1.9 0.9 8.1 4.6 25.4 1.5 38.4 1.9 -3.8 1.9 -3.8 Source: Citi Research, Worldscope, MSCI, FactSet, as of 28 Oct 2022. Note: The above data are compiled based on companies in MSCI AC World Index. The market capitalization for regions, markets and sectors are free-float adjusted. P/E (Price/Earnings), EPS growth (Earnings per share), P/B (Price/Book), Dividend yield and RoE (Return on Equity) are aggregated from FactSet consensus estimates (calendarized to December year end) with current prices. CAPE is calculated by current price divided by ten-year average EPS based on MSCI index level data. NM = Not Meaningful; NA = Not Available. Indices all from MSCI. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only. Past performance is no guarantee of future returns. Real results may vary. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events.

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 102 Investments Fixed income US investment-grade bonds, with maturities of is likely to stop raising interest rates more one to three years. aggressively than other G10 central banks as US fixed income markets have suffered one of economic growth slows. Positioning for dollar their worst years ever in 2022 as the Fed moved For investors who would like to lock in today’s strength has become a crowded trade as aggressively to tackle stubborn inflation. After higher yields for slightly longer, they might investors seek out “safe haven” assets amid hiking rates by almost 4% in 2022, the market consider three- to seven-year maturities. uncertainty. The US has large trade and fiscal still expects the central bank to raise rates again Selected BB-rated high-yield bonds – as well as deficits that should prompt softening over time. in December and in early 2023 near 5%. With selected investment-grade preferred securities We expect the Canadian dollar to strengthen these expectations already discounted, long- – may provide incremental yield opportunities once broader US dollar strength wanes. term investors can now benefit from all types over traditional investment-grade corporate of US dollar–denominated fixed income offering bonds. As such, they are worth considering if the FiGUre 3. NorTH AMeriCA FiXeD very high yields relative to the past 15 years. risks are well understood. iNCoMe YieLDS (%) Monetary policy works with long and variable Another possibility is fixed income ladder US HY Corporates 8.7 lags. Because the Fed has raised its Fed Funds portfolios, with bonds of staggered maturity dates that allow for reinvestment of matured US HY Bank Loans 8.7 Rate to so high and so quickly in 2022, the principal at potentially higher rates in the chances of recession in the US are elevated in Emerging Markets 8.2 2023. One sign that the market is concerned future. For investors concerned about inflation, Agg (USD) about this is that longer dated Treasury bonds Treasury Inflation Protected Securities (TIPS) US HY Preferreds 8.2 yield less than short-dated Treasury bonds, a pay a nominal yield plus the headline Consumer phenomenon known as “an inverted yield curve.” Price Inflation (CPI) rate and offer a portfolio US IG Preferreds 7.5 hedging opportunity. For the first time in many US HY Corporates For example, as of 23 November 2022, the years, TIPS pay a high nominal yield of over (BB-rated) 7.1 one-year Treasury bill currently yields 4.74%, 1.4% for most maturities as of 23 November, which is 100bps above the 10-year Treasury which would allow investors to preserve their US IG Corporates 5.7 yield of 3.74%. The norm is for longer dated purchasing power. (BBB-rated) issues to have higher yields to reward investors For most higher US taxpaying investors, tax- US IG Corporates 5.4 for locking up their money for a longer period exempt municipal bonds (“munis”) offer an US CMBS (IG only) 5.5 and forgoing potential investment opportunities attractive tax-advantaged yield that may pay along the way. more than even lower rated investment-grade US ABS (fixed-rate) 5.5 Amid the uncertainty, we are cautious. The bonds on a tax-equivalent basis. Whether US Agency 4.7 primary ways to express caution in the bond shorter or longer dated, munis may offer Mortgage-backed market are by buying higher quality and shorter suitable core portfolio income, historically a US Treasury (10-year) 4.2 dated issues. Fortunately, given today’s yield good blend with dividend stocks. 3.0 curve inversion, investors do not have to Canada Sov (10-year) buy long-dated or lower rated bonds to earn Currencies US Municipals (10-year) 2.9 significant yield. For investors with a heavy cash allocation, we favor shifting some into shorter We expect the US dollar rally since 2021 to Source: Bloomberg Barclays, Bloomberg, as of 22 Nov 2022. Past duration Treasury bonds and shorter duration exhaust itself sometime in 2023 and then to performance is no guarantee of future returns. Real results may vary. reverse course. This is partly because the Fed

Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 103 Investments The emergence of It is easy to understand why the US government We believe these efforts will provide a long- is targeting these areas. Research-driven term tailwind for a number of our unstoppable US industrial policy technological leadership has served the world’s trends, but only in time will it become clearer largest economy well in recent decades, as to what degree. We will be monitoring the a driving force in real GDP growth and in its situation closely. CHARLIE REINHARD relative equity market performance. In the Head of Investment Strategy, North America coming years and beyond, clean energy, electric vehicles and digitization are likely to become Industrial policy has a mixed reputation at even more vital to prosperity in the US and best. The idea of governments forming a grand elsewhere. The US government may believe that strategy to develop their economies or key it can improve its international competitiveness sectors goes against free market orthodoxy. and keep the upper hand in its economic rivalry However, this is no mere question of ideology. with China by intervening more systematically to Past experiments with industrial policy – drive its economy. particularly during its postwar heyday – raise How likely is this nascent US industrial policy serious doubts over the ability of politicians and to achieve its aims? Despite industrial policy’s public servants to intervene effectively and pick patchy performance over time, there have been winners, be they sectors or firms. Costly failures notable successes, such as China. However, at taxpayers’ expense and accusations of pork- that country’s authorities are very much more barrel politics are rife throughout the history of experienced at central planning and have fewer industrial policy. checks and balances to contend with than Although not branded as such, a series of US the US. policy initiatives in recent years together make We identify a range of risks associated with the up what we believe amounts to an industrial US’ new path. A more prominent role for the policy. The Trump and Biden administrations US government in directing economic activity have both acted to boost US manufacturing could lead to a less favorable mix of growth competitiveness, strengthen supply chains, and inflation through a less efficient allocation encourage domestic and foreign companies to of resources. Industrial policy initiatives could relocate operations to its North American soil also become snarled up in domestic political and restrict China’s access to its technology controversy, especially with the two houses ecosystem. The new US industry policy’s of Congress now each under the control of aims – while broad-based – are especially different parties. Today’s more polarized focused on semiconductors, leadership US-China relationship will also see diminished in science, technology, engineering, and cooperation between the two, perhaps stifling mathematics (STEM) subjects, research & trade and the ease of innovation. It is very early development, clean energy, infrastructure and days for US industrial policy and many of its electric vehicles. results may take some years to materialize.

Citi Global Wealth GLoSSArY | | 104 Investments GLOSSARY Global Emerging Market Fixed Income is composed of Bloomberg guidelines, for an entity to qualify as an REIT, at least 90% of its Barclays indices measuring performance of fixed-rate local currency taxable annual income to shareholders in the form of dividends must emerging markets government debt for 19 different markets across be from real estate. While typically REITs are publicly traded, not ASSET CLASS DEFINITIONS: Latin America, EMEA and Asia regions. iBoxx ABF China Govt. Bond, all are, as Public Non-Listed REITs (PNLRs) can register with SEC as the Markit iBoxx ABF Index comprising local currency debt from REITs, but do not trade on major stock exchanges. Cash is represented by US 3-month Government Bond TR, measuring China, is used for supplemental historical data. the US dollar-denominated active 3-Month, fixed-rate, nominal INDEX DEFINITIONS: debt issues by the US Treasury. Ibbotson High Yield Index, a broad high yield index including bonds across the maturity spectrum, within the BB-B rated credit quality Ball Metaverse Index is a selection of companies in categories Commodities asset class contains the index composites — GSCI spectrum, included in the below-investment-grade universe, is used defined by the Metaverse Market Map. Precious Metals Index, GSCI Energy Index, GSCI Industrial Metals for supplemental historical data. Index, and GSCI Agricultural Index — measuring investment Bloomberg Global Aggregate Bond Index is a flagship measure of performance in different markets, namely precious metals (e.g., Hedge Funds are composed of investment managers employing global investment grade debt from twenty-four local currency gold, silver), energy commodity (e.g., oil, coal), industrial metals different investment styles as characterized by different markets. This multi-currency benchmark includes treasury, (e.g., copper, iron ore), and agricultural commodity (i.e., soy, coffee) subcategories – HFRI Equity Long/Short: Positions both long and government-related, corporate and securitized fixed-rate bonds respectively. Reuters/Jeffries CRB Spot Price Index, the TR/CC CRB short in primarily equity and equity derivative securities; HFRI from both developed and emerging markets issuers. Excess Return Index, an arithmetic average of commodity futures Credit: Positions in corporate fixed income securities; HFRI Event prices with monthly rebalancing, is used for supplemental historical Driven: Positions in companies currently or prospectively involved Bloomberg JPMorgan Asia Currency Index or ADXY is a US dollar data. in a wide variety of corporate transactions; HFRI Relative Value: tradable index of emerging Asian currencies. It creates a benchmark Positions based on a valuation discrepancy between multiple for monitoring Asia’s currency markets on an aggregate basis. Direct Private Investments or Direct Investments imply the purchase securities; HFRI Multi Strategy: Positions based on realization of a or acquisition of a stake or controlling interest in a business, asset spread between related yield instruments; HFRI Macro: Positions Bloomberg US Aggregate Index is a broad-based flagship benchmark or special purpose vehicle/instrument by means other than the based on movements in underlying economic variables and their that measures the investment grade, US dollar denominated, fixed- purchase of shares. impact on different markets; Barclays Trader CTA Index: The rate taxable bond market. composite performance of established programs (Commodity Trading Emerging Markets (EM) Hard Currency Fixed Income is represented Advisors) with more than four years of performance history. Bloomberg US Corporate Bond Index measures the investment grade, by the FTSE Emerging Market Sovereign Bond Index (ESBI), covering fixed-rate, taxable corporate bond market. It includes US dollar hard currency emerging market sovereign debt. High Yield Bank Loans are debt financing obligations issued by a denominated securities publicly issued by US and non-US industrial, bank or other financial institution to a company or individual that utility and financial issuers. Global Developed Market Corporate Fixed Income is composed of holds legal claim to the borrower’s assets in the event of a corporate Bloomberg Barclays indices capturing investment debt from seven bankruptcy. These loans are usually secured by a company’s Bloomberg US Treasury Index measures US dollar-denominated, different local currency markets. The composite includes investment assets, and often pay a high coupon due to a company’s poor fixed-rate, nominal debt issued by the US Treasury. Bloomberg-JP grade rated corporate bonds from the developed-market issuers. (noninvestment grade) credit worthiness. Morgan Asia currency index is a spot index of the most actively traded currency pairs in Asia’s emerging markets valued against the Global Developed Market Equity is composed of MSCI indices High Yield Fixed Income is composed of Bloomberg Barclays indices US dollar. capturing large-, mid- and small-cap representation across measuring the non-investment grade, fixed-rate corporate bonds 23 individual developed-market countries, as weighted by the denominated in US dollars, British pounds and euros. Securities are FTSE All-World Index is a stock market index representing global market capitalization of these countries. The composite covers classified as high yield if the middle rating of Moody’s, Fitch, and S&P equity performance that covers over 3,100 companies in 47 approximately 95% of the free float-adjusted market capitalization is Ba1/BB+/BB+ or below, excluding emerging market debt. countries starting in 1986. in each country. Private Equity is an alternative investment class which at its most FTSE NAREIT Mortgage REITS Index is a freefloat adjusted, market Global Developed Investment Grade Fixed Income is composed of basic form is the capital or ownership of shares not publicly traded capitalization-weighted index of US Mortgage REITs. Mortgage REITs Bloomberg Barclays indices capturing investment-grade debt from or listed on a stock exchange. Its characteristics are often driven include all tax-qualified REITs with more than 50 percent of total twenty different local currency markets. The composite includes by those for Developed Market Small Cap Equities, adjusted for assets invested in mortgage loans or mortgage-backed securities fixed-rate treasury, government-related, and investment grade illiquidity, sector concentration, and greater leverage. secured by interests in real property. rated corporate and securitized bonds from the developed market issuers. Local market indices for US, UK and Japan are used for Real Estate Investment Trust or REIT is a corporate entity that either HFRI ED Distressed/Restructuring Index tracks distressed/ supplemental historical data. has bulk or all its asset base, income and investments related to real restructuring strategies which employ an investment process estate. In the US under Security and Exchange Commission (SEC) focused on corporate fixed income instruments, primarily on

Citi Global Wealth GLoSSArY | | 105 Investments corporate credit instruments of companies trading at significant segments of the Brazilian market. With 48 constituents, the index companies that are primarily engaged and involved in electric discounts to their value at issuance or obliged (par value) at covers about 85% of the Brazilian equity universe. grid; electric meters, devices, and networks; energy storage and maturity as a result of either formal bankruptcy proceeding or management; and enabling software used by the smart grid and financial market perception of near-term proceedings. Managers are MSCI China Index captures large and mid-cap representation across electric infrastructure sector. typically actively involved with the management of these companies, China A shares, H shares, B shares, Red chips, P chips and foreign frequently involved on creditors’ committees in negotiating the listings (e.g. ADRs). With 704 constituents, the index covers about Prime Mobile Payments Index provides a reference measure for the exchange of securities for alternative obligations, either swaps of 85% of this China equity universe. global payments industry by focusing on companies facilitating the debt, equity or hybrid securities. Managers employ fundamental mass migration from physical cash registers to a mobile point of credit processes focused on valuation and asset coverage of MSCI Emerging Markets Index captures large and midcap sale. Potential beneficiaries of this growing trend include software securities of distressed firms; in most cases portfolio exposures representation across twenty-four Emerging Markets (EM) countries. providers, payment processors, gateways, and credit card networks. are concentrated in instruments which are publicly traded, in some With 837 constituents, the index covers approximately 85% of the Those companies collectively represent mobile payments industry. cases actively and in others under reduced liquidity but in general free float-adjusted market capitalization in each country. for which a reasonable public market exists. In contrast to Special ROBO Global Robotics & Automation Index tracks the robotics, Situations, Distressed Strategies employ primarily debt (greater than MSCI Emerging Markets (EM) Latin America Index captures large automation, and AI revolution for investors. It includes more than 60%) but also may maintain related equity exposure. and mid-cap representation across five Emerging Markets (EM) 80 robotics and automation stocks across 11 subsectors in over 14 countries in Latin America. With 113 constituents, the index covers countries. Indxx Global Cloud Computing Index tracks the performance of approximately 85% of the free float adjusted market capitalization companies that are in the Cloud Computing Industry. The Cloud in each country. ROBO Global Healthcare Technology and Innovation Index tracks Computing Industry is involved in the delivery of computing services, the global value chain of healthcare technology and innovation. It servers, storage, databases, networking, software, analytics and MSCI Global Alternative Energy Index includes developed and includes more than 80 stocks across 9 subsectors in 15 countries. more over the Internet which is referred to as ‘The Cloud’. emerging market large-, mid- and small-cap companies that derive 50% or more of their revenues from products and services in Russell 2000 Index measures the performance of the small-cap Indxx Global Fintech Thematic Index tracks the performance of Alternative energy. segment of the US equity universe. The Russell 2000 Index is a companies listed in developed markets that are offering technology- subset of the Russell 3000 Index representing some 10% of the driven financial services which are disrupting existing business MSCI World Information Technology Index tracks the large- and mid- total market capitalization of that index. models in the financial services and banking sectors. cap IT segments across 23 developed markets countries. S&P 500 Index is a capitalization-weighted index that includes MSCI AC Asia ex-Japan Index captures large and mid-cap MSCI World Index covers large- and mid-cap equities across 23 a representative sample of 500 leading companies in leading representation across 2 of 3 Developed Markets (DM) countries* Developed Markets countries. With 1,603 constituents, the index industries of the US economy. Although the S&P 500 focuses on the (excluding Japan) and 9 Emerging Markets (EM) countries* in Asia. covers approximately 85% of the free float-adjusted market large-cap segment of the market, with over 80% coverage of US With 1,187 constituents, the index covers approximately 85% of the capitalization in each country. equities, it is also an ideal proxy for the total market. free float-adjusted market capitalization in each country. MSCI World Momentum Index is designed to reflect the performance S&P 500 Healthcare Index includes companies from the S&P 500 MSCI AC World Automobiles Index is composed of large- and mid- of an equity momentum strategy by emphasizing stocks with Index that are involved from such areas as pharmaceuticals, cap automobile stocks across emerging and developed countries. high price momentum, while maintaining reasonably high trading healthcare equipment & supplies, biotechnology and healthcare liquidity, investment capacity and moderate index turnover. providers and services. MSCI ACWI World ex-USA Index covers large and mid cap Nasdaq 100 is a large-cap growth index consisting of 100 of the S&P 500 Hotels, Resorts and Cruise Lines Index is a sub-index of the representation across 22 of 23 Developed Markets (DM) countries largest US and international nonfinancial companies listed on the S&P 500 Index and represents the performance of hotels, resorts (excluding the US) and 27 Emerging Markets (EM) countries. With Nasdaq Stock Market based on market capitalization. and cruise line companies that are represented in the latter index. 2,352 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Nasdaq CTA Cybersecurity Index tracks the performance of S&P Global Dividend Aristocrats is designed to measure the MSCI AC World Index is designed to represent performance of the full companies engaged in the Cybersecurity segment of the technology performance of the highest dividend yielding companies within the opportunity set of large- and mid-cap stocks across 23 developed and industrial sectors. The Index includes companies primarily S&P Global Broad Market Index (BMI) that have followed a policy of and 24 emerging markets. As of May 2022, it covers more than involved in the building, implementation and management of increasing or stable dividends for at least ten consecutive years. 2,933 constituents across 11 sectors and approximately 85% of the security protocols applied to private and public networks, computers free float-adjusted market capitalization in each market. and mobile devices in order to provide protection of the integrity of Securities Industry and Financial Markets Association or SIFMA data and network operations. Municipal Swap Index is a 7-day high-grade market index comprised MSCI Brazil Index measures the performance of large and midcap of tax-exempt Variable Rate Demand Obligations (VRDOs) with Nasdaq OMX Clean Edge Smart Grid Infrastructure Index includes certain characteristics. The Index is calculated and published by

Citi Global Wealth GLoSSArY | | 106 Investments Bloomberg. The Index is overseen by SIFMA’s Municipal Swap Index same direction all of the time. A correlation of -1 implies perfect SPAC, short for Special Purpose Acquisition Company, also known Committee. negative correlation, such that two assets or asset classes move in as a “blank check company”, is a shell corporation listed on a stock the opposite direction to each other all the time. A correlation of 0 exchange with the purpose of acquiring a private company, thereby Solactive e-commerce Index tracks the price movements in shares implies zero correlation, such that there is no relationship between making it public without going through the traditional initial public of companies which are active in the field of e-commerce. This may the movements in the two over time. offering process. include companies that operate e-commerce platforms, provide e-commerce software, analytics or services, and/or primarily sell Digital commerce involves transactions conducted online to purchase Strategic Return Estimates or SREs are based on Citi Private Bank’s goods and services online and generate the majority of their overall goods and services. Digital remittances are funds sent from one forecast of returns for specific asset classes (to which the index revenue from online retail. person to another over the internet, typically across borders. belongs) over a 10-year time horizon. The forecast for each specific asset class is made using a proprietary methodology based on the Solactive Social Media Index tracks the price movements in shares of EU or the European Union is a political and economic union of 27 assumption that equity valuations revert to their long-term trend companies which are active in the social media industry, including member states in Europe. over time. companies that provide social networking, file sharing, and other web-based media applications. A maximum of 50 components are Eurodollar futures and options are market tools for traders to included and weighted according to freefloat market capitalization. express views on future interest rate moves. The index is calculated as a total return index in US dollars. Fed funds rate or the effective federal funds rate (EFFR) is VIX or the Chicago Board Options Exchange (CBOE) Volatility Index, is calculated as a volume-weighted median of overnight federal a real-time index representing the market’s expectation of 30-day funds transactions reported in the US FR 2420 Report of Selected forward-looking volatility, derived from the price inputs of the S&P Money Market Rates. The federal funds market consists of domestic 500 index options. unsecured borrowings in US dollars by depository institutions from other depository institutions and certain other entities, primarily OTHER TERMINOLOGY: government-sponsored enterprises. Adaptive Valuations Strategies or AVS is Citi Private Bank’s own Internal Rate of Return or IRR is used to measure the profitability strategic asset allocation methodology. It determines the suitable of potential investments. It is defined as the discount rate at which long-term mix of assets for each client’s investment portfolio. the net present value (NPV) of all cash flows from an investment are equal to zero. This measure of return takes into consideration the Assets Under Management or AUM are the total market value of the time value of money and allows for comparison with projected rates investments that a person or entity handles on behalf of investors. of return on other investments. Correlation is a statistical measure of how two assets or asset Mobile POS payments are payments made at the point of sale but classes move in relation to one another. Correlation is measured facilitated via mobile devices like smart phones. on a scale of 1 to -1. A correlation of 1 implies perfect positive Sharpe ratio is a measure of risk-adjusted return, expressed as correlation, meaning that two assets or asset classes move in the excess return per unit of deviation, typically referred to as risk.

Citi Global Wealth DiSCLoSUreS | | 107 Investments Disclosures Citi Global Executive Preferred, and Citi Global Executive Account believed by Citi to be reliable, its accuracy and completeness cannot Packages. Investment products and services are made available be assured, and such information may be incomplete or condensed. 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Citi Global Wealth DiSCLoSUreS | | 108 Investments OTC derivative transactions involve risk and are not suitable for all different financial instruments and other products, and can be prohibited by law and may result in prosecution. investors. Investment products are not insured, carry no bank or expected to perform or seek to perform investment banking and government guarantee and may lose value. Before entering into other services for the issuer of such financial instruments or other Other businesses within Citigroup Inc. and affiliates of Citigroup these transactions, you should: (i) ensure that you have obtained products. The author of this Communication may have discussed Inc. may give advice, make recommendations, and take action in and considered relevant information from independent reliable the information contained therein with others within or outside Citi, the interest of their clients, or for their own accounts, that may sources concerning the financial, economic and political conditions and the author and/or such other Citi personnel may have already differ from the views expressed in this document. All expressions of of the relevant markets; (ii) determine that you have the necessary acted on the basis of this information (including by trading for Citi’s opinion are current as of the date of this document and are subject knowledge, sophistication and experience in financial, business and proprietary accounts or communicating the information contained to change without notice. Citigroup Inc. is not obligated to provide investment matters to be able to evaluate the risks involved, and herein to other customers of Citi). Citi, Citi’s personnel (including updates or changes to the information contained in this document. that you are financially able to bear such risks; and (iii) determine, those with whom the author may have consulted in the preparation The expressions of opinion are not intended to be a forecast of having considered the foregoing points, that capital markets of this communication), and other customers of Citi may be long future events or a guarantee of future results. Past performance is transactions are suitable and appropriate for your financial, tax, or short the financial instruments or other products referred to in not a guarantee of future results. Real results may vary. business and investment objectives. this Communication, may have acquired such positions at prices and market conditions that are no longer available, and may have Although information in this document has been obtained from This material may mention options regulated by the US Securities interests different from or adverse to your interests. sources believed to be reliable, Citigroup Inc. and its affiliates do not and Exchange Commission. Before buying or selling options you guarantee its accuracy or completeness and accept no liability for should obtain and review the current version of the Options Clearing IRS Circular 230 Disclosure: Citi and its employees are not in the any direct or consequential losses arising from its use. Throughout Corporation booklet, Characteristics and Risks of Standardized business of providing, and do not provide, tax or legal advice to this publication where charts indicate that a third party (parties) Options. 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Citi Global Wealth DiSCLoSUreS | | 109 Investments Bond rating equivalence Additionally, the underlying collateral supporting non-Agency MBS may default on principal and interest payments. In certain cases, this Alpha and/or numeric symbols used to give indications of relative credit quality. In the municipal market, these designations are published by the could cause the income stream of the security to decline and result rating services. Internal ratings are also used by other market participants to indicate credit quality. in loss of principal. Further, an insufficient level of credit support may result in a downgrade of a mortgage bond’s credit rating and Bond credit quality ratings Rating agencies lead to a higher probability of principal loss and increased price volatility. Investments in subordinated MBS involve greater credit 1 2 2 Credit risk Moody's Standard and Poor's Fitch Ratings risk of default than the senior classes of the same issue. Default risk Investment grade may be pronounced in cases where the MBS security is secured by, or evidencing an interest in, a relatively small or less diverse pool of Highest quality Aaa AAA AAA underlying mortgage loans. High quality (very strong) Aa AA AA MBS are also sensitive to interest rate changes which can negatively Upper medium grade (strong) A A A impact the market value of the security. During times of heightened Medium grade Baa BBB BBB volatility, MBS can experience greater levels of illiquidity and larger price movements. Price volatility may also occur from other factors Not Investment grade including, but not limited to, prepayments, future prepayment Lower medium grade (somewhat speculative) Ba BB BB expectations, credit concerns, underlying collateral performance and technical changes in the market. Low grade (speculative) B B B Alternative investments referenced in this report are speculative and Poor quality (may default) Caa CCC CCC entail significant risks that can include losses due to leveraging or Most speculative Ca CC CC other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in the fund, potential No interest being paid or bankruptcy petition filled C D C lack of diversification, absence of information regarding valuations In default C D D and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and advisor risk. 1 The ratings from Aa to Ca by Moody's may be modified by the addition of a 1, 2, or 3 to show relative standing within the category. Asset allocation does not assure a profit or protect against a loss in 2 The ratings from AA to CC by Standard and Poor's and Fitch Ratings may be modified by the addition of a plus or a minus to show relative standing declining financial markets. within the category. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not Related MLPs may expose the investor to concentration risk due to represent the performance of any specific investment. Index returns (MLP’s) - Energy Related MLPs May Exhibit High Volatility. While not industry, geographical, political, and regulatory concentration. do not include any expenses, fees or sales charges, which would historically very volatile, in certain market environments Energy lower performance. Related MLPS may exhibit high volatility. Mortgage-backed securities (“MBS”), which include collateralized mortgage obligations (“CMOs”), also referred to as real estate Past performance is no guarantee of future results. Changes in Regulatory or Tax Treatment of Energy Related MLPs. mortgage investment conduits (“REMICs”), may not be suitable for all If the IRS changes the current tax treatment of the master limited investors. There is the possibility of early return of principal due to International investing entails greater risk, as well as greater partnerships included in the Basket of Energy Related MLPs thereby mortgage prepayments, which can reduce expected yield and result potential rewards compared to US investing. These risks include subjecting them to higher rates of taxation, or if other regulatory in reinvestment risk. Conversely, return of principal may be slower political and economic uncertainties of foreign countries as well authorities enact regulations which negatively affect the ability of than initial prepayment speed assumptions, extending the average as the risk of currency fluctuations. These risks are magnified in the master limited partnerships to generate income or distribute life of the security up to its listed maturity date (also referred to as countries with emerging markets, since these countries may have dividends to holders of common units, the return on the Notes, if extension risk). relatively unstable governments and less established markets and any, could be dramatically reduced. Investment in a basket of Energy economics.

Citi Global Wealth DiSCLoSUreS | | 110 Investments Investing in smaller companies involves greater risks not associated Singapore. This communication contains confidential and proprietary The contact number for Citibank N.A., London Branch is +44 (0)20 with investing in more established companies, such as business risk, information and is intended only for recipient in accordance with 7508 8000. significant stock price fluctuations and illiquidity. accredited investors requirements in Singapore (as defined under the Securities and Futures Act (Chapter 289 of Singapore) (the Citibank Europe plc (UK Branch), is a branch of Citibank Europe plc, Factors affecting commodities generally, index components “Act” )) and professional investors requirements in Hong Kong(as which is authorised and regulated by the Central Bank of Ireland and composed of futures contracts on nickel or copper, which are defined under the Hong Kong Securities and Futures Ordinance the European Central Bank. 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Citi Global Wealth DiSCLoSUreS | | 112 Investments and consider if it’s suitable for your objectives, financial situation or subsidiaries (collectively “Connected Persons”) and that of Citibank N.A. UAE is licensed by UAE Securities and Commodities or needs before making any investment decision. Investors are an investor itself, as a result of the various investment and/or Authority (“SCA”) to undertake the financial activity as Promoter advised to obtain independent legal, financial and taxation advice commercial businesses and/or activities of the Connected Persons. under license number 602003. prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong and are subject to Singapore: This communication is distributed in Singapore by Citibank N.A. 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