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.