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MARKET AND LEGISLATION IMPACTS ON PLANNING OCTOBER 6, 2020


• Mandatory Sign-in Form for CE credits – submit on-line • Must include the 2 Attendance Verification Codes • Must submit the form by NOON today 10/6

• Evaluation Form on-line

• Insurance CE Disclosure


TODAY’S SPEAKERS

MARC PENZINER

PETER DUNN

TARA POPERNIK

Principal and Financial Advisor at Bernstein Private Wealth Management

President and CEO, Central New York Community Foundation

CFA and CFP, Director of Research, Wealth Strategies Group at Bernstein Private Wealth Management


Investment Market Trends


Crossroads Key Conclusions ■

The Bridge to 2021: The market rally assumes a more normal 2021. Unprecedented monetary and

fiscal policy support are providing a critical bridge over the lost year of 2020 while progress on the public health crisis is permitting a gradual, albeit uneven, reopening of the economy.

Risks Are Still Present: And yet, despite the rally, we’re sensitive to risks that could lead to a more protracted and bumpy recovery than the market now believes. In particular, we’re focused on the path

toward successful reopening, Congress’ appetite for further policy support, and employers’ willingness to re hire workers. ■

A Reiteration of the Challenges to Market Timing: Shifting sentiment relative to the virus, and therefore the ability to fully reopen the economy, is likely to lead to periodic bouts of volatility. This makes

prudent asset allocation and a willingness to stay the course more important than ever.

As of June 30, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Source: AB

Macro and Markets

|

1


Stocks Snapped Back from First Quarter Sell-off

The Rally

Risk Assets Bounced Following Historic Sell-Off

MSCI World Cumulative Drawdown

1.1

1.0

0.9

0.8

0.7

2020

0.6

All other 5%+ declines since 1965

0.5 1

11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171 181 191 201 211 221 231 241 251 261 271 281 291 301 Days From Start of Drawdown

As of June 30, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Lines represent all global equity drawdowns greater than 5% since 1965. Global Equities as represented by the MSCI World Index (USD). Source: Bloomberg and AB

Macro and Markets

|

2


The Rally

2Q 2020 Returns Recap: S&P Posts Biggest Quarterly Gain Since 1998 Returns in US Dollars 2Q:2020 Returns (Percent) Equities

Credit

Government Bonds

Alternatives†

US Large-Cap US Small-Cap

20.5 25.4 14.9 18.1

EAFE* Emerging Markets US High Yield Emerging-Market Debt Global Corporate Municipals US Japan Euro Area

Long/Short Equity Nontraditional Bond Multialternative

10.1 12.3 7.9

Jan–Jun 2020 Returns (Percent) –3.1

–13.0 –11.3 –9.8 –3.8 –2.8 3.5 2.1

2.7 0.5

8.7 –0.2

–0.3

2.8

2.0 7.9 5.5 4.8

–5.8 –2.6 –5.4

Past performance does not guarantee future results. Global corporates and Japan and euro-area government bonds in hedged USD terms. All other non-US returns in unhedged USD terms. An investor cannot invest directly in an index, and its performance does not reflect the performance of any AB portfolio. The unmanaged index does not reflect the fees and expenses associated with the active management of a portfolio. *Europe, Australasia and the Far East †Returns reflect Morningstar US open-end fund category averages. As of June 30, 2020 Source: Bloomberg Barclays, Morningstar Direct, S&P and AB

Macro and Markets

|

3


Sentiment Measures Underscore Anxiety, but also, May Reverse Global Cumulative Weekly Fund Flows**

Bullish Versus Bearish Sentiment* 80

40 20 0 -20 Jun. ‘20 -40

Cumulative Flows Indexed to 100

Bullish Minus Bearish Investors (Percent)

280

Bullish Sentiment

60

Bonds Stocks

230

Money Markets

180

130

Bearish Sentiment 7/29/20

7/15/20

7/1/20

6/17/20

6/3/20

5/20/20

5/6/20

4/22/20

4/8/20

3/25/20

3/11/20

2/26/20

12/31/19

2/12/20

12/31/14

1/29/20

12/31/09

1/1/20

80 12/31/04

1/15/20

-60 12/31/99

Left Chart as of June 25, 2020. Right chart as of August 5, 2020. Past performance does not guarantee future results. There is no guarantee that any estimates or forecasts will be realized. *Bullish versus bearish sentiment defined as the difference between percent bullish investors and percent bearish investors, as derived from the American Association of Individual Investors Sentiment Survey. **Cumulative weekly flows into all equity mutual funds and ETFs, all bond funds and ETFs, and all money-market funds, globally, tracked by Emerging Portfolio Fund Research. Source: AAII, EPFR, Bloomberg, and AB

10


Sticking to One’s Long-Term Allocation Proved Beneficial

The Rally

COVID-19 Event Timeline (YTD 2020) Moderate Allocation Growth of $1* $1.05

Value of $1 Invested December 31, 2019

Hubei locks down

Oxford scientists announce first proven treatment (Dexamethasone)

Italian cases surge

$1.00

$0.98 SXSW cancelled

60/40

$0.95 US stimulus bill signed POTUS Oval Office address US blocks Europeanvisitors

$0.90

Vaccine trial planning announced US declares national emergency

$0.88

$0.85

60/40, then Cash

NY cases peak Federal Reserve cuts rates to zero NYC and California schools close

$0.80

$0.75 12/31/19

In the two weeks between the US declaring a national emergency and Congress signing the CARES Act, $330B moved into money markets. (Note: During the first two weeks of February, that figure was $13B.) 1/20/20

2/9/20

2/29/20

3/20/20

4/9/20

4/29/20

5/19/20

6/8/20

6/28/20

As of June 30, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. *Moderate allocation is 60% global equities and 40% municipal bonds. Global equities represented by the MSCI ACWI and municipal bonds by the Bloomberg Barclays 1-10 Year Index. Allocation interrupted represents an allocation change to 100% cash, represented by ICE BofA 3-Month Treasury Bill Index, on the date that the US declared a national emergency—March 13, 2020. Source: Bloomberg-Barclays, EPFR, Bloomberg, MSCI, and AB Macro and Markets

|

4


Four Key Catalysts Sparked the Market Rally Fiscal Stimulus Amount (USD Billions)

The Reasons

Fed Funds Target Rate (Percent) 6

3,000

Coronavirus

5

Global Financial Crisis

2,000

4 3

Global Financial Crisis 2

1,000

Coronavirus 1 0

0 0

50 100 150 200 250 300 350 400 450 500 550 600

0

50

100 150 200 250 300 350 400 450 500 550 600 Days Since Start of Crisis

Days Since Start of Crisis

COVID-19 Cases >100 (All US States)

Vaccine Timel ine

1000000

Number of Confirmed Cases

Company AZN / Vaccitech / Oxford

100000

CanSino JNJ / Emergent

10000

Moderna Pfizer / BioNTech

1000

Sanofi / Translate Bio CureVac

100 1

11

21

31 41 51 61 71 81 91 101 111 Days Since Cases Exceeded 100

Phase 1

Interm Data

Phase 2/3

Approval

April

June

Late Summer

TBA

March

May 22

TBA

TBA

September

2H20

N/A

Early 2021

March

May 18

July

4Q20

May

June/July

TBA

TBA

4Q20

Early 2021

TBA

TBA

3Q20

TBA

TBA

Early Summe r

Inovio

April

Late June

July/August

YE2020

Sanofi / GSK

2H20

Early 2021

TBA

TBA

Top left and top right charts as of April 30, 2020. Bottom left chart as of June 30, 2020. Bottom right chart as of June 25, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Source: Bloomberg, Congressional Budget Office, Peter G. Peterson Foundation, Wall Street Journal, JHU, company disclosures, and Bernstein Analysis

Macro and Markets

|

8


The Reasons

EPS Estimates Have Declined, but 2021 Figures are Off Worst Levels‌ S&P 500 Earnings Per Share

Est. on 12/31

~$195 Est. on 12/31 $159

$162

$131

2017

~$177

$162

Bearish estimates in March (~$140)

$125

2018

2019

2020*

2021*

As of June 30, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. *Consensus estimates Source: FactSet

13


The Reasons

…Which Supported the Case for the Rally 2021 S&P EPS and Growth (vs. 2019’s $162) $130

$136

$143

$149

$156

$162

$169

$175

$182

(20)%

(16)%

(12)%

(8)%

(4)%

0%

4%

8%

12%

21.0x

(16)%

(11)%

(7)%

(3)%

1%

5%

10%

14%

18%

20.0x

(20)%

(16)%

(12)%

(8)%

(4)%

0%

4%

8%

12%

19.0x

(24)%

(20)%

(16)%

(12)%

(8)%

(5)%

(1)%

3%

7%

18.0x

(28)%

(24)%

(20)%

(17)%

(13)%

(10)%

(6)%

(2)%

1%

(32)%

(28)%

(25)%

(21)%

(18)%

(15)%

(11)%

(8)%

(4)%

(36)%

(33)%

(29)%

(26)%

(23)%

(20)%

(16)%

(13)%

(10)%

(40)%

(37)%

(34)%

(31)%

(28)%

(25)%

(22)%

(19)%

(16)%

(44)%

(41)%

(38)%

(35)%

(33)%

(30)%

(27)%

(24)%

(21)%

(48)%

(45)%

(43)%

(40)%

(37)%

(35)%

(32)%

(30)%

(27)%

17.0x 16.0x

15.0x 14.0x 13.0x

At the trough, the S&P was down ~30% YTD and investors were baking in a worst-case scenario for 2021 EPS, i.e., declines of ~10%–20% (vs. 2019) As of June 30, 2020.

Yet, investors now assume earnings won’t be down as much as feared (current assumptions bake in flat EPS vs. 2019) The market has rallied to reflect these better expectations, taking the S&P to only down 0%–5% YTD.

Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Source: Bloomberg, and AB

14


The Risks

And Yet, Period Ahead is Not Without Risk 2020 Election

Fed Behind The Curve?

New COVID Case Spikes

The economic recovery is likely to be more bumpy than normal given these risks. We expect bouts of economic optimism followed by periods of pessimism.

US/China Relations

For that reason, the equity recovery, too, is likely to be volatile. A diversified portfolio approach is the most prudent to manage through these uncertain times.

Future Fiscal Support?

Pace of Rehiring

As of June 30, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Source: AB

Macro and Markets

| 12


The Risks

Economy Opening Up, but Progress Will Be Bumpy and Uneven Credit Card Spending YoY Change (Weekly Average) Grocers

Total TSA Travel Numbers

Restaurants 2,500,000

90 %

Total Traveler Throughput

2,000,000 60 % 1,500,000 30 %

1,000,000

0%

500,000

0 3/20

(30) % 6/19

11/19

4/20

5/20

6/20

Las Vegas Casino Traffic

50

6000

40

5000

Number of Players

Weekly Entries (Millions)

NYC Subway Use

4/20

30 20 10 0 6/19 7/19 8/19 9/19 10/1911/19 12/19 1/20 2/20 3/20 4/20 5/20

MTA Turnstile Entries Total

4000 3000 2000 1000 0 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 4/20 5/20 CZR

GDEN

LVS

MGM

PENN

Private

WYNN

Top left chart as of June 27, 2020. Top right chart as of June 30, 2020. Bottom left chart as of June 26, 2020. Bottom right chart as of June 28, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Casino traffic represents casino players, which is distinct from foot traffic and includes table and slots machine users. Source: MScience, US Transportation Security Administration, Metropolitan Transportation Authority, Bloomberg, and AB

16


The Risks

Continued Policymaker Stimulus Will Be Needed to Buttress Economy Monetary Policy: Central Bank Action

Fiscal Policy: Government Action

Policy Rates

Change in Primary Balance*: US, Eurozone, UK, Japan, China Real Global Policy Rate (Left)

3.0%

-100%

Central Banks Hiking (Right)

Policy Rate

1.5%

-50%

0.0%

0%

-1.5%

50% Central Banks Cutting (Right)

-3.0%

4.5

100%

91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 Year

1.4

1.7

Purchases (12m Rolling, $bn)

Security Purchases 6,000

SNB BOE Fed All

5,000 4,000

ECB BOJ EM

0.1 -0.1

3,000

-0.6

2,000 1,000

0.5

0.2

0.2

15

16

0.1 0.1

-0.3

-1.2 -1.3

0 -1,000 09

10

11

12

13

14

15 Year

16

17

18

19

20

21

07

08

09

10

11

12

13

14 Year

17

18

19

20

Top left chart as of April 1, 2020. Bottom left chart is as of April 30, 2020 and forecast is through July 2021. Right chart as of December 31, 2019 and forecast is through December 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. *Simple average of respective governments’ net borrowing/lending as a percentage of potential GDP. As of June 11, 2020. Source: Haver Analytics, and AB

17


The Risks

Not Quite a V-Shaped Recovery AB Forecast for US GDP ($ Bil.) 20,000

19,500

19,000

New Forecast

18,500

Old Forecast

18,000

17,500

17,000 1q17 2q17 3q17 4q17 1q18 2q18 3q18 4q18 1q19 2q19 3q19 4q19 1q20 2q20 3q20 4q20 1q21 2q21 3q21 4q21 1q22 2q22 3q22 4q22

As of June, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Source: AB

18


FAANG Stocks Outperformed the Broader US Market by a Wide Margin Total Return YTD S&P 500, FAANG Stocks, and S&P 500 Ex-FAANG Stocks 160

Total Return Indexed to January 1, 2020

150

45%

140 FAANG Stocks

130 120 110 S&P 500

1%

100

(5)% 90

80

S&P 500 without FAANG Stocks

70 60 12/31

1/31

2/29

3/31

4/30

5/31

6/30

7/31

As of July 31, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. FAANG stocks include Facebook, Amazon, Apple, Microsoft and Google. All three representative indices are market cap weighted using Factset’s weighting methodology. The S&P 500 index constituent list used is static and as of August 25, 2020. Total returns include returns from price change and dividends. Source: FactSet, Standard and Poor’s, and AB

Mock

| 25


Concentration Risks Rise as US Growth Giants Surge Russell 1000 Growth Index Weight of Index (Percent)

US Stocks Weight in MSCI World (Percent) Microsoft

10.4%

Apple

10.2%

Amazon

8.0%

Alphabet Inc.

4.5%

Facebook

3.7%

70

60

50 Top Five 36.9 40 Rest of Index 63.1

30

20 Jan 75

Feb 84

Mar 93

Apr 02

May 11

Jun 20

Past performance and current analysis do not guarantee future results. As of June 30, 2020 Source: FactSet, MSCI, Russell Investments and AB

| 30


Narrow Markets Amplify the Risk of Imbalance S&P 500 Returns over the past 5 Years Have Been Driven Just by the Technology Sector 60

5-Year Cumulative Returns Relative to S&P500

5-YR Cumulative Returns

40 20 0 (20) (40)

(60) Technology

Utilities

Healthcare

Industrials

Financial

Energy

Market Concentration Is at Its Highest in Decades as Top 5 Stocks Comprise More than 20% of S&P500 Concentration of Highest Market Cap Weightings in S&P 500 (Percent) 25

Top 5

20 15 10 5 0

6/906/916/926/936/946/956/966/976/986/996/006/016/026/036/046/056/066/076/086/096/106/116/126/136/146/156/166/176/186/196/20 Past performance does not guarantee future results As of June 18, 2020. Source: BAML, FactSet and AB analysis

21


The Sector Dispersion in 2020 Has Continued to Be Extreme YTD 2020 S&P 500 Returns by GICS Sector (Total Returns)

50%

30% 15%

7%

10%

(0)%

(10)%

(1)%

(3)%

(6)%

(7)%

(9)%

Discretionary sector driven by Amazon

(30)%

(11)%

(15)% (24)%

(35)%

Energ y

Financials

Industrials

Utilitie s

REIT S

Material s

Staple s

US Market

Health Care

Comm Svcs

Discretionary

Technolog y

(50)%

Past performance does not guarantee future results. As of June 30, 2020 Source: S&P

22


Research & Advice

Market Rebound Proves, Once Again, The Benefit of Staying Invested Projected* and Actual Returns (Annualized) 10-Year Forecasted Returns (as of June 2015)

Great Markets 9.2% Actual Annualized Net-of-Fee Return**: 4.5% Typical Markets 5.2%

Hostile Markets 1.5%

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

As of June 30, 2020. Past performance does not guarantee future results. There is no guarantee that any estimates or forecasts will be realized. *Great markets represents 10th percentile, typical markets represents 50th percentile, and hostile markets represents 90th percentile. Based on Bernstein’s estimates of the range of returns for the applicable capital markets as of June 30, 2015, for a 60/40 stock/bond allocation. Stocks modeled as 21% US diversified, 21% US value, 21% US growth, 7% US Small/Mid-Cap, 22.5% developed international, and 7.5% emerging markets. Bonds modeled as intermediate-term diversified municipals. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Assumptions and Notes on Bernstein Wealth Forecasting System in the Appendix for further details. **The hypothetical performance of the Moderate Portfolio Simulation (MPS) is a simulated portfolio intended to illustrate the investment experience of a Bernstein taxable client who was invested in a moderate growth allocation of Bernstein investment services. Represents monthly returns. Assumes no portfolio additions or withdrawals over the period. Results based on pretax returns and do not reflect the impact of taxes. It is presented for illustrative purposes only, and no representation is made that an investor will, or is likely to, achieve profits or experience losses similar to those shown. See Performance Disclosures at the end of this presentation for additional information regarding the simulation’s composition and calculation methodology. Source: AB

23


Navigating Through a Clouded Landscape Our Strategy to Navigate a Challenging Period

Research & Advice

ReturnSeeking

RiskMitigating

■ Quantifying Core and Surplus Capital  What level of wealth do you need to maintain your lifestyle with a high degree of confidence? Diversifying

■ Investing Intentionally

 What investment strategies should be considered for your core capital?  How does your investment strategy change with your surplus capital?

■ Rationalize Cash Allocation  For clients with cash to invest and a long time horizon, today may present an opportunity.

■ Cash Management: cash or money-market vehicles for near-term spending ■ Risk-Mitigating: conservative, high-quality, diversified municipal or taxable bonds ■ Return-Seeking: invested across global equity markets, diversified by geography, style and market capitalization

■ Diversifying Assets: creates opportunities to take advantage of current market dislocations and provide growth

As of June 30, 2020. Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Source: AB

24


Election Impact


I Know “It’s Different This Time,” but… …There’s Little Relationship Between Political Power and the Stock Market Democratic President

Republican President

9.2%

9.1%

Divided Government

Unified Government

10.0%

8.2%

Past performance does not guarantee future results. Returns reflect annualized returns for each Presidential Term dating back to 1937, based off the Dow Jones Industrial Average. As of December 31, 2019 Source: Bloomberg and AB

26


How Can We Think About the Potential Market Impact? What We Know

What We Don’t Know

o The balance of power in the White House, Senate, and House will affect the economy and markets

o How closely the election results will match the polls

o What current polls are saying o We shouldn’t let personal political views cloud our investment judgment

o How actual policy proposals will compare to campaign platforms and how much they’ll change as they’re debated and voted on o How much different election results or policies are already being factored in by the market or when they will be

On balance, we do not recommend tactical asset allocation shifts driven by election handicapping Our investment teams are working every day to make sure we’re taking advantage of market mispricings while minimizing the downside risk to the portfolio from any individual event

27


Markets Tend to Ignore Politics Until a Month Before the Election Correlation Between Polling Spread and Stock Price Changes

In recent elections, the correlation between stocks and poll results is minimal until October; then they become more closely linked. 2016

Average 1996–2016

2012

2008

2004

2000

Really about Global Financial Crisis

1996

Really about end of dot-com bubble

61 52

31

8

Jan–Sep Oct. to Election

25 7

Jan–Sep Oct. to Election

24

24

4

3 Jan–Sep Oct. to Election

19

Jan–Sep Oct. to Election

Jan–Sep Oct. to Election

8 2 Jan–Sep Oct. to Election

1 Jan–Sep Oct. to Election

Historical analysis does not guarantee future results. Polling spread is the absolute difference in polling percentage between the two major presidential candidates. Source: Bernstein US Economics Research

28


The Market Currently Expects Unusually High Volatility in November… …which may be a function of anticipated uncertainty around when the election result will be known

– Counting and validating votes may take longer – Primary election results have been delayed by weeks in SOME races

o Political polarization may amplify the uncertainty

5 Implied Daily Price Changes

o A large portion of votes are likely to be submitted by mail

6

4

3

2

1

0 Implied November November 2012 & 2016 Average 2020 Move Move

Past 30 Day Realized

Historical analysis does not guarantee future results. Price moves based on implied and realized volatilities of the S&P 500. Source: Bernstein US Options Trading Desk

29


How Might the Election Affect Fiscal and Monetary Policy? Investors are currently expecting: o Multi-year fiscal stimulus oEasy monetary policy

Trump Reelection Probability: 37%

Biden Election Probability: 61%

Republican White House Republican Senate

Democratic White House Republican Senate

Fiscal: Expansionary

Fiscal: Rediscovered austerity Fed: Easy policy

Fed: Potential shift in Chair

These four election scenarios will have varying implications for investors’ confidence in this continued policy support

Republican White House Democratic Senate

Democratic White House Democratic Senate

Fiscal: Stagnation

Fiscal: Expansionary, but with corporate tax hikes

Fed: Easy policy

Fed: Easy policy

As of August 4, 2020 Past performance is not necessarily indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Assumes Democrats retain control of the House of Representatives. Figures may not tally to 100% due to rounding and transaction costs. Source: Election probabilities are RealClearPolitics’ average of the odds of 7 betting markets, AB

30


Competing Visions for the Future Campaign platforms are informative, but actual policies are what matter.

Taxes

Biden Platform

Trump Platform

o Partial reversal of corporate tax cuts, raising rates from 21% to 28%, and implementing minimum federaltax

o Pre-COVID proposal to extend individual tax cuts beyond 2025

o Increase marginal tax rate on highest earners from 37% to 39.6%

o COVID stimulus proposal to cut payroll tax that funds Social Security and Medicare from 15.3% to zero

o Tax capital gains as ordinary income for $1M+ earners

Trade

Healthcare

o Reduction in tariffs

o Use tariffs aggressively

o Multilateral trade agreements

o Bilateral trade agreements

o Push China on IP infringement and steel dumping

o Potential unspecified Phase Two agreement with China

o Onshore more pharma and electric vehicle manufacturing

o Onshore supply chains

o Expand the ACA for low-income population

o Repeal ACA in full or in pieces

o Create a public option

o Work requirements and caps or block grants on Medicaid

o Lower Medicare age to 60 from 65

o Drug pricing inside Medicare to be based on global prices

o Allow Medicare to negotiate lower prices and use caps, indexing, and legalization of foreign purchasing to limit prices

Infrastructure

o $2 trillion infrastructure plan with emphasis on public transportation, electric vehicles, and clean energy technologies

o Loosely specified plans with emphasis on rural areas

Source: Campaign websites, press reports, and AB

31


What Might the Election Mean for Asset Class Fundamentals? Stock and bond returns depend not only on fundamentals but also current expectations

US Stocks

US Bonds

Blue Wave

Biden + GOP Senate

Trump + Dem Senate

Red Wave

Neutral

Negative

Neutral

Positive

Higher corporate taxes potentially offset by reduced trade tensions and stimulus spending, including infrastructure plan

Gridlock could make stimulus spending and infrastructure plan difficult, also harder to pass tax hikes

Likely to find some agreement on stimulus, other policies may face gridlock, would expect trade tensions to remain elevated

Potentially higher volatility from trade tensions. Corporate tax hikes off the table, stimulus likely and eventual infrastructure plan possible

Rates: Neutral Inflation: Slightly higher Credit: Headwind Munis: Tailwind

Rates: Lower Inflation: Lower Credit: Headwind Munis: Headwind

Rates: Neutral Inflation: Slightly higher Credit: Neutral Munis: Neutral

Rates: Slightly lower Inflation: Higher Credit: Tailwind Munis: Headwind

Analysis provided for illustrative purposes only and is subject to revision. Source: AB analysis

32


Asset Allocation Based on a Plan, Beats Asset Allocation Based on Polls Market Timing Based on Politics Hurts Returns Growth of US$10,000: Dow Jones Industrial Average 1,600,000

Fully Invested at All Times

1,400,000

US Dollar

1,200,000

Invested Only During a Democratic Presidency

1,000,000 800,000 Invested Only During a RepublicanPresidency

600,000 400,000 200,000 0 37

46

55

64

73

82

91

00

09

18

Past performance does not guarantee future results. Through September 30, 2019 Monthly performance of Dow Jones Industrial Average, dating back to 1937 Source: Bloomberg and AB

33


The Election May Drive Future Sector Fundamentals Whose Profits May Rise or Fall? Blue Wave

Biden + GOP Senate

Trump + Dem Senate

Red Wave

Construction and Engineering Transportation

Renewables

US Oil & Gas

Health Insurers

Pharma

Big Tech

Historical analysis does not guarantee future results. Source: AB analysis

34


The Election May Have Meaningful Implications for Wealth Planning Planning for Potentially Higher Tax Rates Is More Likely to Add Value than Tactical Trading o Tax Management

– Loss harvesting could defer taxes into a higher rate environment – Gain harvesting could reduce future taxes, but only helps if ratesincrease

o Asset Allocation – Tax-efficient assets and strategies benefit  Retirement accounts and cash balance plans  Municipal bonds  Insurance and annuities (including Private Placement Life Insurance and Private Placement Variable Annuities)

 Private equity and alternative strategies with long holding periods  Passive management

o Charitable Giving – Use appreciated positions

o Estate Taxes – Another area of potential policy changes, but specifics unknown Bernstein does not provide tax, legal, or accounting advice. Source: AB analysis

35


Investment Outlook


Projected Returns and Volatility— Over 10 Years (Taxable) Range of Returns

Range of Annual Pretax Returns* (%)

32.2 26.0

19.9 14.0

9.1 2.1 (4.2)

6.6 0.8 (4.5)

0/100

20/80

3.0

3.9

(6.1)

(8.9)

40/60

5.8

4.8 (12.0)

60/40

80/20

(15.2)

10% (Superior Markets) 50% (Median Markets) 90% (Poor Markets)

100/0

Probability of Peak-to-Trough Losses** (%) 10% Loss

20% Loss

30% Loss

93

88 77

74 57

54

47 34

29

27

24 <2

0/100

<2

<2

20/80

<2

10

40/60

9

<2

60/40

80/20

100/0

Allocation (Stocks/Bonds) Data do not represent past performance and are not a promise of actual or range of future results. See Assumptions and Notes on Bernstein Wealth Forecasting System in Appendix for further details. Globally diversified stocks are represented by the following allocation for a 100% return-seeking allocation: 16.2% US value, 16.2% US growth, 12.0% US diversified, 6.0% US small-/mid-cap, 21.2% developed foreign markets, 8.1% emerging markets, 9.6% US Low Vol Equity, 10.7% high-risk international. Equity geography weights may shift in proportion to total return-seeking allocation. Bonds are represented by diversified intermediateterm municipal bonds in the proportions noted. Additional details regardingallocation available upon request. *Based on Bernstein's estimates of the range of returns for the applicable capital markets over the next 10 years as of June 30, 2020. First-year volatility of the portfolios: 0/100 = 3.8%, 20/80 = 6.0%, 40/60 = 10.2%, 60/40 = 14.5%, 80/20 = 18.9%, 100/0 = 23.3%. The annual equivalent volatility of the portfolios over the entire 10-year analysis: 0/100 = 2.8%, 20/80 = 4.0%, 40/60 = 6.8%, 60/40 = 9.8%, 80/20 = 12.8%, 100/0 = 15.9%.Annual equivalent volatilitydiffers from the first-year volatilitybecause the expectation and distribution of asset-classreturns change over time. **Data indicate the probability of a peak-to-trough decline in pretax, pre-cash-flow cumulative returns of 10%, 20%, or 30% over the next 10 years. Because the Wealth Forecasting System uses annual capitalmarket returns, the probability of peak-to-trough losses measured on a more frequent basis (such as daily or monthly) may be understated. The probabilities depicted above include an upward adjustment intended to account for the incidence of peak-to-trough losses that do not last an exact number of years.


Legislative Impact on Planning


Three Years, Three New Pieces of Legislation ■ 2018 (effective): TCJA

■ 2019: SECURE Act ■ 2020: CARES Act

|


Charitable Organizations Worried TCJA Would Slow Giving* Pre-TCJA Law

Current Law

37.06 million

15.99 million

*Source: Tax Policy Center http://www.taxpolicycenter.org/model-estimates/impact-itemized-deductions-tax-cuts-and-jobs-act-jan-2018/t18-0009-impact-tax

|

40


Actually, Giving Increased Post-TCJA â&#x2013; Total gifts increased by 0.7% in 2018 to $427.7 billion 2018 Charitable Gifts by Cohort (in Billions) $20.1 $39.7 $75.9

$292.1

Total Gifts Individuals

Foundations

Bequests

Corporations

*Source: Giving USA 2019

|

41


Who is Giving? Who are They Giving To? 2018 Contributions: $428 Billion (0.7% increase from 2017, $ billions)

Bequests $39.71

Education $58.72

Corporations $20.05

Human Services $51.54

5%

14% 12%

9%

Foundations $75.86

Religion $124.52 Grantmaking Foundations $50.29

18%

68%

Health $40.78

29%

12%

10% 7%

Individuals $292.09

Public-Society Benefit $31.21

5%

5%

2% Unallocated $6.53 2% Individuals 3% $9.06

International Arts, Environment/ Affairs Culture, Animals and Humanities $22.88 $12.70 $19.49

Source: Giving USA 2019 Annual Report on Philanthropy for the Year 2018

42


Charitable Giving under TCJA Strategies to Consider: â&#x20AC;&#x153;Bunchingâ&#x20AC;?Annual Gifts with a Donor-Advised Fund

Giving Appreciated Stock

Charitable IRA Rollovers

Source: AB

|

43


“Bunching” Annual Gifts Continue with $10,000 Annual Giving 2018 Mortgage Interest

2019

2020

Bunch Giving in Alternate Years

2021

$6k

$6k

$6k

$6k

State & Local Taxes

$10k

$10k

$10k

$10k

Charitable Gifts

$10k

$10k

$10k

Total Deductions

$26k

$26k

$2k

$2k

Amount above Standard Deduction

For $10,000 Donation: • Annual tax savings: $740 • $2,960 over 4 years

2018 Mortgage Interest

2019

2020

2021

$6k

$6k

$6k

$6k

State & Local Taxes

$10k

$10k

$10k

$10k

$10k

Charitable Gifts

$20k

-

$20k

-

$26k

$26k

Total Deductions

$36k

$16k

$36k

$16k

$2k

$2k

Amount above Standard Deduction

$12k

$0

$12k

$0

For “Bunched” $20,000 Donation: • Tax Savings of $4,440 in years 1 and 3* • $8,880 savings over 4 years

Source: AB *Under the Tax Cuts and Jobs Act, the standard deduction was increased to $24,000 for taxpayers married filing jointly (from $12,700 in 2017). This is set to expire after December 31, 2025. Assumes donor contributes a cash gift and is subject to the 37% federal tax bracket. Bernstein is not a legal, tax or estate advisor. Investors should consult these professionals as appropriate before making any decisions.

|

44


Find the Most Efficient Way to Make Gift $20,000 Gift Donor in Top Income-Tax Bracket, Assumes Fully Deductible

$3,570 $7,400

$7,400 $7,400

$12,600

$12,600

$9,030

Charitable IRA Rollover

Cash

25% Basis Stock

Applicable rate for IRA distribution is assumed to be 37% (no after-tax IRA contributions, and Medicare surtax does not apply). Applicable rate for stock gain is assumed to be 23.8%. Deduction limited to 60% of AGI in year of gift for cash or 30% of AGI in year of gift of appreciated publicly traded stock. Benefit of deduction assumes full use of deduction against income otherwise taxed at 37% tax rate. Gift is to a public charity. Source: AB

|

Where to from Here â&#x20AC;&#x201C; Q1 2020

45


SECURE Act: Modifications to PostDeath RMD Rules ■ All DC retirement plans, traditional and Roth, must be distributed entirely within 10 years of participant’s death unless an exception applies ■ Three categories of beneficiaries under the SECURE Act:

—Non-designated beneficiary (old 5-year rule applies) —Designated beneficiary (new 10-year rule applies)

—Eligible designated beneficiary (lifetime stretch still applies)  Surviving spouse  Minor child of the participant (10-year rule begins at the age of majority)  Disabled beneficiary

 Chronically ill individual  Less than 10 years younger beneficiary |

46


RMDs During Life Reduce Growth of Qualified Retirement Plans $1 Million IRA, 70-Year-Old Participant Median IRA Accumulation Value (Pre-Tax) 60% Stocks, 40% Bonds Nominal ($ Millions)

$1.5 $1.3

$1.0 $0.8

$0.5 $0.3

$0.0 70

74

78

82

86

90

94

98

102

106

110

Age Required minimum distributions begin at age 72. Projections based on ABâ&#x20AC;&#x2122;s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System in Appendix for further details.

|

47


The New 10-Year Rule Appears Very Costly for Beneficiaries… $1 Million Beneficiary IRA Median Pretax Accumulation, 25-Year-Old Beneficiary 60% Stocks, 40% Bonds Nominal (USD Millions) 5.0

4.0 3.0

Stretch IRA 2.0

10-Year Rule 1.0 0.0

0

2

4

6

8

10

12

14

16 Year

18

20

22

24

26

28

30

Beneficiary IRA values are displayed pretax. All distributions from beneficiary IRA are taxed at top marginal federal tax rates with after-tax proceeds reinvested 60% stocks and 40% bonds. “Stretch IRA” illustrates pretax beneficiary wealth assuming a lifetime stretch under pre-SECURE Act rules (e.g., designated beneficiary is age 25, divisor is 58.2 and reduced by one each subsequent year). “10-Year Rule” illustrates pretax beneficiary wealth assuming a lump sum distribution from the beneficiary IRA at the end of the 10th year. Projections based on AB’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System in Appendix for further details.

|

48


…Costs Moderate Considerably after Adjusting for Deferred Tax Liability Spendable Dollars from $1 Million Beneficiary IRA Median After-Tax Accumulation, 25-Year-Old Beneficiary 60% Stocks, 40% Bonds Nominal (USD Millions) 4.0

3.0

Stretch IRA 2.0

10-Year Rule 1.0

0.0 0

2

4

6

8

10

12

14

16 Year

18

20

22

24

26

28

30

Beneficiary IRA values are displayed after-tax. All distributions from beneficiary IRA are taxed at top marginal federal tax rates with after-tax proceeds reinvested 60% stocks and 40% bonds. “Stretch IRA” illustrates after-tax beneficiary wealth assuming a lifetime stretch under pre-SECURE Act rules (e.g., designated beneficiary is age 25, divisor is 58.2 and reduced by one each subsequent year). “10-Year Rule” illustrates after-tax beneficiary wealth assuming a lump sum distribution from the beneficiary IRA at the end of the 10th year. Projections based on AB’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System in Appendix for further details.

| 10


Distribute Inherited IRA as Lump Sum in Year 10 or Distribute over Time? Initial Inherited IRA$1.31 Value of $1.0 Million (USD Millions, Nominal)â&#x20AC;&#x201D;60/40* $1.23 $1.17

$1.03

Increase %**

$1.02

$1.00

$0.99

$0 Income

$100k Income

$250k Income

$600k Income

26.6%

20.9%

Lump Sum Year 10

16.5%

$0.99

0.0%

Over 10 Years

*Values assumed the beneficiary of the inherited IRA receives earned income, separate from any portfolio-related income, of $0, $100,000, $250,000, or $600,000. We assumed the beneficiary inherits a $1.0 million IRA and either satisfies the required distribution as a full lump sum in year 10 or takes even distributions over a 10-year period. All values illustrated above are net of federal income taxes, do not account for any state income taxes, and assume the IRA is invested with an asset allocation of 60% global stocks and 40% bonds. **Increase % calculates the increase in total wealth from taking distributions over 10 years has compared to as a lump sum in year 10. Values may not add due to rounding. Projections based on ABâ&#x20AC;&#x2122;s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System in Appendix for further details.

| 11


Could a Testamentary Charitable Remainder Trust (CRT) Be a Solution? CRT designated beneficiary of IRA

IRA Participantâ&#x20AC;&#x2122;s Death

Remainder when trust expires

Charitable Remainder Trust

Charity

Estate tax deduction at participantâ&#x20AC;&#x2122;s death* IRA liquidated and reinvest tax deferred

Annual cash payouts: Percentage of trust value (CRUT) or fixed-dollar amount (CRAT)

Non-Charitable Beneficiary

*The estate tax charitable deduction is not the total amount contributed, but rather the present value of what is expected to pass to charity. The calculation of the present value takes into account the value of the contributed assets, the discount rate (based on the Section 7520 rate) and the term of the trust (for lifetime trusts, a life expectancy table is used). See Sections 7520 and 664 of the Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder. Source: AB | 12


Total Wealth Beneficiary IRA vs. CRUT $5 Million Inherited IRA vs. 20-Year Term CRUT Personal Wealth Over Time—Median Case* 60% Stocks, 40% Bonds (Nominal, USD Millions) Total Wealth Charity’s Interest

$9.6

$1.6 ($0.8)

Personal Wealth

CRT Benefit CRT Cost

$8.8

No CRUT

11.114%

CRUT Payout Percentage

*Values displayed are based on the median outcome. Based on Bernstein’s estimates of the range of long-term returns for the applicable capital markets. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System in Appendix for further details. Source: AB

| 13


Roth Conversions Post SECURE Act Can Create a Benefit Assuming the Tax Rates Don’t Change… Subject to Top Marginal Tax Brackets* After-Tax Range of Assets—Year 10* Nominal (USD Millions)

Probability 5% 10% 50%

4.0

90% 95%

3.5

3.0

2.90

2.69

2.5 2.0

1.5

1.69

1.0

1.06

1.79 1.12

0.5

0.0 No Conversion

100% Conversion

For illustrative purposes only. Data do not represent past performance. Actual returns may be higher or lower than projected. *Values assume non-eligible beneficiary inherits the Traditional IRA and Roth IRA assets and satisfies the required distribution as a lump sum in year 10. The beneficiary is assumed to be subject to top marginal tax rates and the portfolio is assumed to be allocated as 80% global stocks and 20% bonds. Based on Bernstein's estimates of median returns for applicable capital markets over next 10 years. AB is not a legal, tax, estate, or insurance advisor. Investors should consult these professionals as appropriate before making any decisions. Source: AB | 14


…but, if Beneficiary’s Tax Rate is Lower, then Conversion Becomes Costly Beneficiary with No Other Income Annual Distributions of Inherited Traditional IRA (10 Bracket Runs) After-Tax Range of Assets—Year 10* Nominal (USD Millions)

Probability 5% 10% 50%

4.0

90% 95%

3.5 3.19

3.0

2.90

2.5 2.03

2.0

1.79

1.5 1.29

1.0

1.12

0.5 0.0 No Conversion

100% Conversion

For illustrative purposes only. Data do not represent past performance. Actual returns may be higher or lower than projected. *Values assume non-eligible beneficiary inherits the Traditional IRA and Roth IRA assets and satisfies the Roth IRA required distribution as a lump sum in year 10 and the required distribution for the Traditional IRA as an even distribution over 10 years. The beneficiary is assumed to be single and have no other income other than the income that is generated by the portfolio and required distributions. The portfolio is assumed to be allocated as 80% global stocks and 20% bonds. Based on Bernstein's estimates of median returns for applicable capital markets over next 10 years. AB is not a legal, tax, estate, or insurance advisor. Investors should consult these professionals as appropriate before making any decisions. Source: AB

| 15


SECURE Act Key Messages ■ Losing the stretch IRA and Roth IRA has a cost, but it’s much less than initially feared ■ The optimal distribution strategy for inherited IRAs and Roth IRAs depends on beneficiaries tax rates

■ In most situations, CRTs will be unattractive, unless charitable objectives or other non-tax objective are prevalent ■ Roth conversions may be more attractive as a result of the SECURE Act; however, caution should be exercised since tax rules can change

| 16


CARES Act: Considerations for Retirement Accounts RMDs Waived for 2020

Coronavirus-related Withdrawals

Roth?

• Any RMDs due in 2020 may be recontributed — includes beneficiary and traditional • Withheld taxes must be contributed to avoid recognizing income • • • •

Up to $100,000 without penalty No mandatory withholding Repayable over 3 years Can spread income over 3 years (2020, 2021, 2022)

• Low valuations • Low taxes?

| 17


CARES Act: Charitable Giving Three Ways to Give in 2020 Cash 100% Deductible Appreciated Stock QCD from IRA Our Advice?

| 18


Personal Philanthropy


There Are Many Reasons People Give In deciding what and how much to give, it is useful to plot the elements of your philanthropic vision along various dimensions.

Passions

Catalysts

Target Communities

Source: Bernstein

59


Plotting Your Philanthropic Mission

What do you want your philanthropic legacy to be?

What causes are important to you?

How do you think about your philanthropic investments? Is it different than how you think about your personal investments?

What organizations are you active in, and serve with your time?

Do you proactively donate to philanthropic organizations?

Have you ever made a gift to charity other than cash?

60


Additional Considerations: Timing and Family Timing: ➢ Do you want to see the benefits of your charitable giving while you’re alive?

➢ Do you give to charities each year, or do you give large gifts spaced over time? ➢ How much time do you want to commit?

Family: ➢ How and when do we want to involve our heirs?

➢ Do our children share our philanthropic passions? ➢ Do we want our family to continue to manage the Private Foundation or advise regarding distributions from the Donor Advised Fund once we’re gone?

61


Components of a Philanthropic Plan: Determine Your Capacity to Give Hierarchy of Goals

➢ It is important to analyze the impact on your financial plan and the associated trade-offs . ❖

What is the best timing for making an irrevocable gift?

Should we make a large onetime gift or small gifts over time?

Which causes shouldwe support?

➢ Before you make a gift, you should feel confident in your ability and capacity to give.

Gift to Alma Mater

Liquid Assets

Surplus Capital

Children and Grandchildren

Charity

Core Capital* Lifestyle Spending

*Core capital is defined as the amount needed today to support annual spending needs for life after taxes and inflation with a 90% level of confidence. Source: Bernstein

62


Components of a Philanthropic Plan: Which Assets Help Optimize My Giving? Some Assets Are More Difficult to Give and Harder for Charities to Receive

Cash

Appreciated Publicly Traded Securities

Private Securities

Real Estate

Art and Tangible Property

Simplest

Simplest for donor to give and for nonprofits to receive

Qualified Retirement Plans Most Complex

Simple; can avoid embedded capital gain by giving to nonprofits

A littlemore complex; require qualified appraisals; may not be suitable for some strategies*

Can be very complex; requires qualified appraisals; may not be suitable for some strategies; debt can be problematic

Complex; subject to a higher top marginal capitalgains rate (28%); typically limited to cost basis for income tax deduction unless related use†

Complex; typically a bequest, as giving options are limited while IRA owner is alive

*Contributing S corporation stock to a charitable remainder trust (CRT) will cause a corporation to lose its S corporation tax status. †Considered related use if an organization will use the property in a manner that is related to the philanthropic mission of the organization—for instance, contemporary art donated to a contemporary art museum for public viewing. Source: AB 63


Components of a Philanthropic Plan: What Philanthropic Strategy Should You Use? Both purely and partly philanthropic strategies give you the flexibility to make immediate, staged, or deferred gifts. Purely Philanthropic Strategies

Charitable IRA Rollover

Partly Philanthropic Strategies Charitable Gift Annuities

Charitable Remainder Trusts

Immediate Gifts Deferred Gifts

Staged Gifts

Charitable Lead Annuity Trusts

Deferred Gifts Staged Gifts

Purely Philanthropic Strategies

Partly Philanthropic Strategies

Allow you to make a gift and the assets will solely benefit charity

Allow you to split a giftâ&#x20AC;&#x2122;s benefit between you or your loved ones, and charity

Investments

Your Capacity to Give Source: Bernstein 64


Components of a Philanthropic Plan: Measuring Your Impact Total Philanthropic Value (TPV) = Total Gifts + Remainder ➢ TPV assesses the projected financial impact of various giving strategies or spending policies. $22.6

$8.6 $14.2

Remaining Assets Total Philanthropic Value (TPV)

$9.4 $14.0 $10.0

Cumulative Distributions

$4.8 Beginning Assets

Assets: Year 10

Assets: Year 30

➢ TPV is the sum of distributions over time and any remaining assets that will support future giving, in current dollar terms. ➢ The following all play a role in determining TPV: ❖

Size of annual gifts

Time horizon for making the gifts

Asset allocation of the giving strategy

Expected capital market returns

TPV is the sum of cumulative distributions and the portfolio remainder value after inflation. Allocation is 80% stocks and 20% bonds. Global stocks are modeled as 12% US diversified, 16.2% US value, 16.2% US growth, 6% US small- and mid-cap, 9.6% US low vol equity, 23.7% developed international, 9.0% high-risk international, and 7.3% emerging market. Bonds are modeled as 50% intermediate-term taxable bonds and 50% global intermediate-term taxable bonds, hedged. Based on Bernstein’s estimates of the range of returns for the applicable capital markets as of January 31, 2019. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System at the end of this presentation. Source: Bernstein 65


Charitable Income Tax Deduction A donor is entitled to a charitable income tax deduction for gifts to charity.* The value of the deduction and the income limitations for charitable gifts depends on the type of charitable entity to which a gift is made. Type of Charity Receiving Contribution

PUBLIC CHARITY Type of Property Contributed

PRIVATE FOUNDATION

Deductible Amount of Contribution

% of AGI Limit

Deductible Amount of Contribution

% of AGI Limit

Actual dollar amount

100%

Actual dollar amount

30%

Qualified

Fair market value

30%

Fair market value

20%

Unqualified

Fair market value

30%

Cost basis

20%

Real estate

Fair market value

30%

Cost basis

20%

Closely held business interests

Fair market value

30%

Cost basis

20%

Cash Publicly traded securities

*Charitable income tax deductions are available if you are able to and choose to itemize your deductions. 100% deduction limit on cash gifts to directly to charities in 2020, gifts to donor advised funds not included Personal Philanthropy

| 12


How Much Can I Deduct This Year? It Depends on What I Give and the Nature of the Recipient Charity…. Let’s assume I want to make a charitable gift of $400,000 this year and my AGI is $1,000,000. How much is deductible* this year? Year 1

Year 2

Cash Gift (to DAF)

$400,000

-

Cash Gift (to Private Foundation)

$300,000

$100,000

Stock Gift (to DAF)

$300,000

$100,000

Publicly Traded Stock Gift (to Private Foundation)

$200,000

$200,000

Closely Held Stock (to Private Foundation)

Limited to Cost Basis

REMINDER: Charitable tax deductions reduce taxes but do not eliminate them.

Tax Deduction: A reduction of the income that is eligible for taxation. vs. Tax Credit: A dollar-for-dollar reduction in taxes owed.

*Charitable income tax deductions are available if you are able to and choose to itemize your deductions. Figures above assume AGI of $1 million in year 1 and year 2. Personal Philanthropy

| 13


Best Practices for Asset Allocation


Evolving Landscape Necessitates a New Allocation Paradigm Next-Gen Model Multi-Dimensional

Conventional Model One Dimensional Stocks

Higher Risk Higher Return

Alternatives

Bonds

Lower Risk Lower Return

1st Dimension Asset Class

Traditional

2nd Dimension Liquidity and Purpose

Return Seeking

Alternatives

Growth

3rd Dimension Spending

As of December 31, 2019. Past performance is not indicative of future results. There is no guarantee that any estimates or forecasts will be realized. Risk as measured by standard deviation of returns and correlation Source: AB

Risk Mitigating

Diversifying

Liquidity Shortfall Risk

Income

Allocation Drift Risk Lower Risk Lower Return

Higher Risk Higher Return

Illiquidity, Cash Flow Investor Preferences ALTERNATIVES & FOCUSED EQUITIES

1 4

|


Addressing Today’s Challenges

LOWER EXPECTED RETURNS

LOW INTEREST RATES

RISING INTEREST RATES

As of June 30, 2019. For illustrative purposes only. Please see A Word About Risk: Alternative Investments in General and Important Information and Disclosures in the Appendix. Source: AB

HIGH MARKET LEVELS

VOLATILITY

|

Where to from Here – Q1 2020

70


Addressing Today’s Challenges

LOWER EXPECTED RETURNS

LOW INTEREST RATES

▪ Deep research-based investing ▪ Concentrated, execution-focused

Seeking Superior Income, Better Growth, and Portfolio Diversification ▪ Income Alternatives ▪ GrowthAlternatives

▪ Exploiting market dislocations and RISING INTEREST RATES

anomalies whether opportunistic or persistent

▪ Often illiquid, and/or leveraged

HIGH MARKET LEVELS

▪ Focused Equities

As of June 30, 2019. For illustrative purposes only. Please see A Word About Risk: Alternative Investments in General and Important Information and Disclosures in the Appendix. Source: AB

VOLATILITY

ALTERNATIVES & FOCUSED EQUITIES

1 9

|


© 2020 CENTRAL NEW YORK COM MUNITY FOUNDATION


ESG Investing


Learning Objectives ➢ Define responsible investing and ESG factors ➢ Understand where demand for responsible investing is coming from ➢ Review the spectrum of ways to invest responsibly ➢ Outline various ESG incorporation strategies ➢ Discuss examples of how to practice responsible investing

➢ Review trade-offs of responsible investing

|

74


What is Responsible Investing? There is no single approach to Responsible Investing and no single word to define it

Active Ownership

Community Investing

Values-based Investing Mission-related Investments

Socially Responsible

Corporate Engagement

Standards-based

Best-in-class

Transparency

Activist

Green

Responsible Investing

ShareholderAdvocacy

Microfinance Investments

Investment Standards

Sustainable Capitalism

Positive Screening

Impact Investing

Socially Conscious

Ethical

Thematic

Environmental, Social, and Governance (ESG)

Negative Screening

Sustainability Divestment

|

75


What Does Responsible Investing Mean? It is an investment discipline that incorporates environmental, social, and corporate governance (â&#x20AC;&#x153;ESGâ&#x20AC;?) factors alongside traditional financial metrics to better manage risk and generate longterm returns while investing capital for a better tomorrow

Potential Universe of Investments

Values/ Missions/ Objectives

Seeks to generate competitive returns

Seeks to make a positive societal impact

Responsible Investing 10

|


What are ESG Factors? There are several ESG factors and they are ever-changing. Examples may include:

Environmental ❖ Climate Change ❖ Greenhouse gas (GHG) emissions ❖ Resource depletion ❖ Waste and pollution ❖ Deforestation

Social ❖ ❖ ❖ ❖ ❖

Working conditions Local communities Conflict Health and Safety Employee relations and diversity

Governance ❖ Executive pay ❖ Bribery and corruption ❖ Political lobbying and donations ❖ Board diversity and structure ❖ Tax strategy

|

77


Investors Are Increasingly Striving for More than Just Financial Returns

As of December 31, 2017 Source: AB |

78


The Demand for Responsible Investing ➢ The Responsible Investing trend is gaining momentum as more mainstream asset managers are taking steps to meet the interests of investors. ➢ One half of High Net Worth (HNW) investors and more than half of women own or are interested in owning impact investments. ➢ Millennials, who are leading the charge, are set to inherit more than $30 trillion from their baby boomer parents. ➢ Even over the span of a few years (2015-2017), demand from both individuals and organizations has increased significantly. ❖ Types of Investors: ❑ Individual investors ❑ Fund managers ❑ Private Foundations

❑ Pension funds ❑ Family offices

❑ Religious institutions

Impact investments, as defined by the Global Impact Investing Network, are those “made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. MILLENNIALS Ages 21–36 (Born 1981–1996); GENERATION X Ages 37–52 (Born 1965–1980); BABY BOOMERS Ages 53–72 (Born 1946–1964); SILENT GENERATION Ages 73+ (Born before 1946). Analysis of the quantitative data was augmented by qualitative insights. In-depth conversations were conducted with 40 survey participants who agreed to anonymously share their personal perspectives and experience. Current analysis does not guarantee future results. Source: U.S. Trust Bank of America

|

79


There Is a Generational Shift Underway in Responsible Investing With growing interest across all generations - Millennials are leading the way Expressed Interest In Having Impact Investments*

80%

60% 54% 39%

34% Total Interested

21%

24% 24%

8% 2015

43% 28%

23% 17%

10% 2017

SILENT

Older

29%

37%

17%

13%

Own

34%

52%

7% 2015

10% 2017

BOOMERS

17%

11% 2015

2017

GEN X

2015

2017

MILLENNIALS

Younger

*As of June 30, 2017 Impact investments, as defined by the Global Impact Investing Network, are those “made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. MILLENNIALS Ages 21–36 (Born 1981–1996); GENERATION X Ages 37–52 (Born 1965–1980); BABY BOOMERS Ages 53–72 (Born 1946–1964); SILENT GENERATION Ages 73+ (Born before 1946). Analysis of the quantitative data was augmented by qualitative insights. In-depth conversations were conducted with 40 survey participants who agreed to anonymously share their personal perspectives and experience. Current analysis does not guarantee future results. Source: U.S. Trust Bank of America

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There is a Spectrum of Ways to Invest Through a Responsible Lens Many investors operate between or across categories Financial - only Investing

Responsible Investing

No consideration of ESG

Attempt to Reduce uncertain ESG practices

Sustainable Investing

Incorporate ESG practices

Impact Investing Focus on societal issues that produce competitive financial returns

Focus on societal issues that may produce below-market returns

Impactonly Investing Focus on societal issues that do not generate financial returns

Producing competitive financial returns

Reducing Environmental, Social, and Governance risks

In Search of Environmental, Social, and Governance options

Emphasizing quantifiable high-impact results

Source: Bridges Fund Management

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The Spectrum of Responsible Investing Options Screening

Narrowing the investment universe through negative or positive screening based on certain ESG criteria, or driven by the investorâ&#x20AC;&#x2122;s moral/ethical perspective.

Goal-Based

Investment approaches that incorporate an additional dimension of responsibility along with financial return.

Sustainable

Strategies that leverage a top-down framework to focus on issuers enabling positive societal outcomes and whose managements exhibit responsible behavior.

Impact

Investments made with the intention to generate a measurable social and/or environmental impact alongside a financial return.

For illustrative purposes only. Source: AB

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Examples of Responsible Investing* ➢ Integrating ESG information into quantitative and qualitative analysis, which could result in making adjustments to areas such as selection, weighting, or asset allocation

➢ Engaging, either individually or alongside other investors, with companies on the ESG factors identified as relevant to them ➢ Using shareholder voting rights to influence company behavior ➢ Encouraging companies to disclose information on the ESG factors that do or could affect them ➢ Monitoring overall ESG risk within the portfolio, for instance by measuring the portfolio’s carbon footprint ➢ Contributing to the shaping of investor-relevant public policy ➢ Promoting wider acceptance and use of responsible investment within the investment industry

*Source: Principles for Responsible Investment (PRI) https://www.unpri.org/signatories/become-a-signatory/what-is-responsible-investment

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Environmental and Social Considerations and How They Vary by Sector Mass Transit

Water/Wastewater

 Carbon emission reduction

 Conservation, water quality

 Access to low-income populations

 Access/outreach to lowincome populations

Energy  Transition to renewables  Access/outreach to lowincome populations

Economic and Community Development

Education  Graduation rates, attendance, outreach

Healthcare  Charity care  Quality/safety of care

 “Green” use of proceeds  Underserved communities

Environmental

Social

Governance  Stewardship of Capital  Transparency Current analysis does not guarantee future results. As of June 30, 2019 Source: AB

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The Reality of Responsible Investing: It’s an Evolution Benefits

Challenges

➢ Ensures investors align investments with personal values or an organization’s objectives

➢ It is difficult to measure a company’s impact— there is no standard or yardstick to compare against

➢ Gives opportunity for investors to withhold investment dollars from businesses that do not behave well; as a result, companies are influenced to behave more responsibly

➢ Not a passive strategy—takes time to research potential investments thoroughly

➢ Rewards companies that act ethically

➢ Fees can be higher due to additionalresearch required

Source: Bernstein

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Key Takeaways ➢ For both individual investors and organizations, responsible investing offers the opportunity to make a positive societal impact through their investments. ➢ Interest and demand for responsible investing strategies continues to grow. ➢ Responsible investing provides a range of approaches for implementing strategies that can be tailored to an investor’s specific goals. ➢ Responsible investing has trade-offs, and the strategies chosen should be aligned with the investor’s objectives.

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Profile for Central New York Community Foundation

Annual CE Event | Marketing and Legislation Impacts on Planning  

Annual CE Event | Marketing and Legislation Impacts on Planning  

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