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Some Notable Observations US Equities Have Been Shunned All Along In both our 2018 Outlook and mid-year update, we highlighted the surprising absence of inflows into US equities based on flows into mutual funds and Exchange-Traded Funds. As shown in Exhibit 9, flows into US equities were negative in 2018, even before the recent downdraft. In fact, US equities have seen outflows of $81 billion through August 2018 (based on the most recent comprehensive data), while non-US developed equities and emerging market equities have had inflows of $72 billion and $20 billion respectively. This is further evidence of our view that while sentiment and short term positioning among speculators and hedge fund managers shifts frequently, more stable investors have shunned US equities during this long bull market in favor of other developed and emerging market equities and global bonds. This steady outflow of assets from US equities has been offset by record levels of stock buybacks by US companies given high levels of profitability and incremental cash from repatriation of overseas earnings, as mentioned above. 9. Cumulative Mutual Fund and ETF Flows (US$bn) o00 ——US Equities — — Non-US Developed Equities EM Equities — Global Bonds f 2,032 / 7 = f i tea 5 / wn Pun E 2 A aN? ‘S oe bE ~ WW 1100 - vo 3 / 5 FJ ko] 5 wy, eo = 830 im fea?” am § 600 / pte al S 2 = / Ped Ss / 5 o* 283 Pj al E1014 _-,eeesues ~ (=) a oe -266 -400 ~ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: Based on ICI weekly estimates through August 30,2018. Flows exclude reinvested dividends. Source: Investment Strategy Group, ICI. Some Headwinds Facing the FANGMAN Stocks Will Persist The basket of FANGMAN (i.e. Facebook, Apple, Netflix, Google, Microsoft, Amazon and Nvidia) stocks have dropped across the board from their respective peak price levels, with Facebook’s 29% decline the largest and Apple’s 4% decline the smallest among the group. Even so, each of the stocks, with the exception of Facebook, still have positive year-to-date returns and have outperformed the S&P 500, as shown in Exhibit 10. HOUSE_OVERSIGHT_026918