CIO Insights —August 2016 Multi Asset 6 MULTI ASSET Recalibrating strategy Return 14% 12% 10% 8% 6% 4% 2% 0% -1% 1% Volatility 3% 5% Multi-asset investors face an environment where growth remains stubbornly low and there are increasing concerns about the long-term implications of very accommodative monetary policy. But, for the foreseeable future, we should live in a situation where core sovereign-bond yields are at record lows, corporate-credit yields are moving down and equities are at record highs. In short, we have an investment cycle where some assetclass price movements are out of synch with economic growth. Lower effective returns are also accompanied by high levels of volatility. This is most simply illustrated by the classic "efficient7% 9% 11% 13% 15% frontier" chart (Figure 1) showing the highest rate of return for a given level of risk, or vice versa. A simple hypothetical example makes the point even more strongly. In 2004 you could achieve a 4% return with a portfolio made up with 85% fixed income and only 15% of equities. Now you would have to allocate -50% into equities to have a hope of approaching this level of return - and your expected volatility would have doubled. Figure 1. Lower returns for a higher level of risk 1990-2005 - 2010-2016 Expected return (10y1 Past performance is not indicative of future returns. In short, we have an investment cycle where some assetclass price movements are out of synch with economic growth. Sources: Morgan Stanley Research, Bloomberg Finance L P Data as of November 2015. Past performance is not indicative of future returns. Readers should refer to the explanatory notes at the end of this document. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SONY GM_00219783 DB-SDNY-0073599 EFTA01377063