TH ANNUAL EDITION Long-Term Capital Market Assumptions

1 FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY NOT FOR RETAIL USE OR DISTRIBUTION. PORTFOLIO INSIGHTS. 2022 | 26 TH ANNUAL EDITION . Long-Term Capital Market Assumptions Time-tested projections to build stronger portfolios FOREWORD. T H ERE IS N O ED U C ATION LIKE A DV ER SIT Y, said Benjamin Disraeli, the 19th-century British statesman and prime minister. As the pandemic-battered global economy proved far more resilient than many had expected , investors must now navigate economies and markets that are in many ways transformed. GEORGE GATCH. Amid today's demanding investing environment, we present the 2022 EDITION of Morgan Asset Management's Long-Term Capital Market Assumptions (LTCMAs). In our 26th year of producing Capital Market estimates, we incorporate more than 200 asset and strategy classes;1 our return Assumptions are available in 17 base currencies.

2 Over the years, many investors and advisors have come to depend on our Assumptions to inform their strategic asset allocation, build stronger portfolios and establish reasonable expectations for risks and returns over a 10- to 15-year time frame. Moreover, we seek, each year, to recalibrate our long-run approximations as we incorporate the new information presented by markets, policymakers and economic data. We formulate our LTCMAs as part of a deeply researched proprietary process that draws on quantitative and qualitative inputs as well as insights from experts across Morgan Asset Management. Our own multi-asset investment approach relies heavily on our LTCMAs: The Assumptions form a critical foundation of our framework for designing, building and analyzing solutions aligned with our clients' specific investment needs.

3 This EDITION of our Assumptions explores how the legacy of the pandemic limited economic scarring but enduring policy choices will affect the next cycle. Over our investment horizon, we see modestly higher nominal global growth and more two-sided risks to inflation. Ultimately, our message is optimistic: Despite low return expectations in public markets, investors can find ample risk premia to harvest if they are prepared to look beyond traditional asset classes. Whatever approach investors take, a considered, Long-Term strategic perspective is essential. So, too, are careful manager selection and attentiveness to the power of active asset allocation. We look forward to working with you to make the best use of our Assumptions in setting your own strategic perspective and pursuing your investment goals.

4 On behalf of Morgan Asset Management, thank you for your continued trust and confidence. As always, we welcome your feedback. George Gatch Chief Executive Officer, Asset Management 1. Key asset classes in USD, GBP and EUR presented at the back of this book; all others available via our website or from your Morgan representative. MORGAN ASSE T MA N A G E ME N T 3. TABLE OF CONTENTS. 3 FOREWORD. 6 E X E C U T I V E S U M M A R Y. Fading scars, enduring policies 17 MACROECONOMIC Assumptions . The new old normal: Moderate growth but a little more inflation I. T HEMATIC ARTICLES. 24 ESG IN MARKETS. Doing good and doing well: ESG trade-offs in investing 33 C H I N A' S M A R K E T O U T L O O K. Chinese assets: The biggest risk for investors would be to ignore them 45 CRYPTOCURRENCIES.

5 Cryptocurrencies: Bubble, boom or blockchain revolution? 54 A LT S : I N P U R S U I T O F A L P H A , I N C O M E A N D D I V E R S I F I C AT I O N. Alternative investments: The essential buyer's guide 63 TA X A S A N I N V E S T M E N T I S S U E. Weighing the impact of tax loss harvesting on Long-Term saving goals II. A SSUMPTIONS. 76 FIXED INCOME Assumptions . Higher inflation expectations change the pathways for interest rates 84 EQUITY Assumptions . Better through-cycle returns, challenging starting point 91 C U R R E N C Y E X C H A N G E R AT E A S S U M P T I O N S. Is the dollar unassailable as the premier reserve currency? 97 A LT E R N AT I V E A S S E T S A S S U M P T I O N S. Reaching investment objectives when traditional assets may not be enough 112 V O L AT I L I T Y A N D C O R R E L AT I O N A S S U M P T I O N S.

6 Stable forecast in a dislocated world: Risk outlook little changed, uncertainty rising 117 P O R T F O L I O I M P L I C AT I O N S. Portfolio construction: Moving toward a new architecture 123 GLOSSARY. III. Assumptions MATRICES. 126 DOLLAR. 2022 Estimates and correlations 128 EURO. 2022 Estimates and correlations 130 STERLING. 2022 Estimates and correlations IV. APPENDIX. 134 ACKNOWLEDGMENTS. MORGAN ASSE T MA N A G E ME N T 5. EXECUTIVE SUMMARY. Fading scars, enduring policies John Bilton, CFA, Head of Global Multi-Asset Strategy Karen Ward, Chief Market Strategist, EMEA , Global Market Insights Strategy Monica Issar, Global Head of Wealth Management Multi-Asset and Portfolio Solutions IN BRIEF. Almost two years after the pandemic struck, the global economic recovery has strong momentum, kicked off by huge fiscal and monetary stimulus and now sustained by a robust capex cycle and solid household balance sheets.

7 The economy has suffered limited scarring, but policy choices have an enduring impact. In any case, our message is optimistic: Despite low return expectations in public markets, we see plentiful opportunities for investors. Our nominal growth forecasts rise a little this year in developed markets, and we anticipate more two-sided risks to inflation. While a sustained rise in inflation does pose a risk, it is neither the only plausible outcome, nor is it an imminent endgame to the dislocations apparent in the current cycle. We expect policy rates to rise slowly, lagging nominal growth and leaving returns for cash and most developed Market government bonds negative in real terms. Bonds are serial losers in many states of the world, and bondholders not only face a deprivation of coupon income but also suffer under financial repression.

8 In fixed income, credit remains our preferred asset. Equity returns are stable, even after a year of strong returns since our last publication. Adjusting for today's sector mix implies better margins and more supported valuations than history alone suggests. Nevertheless, the best performance is still to be found in alternative assets, where solid alpha trends and the ability to harvest illiquidity risk premia support returns relative to public asset markets. Comparatively, real assets in particular may emerge as serial winners in a wide range of economic scenarios. Returns are constrained. But for investors willing to expand opportunity sets, harness novel sources of risk premia and employ some degree of active investment decision-making, there are sources of alpha and the capacity to generate robust and efficient portfolios.

9 6 LO N G - T ER M C A P IT A L MARK ET AS S UM PTIO NS. FA D I N G S C A R S , E N D U R I N G P O L I C I E S. INTRODUCING THE 2022 Long-Term Capital ECONOMIC SCARS FROM THE PANDEMIC ARE. Market Assumptions QUICKLY FADING. Our 2022 Long-Term Capital Market Assumptions (LTCMAs) represent This year, we revise up our nominal growth forecasts 10 basis the 26th EDITION of our 10- to 15-year risk and return forecasts. We points (bps) for developed markets, to , comprising a real anticipate slightly stronger nominal growth in developed markets, GDP forecast of and an inflation assumption of on average, across our investment horizon. After a tumultuous two (EXHIBIT 1A). We are increasingly convinced that the pandemic will years navigating a global pandemic, that was hardly a given.

10 But the leave behind relatively few economic scars. Less than one year ago global economy has accelerated rapidly away from a coronavirus- in the depths of the pandemic forecasters were grappling with induced slump, helped at first by overwhelming policy support and the risk that COVID-19 would leave in its wake high and lingering later by a surge in Capital spending and the unleashing of pent-up unemployment, widespread bankruptcies and a lasting erosion in consumer demand. Today, we are at or at least close to escape the willingness of households and businesses to spend. velocity,1 with the potential growth of the global economy mercifully undiminished by the experience of COVID-19. The pandemic may not be over, but we see little evidence of such economic damage.