• Disclosures (0:00 – 0:30)
• Host introduction (0:35 – 0:47)
• Episode introduction (0:49-1:17)
• Introduction of the episode’s guest: Dustin Haygood (1:20 – 1:56)
• Diversity of thought and experience on the investment team (1:56 – 2:48)
• What is a catalyst? (2:49 – 4:33)
• Where catalysts fit in the investment process (4:37 – 5:24)
• What are and are not catalysts (5:25 – 7:17)
• Financial engineering (7:27 – 8:34)
• Samples of catalysts in action (8:38 – 10:32)
• Industry specific nuances (10:39 – 11:15)
• Corporate Transformations (11:16 – 11:46)
• How does the team assess catalysts after buying a business? (11:49 – 12:53)
• Conclusion (12:55 – 13:24)

Alex Warren: The term Aristotle is used to represent a family of affiliates, which is comprised of Aristotle Capital Management, Aristotle Capital Boston, Aristotle Credit Partners, Aristotle Atlantic Partners, and Aristotle Pacific Capital, which collectively operate under a unified platform known as Aristotle. Each firm is an independent investment advisor, registered under the Investment Advisors Act of 1940, as amended.

Welcome to the Power of Patience, Aristotle’s podcast, where we share our views on topics actively explored by our investment teams and across the organization. I’m Alex Warren, Product Specialist at Aristotle, and I’ll be your host today. Coming up on today’s episode, we’ll be speaking with Dustin Haygood, Client Portfolio Manager at Aristotle Capital Management. If you enjoy this podcast, please like and share it on LinkedIn to help spread the word.

Today on the show we’ll discuss catalysts and how they fit into the Aristotle Capital Management investment process, examples of what does and does not constitute a catalyst, and nuances to identifying catalyst in the research process. Without further ado, let’s get started. Dustin, thank you so much for joining me today. To lead off the discussion, can you introduce yourself and provide a brief overview of your role at Aristotle Capital Management?

Dustin Haygood: It’s a pleasure to be on the podcast, Alex and hi, everyone, tuning in. My name is Dustin Haygood and I’m a member of Aristotle Capital Management’s investment team and I’m based here at our headquarters in Los Angeles. I graduated from the University of Chicago’s MBA program a few years ago and I joined Aristotle after grad school. That is a very typical path for our analysts. Prior to business school, I spent a number of years in Washington DC. I worked in politics and one thing that I’ve really admired about our investment team is that we’ve created a very diverse group of individuals.

I’m the only one on the team with a political background and we’re probably lucky for that, but we have others on the team with degrees in engineering, history, and statistics. There are people in their thirties up to their sixties. We have people that have grown up or lived all over the world. There are more than five languages spoken on the team, more than five passports held, and that’s all intentional. If we want to understand businesses from a global perspective, it’s incredibly important to have a variety of backgrounds both professionally and personally. It’s really been great to have joined such a unique team.

Alex Warren: Absolutely. Thank you, Dustin. Now, you recently wrote a paper titled In Search of Catalysts where you noted catalysts are often found at the very intersection of potential becoming reality and where additional runway lies to further improve the business. Can you touch on what a catalyst is?

Dustin Haygood: We want to invest in businesses that are high quality and attractively valued, but those two factors are not enough. The company also needs to have catalysts. Catalyst, it’s a common term you hear thrown around in the industry, but it means something distinctive to us at Aristotle Capital. We define a catalyst as an action or an event that’s both currently underway and within management’s control that we believe will fundamentally improve the business, move a company closer to meeting its potential, and over the long term drive the company’s stock price towards our estimates of intrinsic value. Catalysts, they’re not short-lived events such as a presentation date or an earnings call. They are company-specific improvements that we think will take place over the next three to five years.

Said differently. If you were an owner of a local business, what are the three to five things you would do to make that business better? Those are catalysts. If it’s a local sandwich shop, maybe that means installing a drive-through, so there’s higher throughput, which would increase revenue. Maybe it’s adding beverage flavors to the soda fountain, which will drive more soda sales and increase profitability, since soda is a higher-margin product than food. Maybe it’s the creation of a rewards program to incentivize more repeat customers. These could all be catalysts for us and the publicly traded companies we invest.

Alex Warren: That makes sense. And it sounds like there are a lot of boxes that need to be checked. Now, where do catalysts fit in the investment process and how important are they?

Dustin Haygood: Catalysts are incredibly important, Alex. They are a necessary factor for us to invest. We have three criteria that are all equally important. A business needs to be high quality and needs to be attractively valued and they have to have compelling catalysts. It’s like a three-legged stool. They all need to be present. None of them are superior or inferior in terms of priority. When quality valuation and catalysts line up, we’ll invest. When one of them isn’t present, we’ll wait and continue to study the business and if one of them weakens in a company we own, we’ll step aside and sell that business. It’s a very disciplined process.

Alex Warren: Now, let’s dive in a bit deeper. Would you be able to provide some examples of what are and are not catalysts?

Dustin Haygood: Catalysts, they come in many forms. It could be a company increasing its market share. It could be the restructuring of a business. It could be the divestiture of an unprofitable or underperforming division. It could be a mixed shift towards selling higher margin products or services which would improve profitability, and it could even be something like a newly installed management team that’s brought with it a different go-to-market strategy that might even hurt earnings in the short term but will improve the business over the long term. That means it could be an investment into something. For those out there that are homeowners, we all know that living through remodeling a kitchen or a bathroom, it’s very expensive in the short term. It’s painful, it could take a long time, but when you go to sell that house five years from now, it will add value to it. That would be a catalyst.

To extend the home ownership example, a catalyst would not be property prices going up further from where we are today. Property prices going up broadly, that’s something that might be true, but it wouldn’t tell us which house to buy. Again, these are company specific improvements, not macro, not things like a change in interest rates or a change in commodity prices. We are trying to understand the individual companies, the companies that are doing the heavy lifting and the tough work, that are in control of forging their path forward, their path towards improvement. And if our analysis of improving business prospects is accurate, we lower the probability of falling into a value trap. And that’s because we believe, over the long term, stock prices eventually follow fundamentals.

Alex Warren: I like your home ownership analogy. As someone who’s remodeled their master bathroom, I like to think that the pain and the time that it took will eventually pay off. Let’s switch gears now. Financial engineering has been prevalent in the US markets for the last decade. Would share buybacks or spinoffs be considered catalysts?

Dustin Haygood: Yes. Capital allocation, it’s a critical element to investing and managing a business. And changes in capital allocation, they can be catalysts. There are some businesses that have proven they are the exception and they’re actually able to add value through acquisitions. This could be a catalyst. And it really also depends on the type of company. Companies that are in more consolidated or mature industries, perhaps something like a grocery chain as an example, if they increase their free cash flow generation, we would rather see them return more capital to shareholders through share buybacks or dividends, while there are other businesses out there that are earlier on in their lifecycle and they’re able to deploy capital at a 40 or 50% return. For those types of businesses that are also run by great management teams, we want to see them instead use that capital to reinvest in their business.

Alex Warren: That makes sense. Different approaches for different businesses. Now, can you provide specific examples of catalysts in action?

Dustin Haygood: The most recent purchase across our global, international and value equity strategies is the French tire company, Michelin. Almost everyone is familiar with their mascot, the Michelin man, and it’s a market leader in the industry with about a 15% share of global tire sales. It’s a high quality company that we believe is on the path toward further improvement driven by the catalyst we identified for the business. These catalysts include the mixed shift toward selling a higher proportion of larger diameter tires. These are tires that are 19 or 20 inches on cars, and sold at higher margins and it’s more profitable. They also have a very high loyalty rate amongst Michelin customers. If a car is stocked with 20 inch Michelin tires new, there’s about a 90% chance another set of Michelins is put on the car when they wear out. That means stickier customers and higher recurring revenues.

In 2015, about 25% of Michelin sales were large diameter tires, and today it’s over 40%. We believe this mix shift towards larger diameter tires should increase Michelin’s profitability. It’s something that’s already taking place today. It’s something we can track and we think it will continue. And in addition, when you look at the ongoing adoption and rollout of electric vehicles, EVs, they are heavier than cars with internal combustion engines because of their larger batteries and they have higher torque. That means EVs burn through tires much faster. And because of Michelin’s market leadership, history of product innovation, and expertise in large diameter tires, it makes them uniquely positioned to benefit from the shift towards electric vehicles that are fitted with large diameter tires.

Alex Warren: That’s a fascinating example, and that 90% loyalty figure that you provided is just staggering. Are there catalysts that are more prevalent in specific industries?

Dustin Haygood: Sometimes in the industrials or even material sectors, there are companies that have grown with acquisitions, so simplifying things through streamlining their manufacturing footprint or getting back to focusing on their core competencies, can provide efficiencies and cost savings. That could be a catalyst. In the technology sector, there are companies that have switched from licensing their software to a subscription based model that provides predictable recurring revenues and higher normalized margins. Also, corporate transformations such as M&A and spinoffs, they’ve provided opportunities for us. We have owned several spinoffs that were inside larger businesses. Those spinoffs can often benefit from being independently run, being in charge of their capital allocation decisions, no longer being undermanaged, or having an executive team that was under incentivized. That could help drive better innovation and business structures, which can be a catalyst.

Alex Warren: That makes sense. They’re able to control their own destinies. Now, this has been a great conversation and we have time for one final question. What if a company executes on its catalyst or the catalysts aren’t working? How does the team approach assessing catalysts after buying a business?

Dustin Haygood: We continuously monitor catalysts, just like a business owner is continuously monitoring their business. We come to work every day trying to understand how the companies we own are propelling their businesses forward. That work allows us to see how management teams are developing or improving on their strategies. And the best ones, they are creating new catalysts during our course of ownership. That’s allowed us to own some companies for eight, nine, sometimes 10 plus years as they find new and often interesting ways to improve. While some other companies, they may execute on catalysts more quickly and that’s fine as well, but that’s really the fun part of the job, doing deep research, learning more about a company’s value chain, better understanding how these businesses are changing, and that’s what everyone on our team is so passionate about.

Alex Warren: A passion for the business. I like it. Now, that brings us to the end of this episode. Thank you so much, Dustin, for joining us today. We hope you’ve enjoyed it and learned more about Aristotle. Thank you for listening to the Power of Patience. To learn more about Aristotle, please visit www.aristotlecap.com or follow the link in the show notes. If you enjoyed the show, please rate and review us on Spotify and Apple Podcast. And on behalf of Aristotle, this is Alex Warren, and thank you for listening.

For additional disclosures please refer to www.aristotlecap.com. 

• Disclosures (00:00 to 00:34)
• Episode introduction (00:35 to 01:16)
• Introduction to the episode’s guest: Aristotle Pacific’s Dominic Nolan (01:17 to 01:50)
• History of Aristotle Pacific (01:51 to 02:41)
• Genesis of the acquisition of Aristotle Pacific (02:42 to 03:53)
• Cultural and organizational fit with the Aristotle Family (03:54 to 05:35)
• Background of Aristotle Pacific’s investment team (05:36 to 07:47)
• What makes Aristotle Pacific unique (07:48 to 10:21)
• The battle against inflation: discussion on inflation and Federal Reserve Policy (10:22 to 13:23)
• Discounting the headlines: discussion on fixed income markets in 2023 (13:24 to 14:14)
• Areas of the market that may warrant caution (14:15 to 15:37)
• Outlook and opportunities for credit in the next few years (15:38 to 17:17)
• Conclusion (17:18 to 17:55)

Alex Warren: The term Aristotle is used to represent a family of affiliates, which is comprised of Aristotle Capital Management, Aristotle Capital Boston, Aristotle Credit Partners, Aristotle Atlantic Partners, and Aristotle Pacific Capital, which collectively operate under a unified platform known as Aristotle. Each firm is an independent investment advisor registered under the Investment Advisors Act of 1940, as amended. Welcome to the Power of Patience, Aristotle’s podcast, where we share our views on topics actively explored by our investment teams and across the organization. I’m Alex Warren, product specialist at Aristotle, and I’ll be your host today. Coming up on today’s episode, we’ll be speaking with Dominic Nolan, CEO of Aristotle, Pacific Capital. If you enjoy this podcast, please like and share it on LinkedIn to help us spread the word. Today on the show we’ll discuss the introduction of Aristotle Pacific Capital to the Aristotle family, what makes Aristotle Pacific Capital unique, inflation and Federal Reserve policy, and opportunities today for fixed income investors. Without further ado, let’s get started. Dominic, thank you so much for speaking with me today. To lead off the discussion, can you introduce yourself and provide a brief overview of Aristotle Pacific Capital?

Dominic Nolan: Happy to; Dominic Nolan, CEO of Aristotle Pacific Capital, formerly Pacific Asset Management. Joined the firm in 2008, about a month before Lehman Brothers, so it was a bit of dubious timing on our side, and been with the firm since. We started with about a billion in traditional credit, and at the time of acquisition, a little over $20 billion. As it relates to the origin of Aristotle Pacific Capital, it really starts with Pacific Asset Management. I would say even before that with Pacific Life and their relationship with PIMCO, Pacific Life was the parent company of that very large firm for a number of years. In the late 90s, it was sold to Allianz, and there was ownership still retained by Pacific Life, and essentially that was called away. Knowing that was taking place, there was a group from the general account of Pacific Life that approached the parent company, and said we’d like to start an asset manager with a focus on corporate credit, bottom-up corporate credit. Understanding that there was no longer an active ownership stake in PIMCO anymore, granted that, and Pacific Asset Management was born in January of 2007.

So as they built out the team, I believe I was number 10 or so, there was half a dozen from the general account, and then the rest external hires and again, joined in mid-2008.

Alex Warren: Absolutely. You touched on the recent acquisition from Pacific Asset Management. What was the genesis of the acquisition?

Dominic Nolan: We had been in existence now for a good 14, 15 years, and grown from a billion to over $20 billion. One of the catalysts for the sale was an operating agreement between Pacific Asset Management and Pacific Life coming to an end. The timing of that was that we needed to reevaluate that operating agreement, so that’s one. Two, at a high level, the firm had reached scale, I think within asset management, and that’s a very difficult thing to do, but with $20 billion, the momentum of the business was quite strong. We had hit $10 billion in 2018 and had doubled within two to three years. So again, the high growth rate there. Three, Pacific Life was evaluating their businesses and determined they wanted to remain focused on balance sheet centric businesses. And then when you incorporate that, our business model, even though we’re financial services, is really slightly different than the insurance business model. I think you add all that together. Again, timing of the agreement, wanting to focus on balance sheet centric businesses, us reaching scale, it just led to a decision that they wanted to find us a new partner.

Alex Warren: That makes sense. Now, in your opinion, how is the cultural fit, and what did the two organizations bring to the table?

Dominic Nolan: We went through this process really for most of 2022, and as it relates to things that our team and I wanted was first and foremost, we wanted to keep the team together, so finding a partner that was willing to do that was paramount. Number two, we wanted to find a partner that could help us grow. It’s easy to say, doesn’t everyone want to help you grow? There were entities we were speaking with where we were the second or third fixed income team, and I think they just wanted to increase assets, but not really help us grow.

Alex Warren: Got you.

Dominic Nolan: And then the third element is we wanted to maintain our owner operator mentality. Having the proverbial skin in the game was important to us when we struck our deal in the mid-2010s with Pacific Life. We wanted to maintain that, and it was pretty evident, I would say early in the process, that was Aristotle’s operating model. Certainly, welcoming the team, the ability to help us grow, and that owner operator construct was exactly what we were looking for.

And to add to that, then you start to dig into the values of the organization, and how they operated. And I felt Aristotle was very like-minded. They understood it is a people business, not a balance sheet business. And the track record of success with senior management stood out to us, on top of being like-minded. The investment disciplines were very complementary, and distribution had little to no overlap in my opinion. And then all of that wrapped in an experience of eight years of knowing senior management of Aristotle. It worked well, and again, it got to be where there was really only one clear choice in my opinion.

Alex Warren: Those are important considerations, and it makes sense. For the benefit of the listeners, we’re actually in the same building, so it’s a bit of a hand in glove relationship right there.

Dominic Nolan: Yes.

Alex Warren: Now I understand Aristotle Pacific Capital has a deep bench of credit investors. Can you provide some background on your investment team?

Dominic Nolan: As alluded earlier in our discussion, we were founded in 2007. The focus there was corporate credit, and the investment disciplines were around investment grade credit, high yield bonds, floating rate loans. Those disciplines anchor our business today. So back in ’07 when we had about a billion, that’s what we invested in. Fast-forward 15 years, those are the areas we invest in today. Now, we have added structured credit, or CLOs, on top of those disciplines, but the underlying collateral of that business line are floating rate loans. So I’d say 99 plus percent of our business is focused on corporate credit. Now that element as far as how we invest, first and foremost, the portfolio managers make the decisions on their respective strategies. In other words, there is not a firm-wide view on macroeconomics, risk tolerance, sector preferences. That is done at a portfolio management level.

At the same time, our portfolio managers for each strategy, we have more than one portfolio manager, and in our view, a well-executed team can outrun any individual, that’s our view. And that has been in place since the beginning. Another element is from an analyst standpoint, a research standpoint, they really cover an industry. And I’d say many firms in our industry will separate the investment grade team and the leverage finance team, leverage finance is high yield and floating rate loans. Our structure is that our retail analyst is looking at the investment grade companies all the way through, and the thesis there is if you’re going to research retail, you’re best to know what Walmart’s doing in retail as you dig deeper and get to understand that marketplace.

Alex Warren: Yeah.

Dominic Nolan: So we’ve incorporated that since our beginning. So when you look through, it’s a focus on liquid credit. The portfolio managers really are responsible for their strategy. There isn’t a firm-wide macro view or preference of sectors, and our research structure is done on an industry level, and that’s how we’ve approached investing in credit since the beginning.

Alex Warren: That’s fascinating. I know a top-down view is something that you see in many fixed income shops, so that leads well into my next question. What do you believe makes the firm unique?

Dominic Nolan: We have been focused on an area of the market that I think a lot of other firms don’t focus on. That was something that we discovered over the past year or two, and just to give you a sense of that. When you’re a really large fixed income manager, your predominant benchmark is the Bloomberg U.S. Aggregate Index, and that’s the bellwether index for most investors. The breakdown of that index in high level, it’s about a third U.S. treasuries. It’s about a third mortgage-backed securities, about 25% corporate credit, and the rest is asset-backed securities, and maybe some sovereign debt. When Fannie and Freddie were taken into conservatorship post-crisis, that meant the benchmark was going to be 60% to 70% quasi-government or government, U.S. government backed securities, and as a large fixed income shop, if that’s your benchmark, that means getting that call right on top-down macro duration, etc. It’s going to drive performance.

Our focus has been on the 25% of the benchmark, that investment grade corporate, and then with that, you also have high yield and leveraged loans. Now, when you go below investment grade, that’s a marketplace that has developed uniquely since the crisis, and that the bank constraints post-crisis and the regulations, Dodd-Frank, etc. a lot of lending had changed or the face of lending had changed, and then private markets have become quite prevalent for small and mid-size corporations. Meanwhile, we stuck to the liquid part of the leverage finance market. So as it relates to the firm, we’re actually focused on the third-largest sector in the investment grade world, and we’re focused on the most liquid sector in the below investment rate world. That’s the space we’ve played in, the area we’ve been in for 15 years. As a large firm, we are going to be different, because of our focus on liquid credit relative to a small firm.

A lot of small firms have come about with their focus on private credit. The economics tend to be a little heavier for them, the spreads are higher. Meanwhile, we were plugging away in liquid markets, so fast-forward $20 billion in assets. What we found is very few firms have maintained that focus. I think there have been pressures, whether it be business or on the investment side to deviate, and that’s something that we have remained, I think, well positioned for, because now, again, we have some scale, so we’re not too small, but we’re not a battleship. We’re still able to move pretty quick.

Alex Warren: I think your comment about the Bloomberg Aggregate is fascinating. I didn’t appreciate how little credit was actually in the index itself, so that’s a fascinating point to take away. I’d love to shift gears and get your thoughts about markets. Inflation and Federal Reserve policy have recently presented challenges for fixed income investors. What are your thoughts on the battle against inflation?

Dominic Nolan: Well, it’s been a brutal journey getting here. And just some perspective, last year, the index was down 12%, 13%, around there. Up until last year. The worst year ever was 1994 when it was down about 3%.

Alex Warren: Oh, wow.

Dominic Nolan: So down last year four times.

Alex Warren: Yeah.

Dominic Nolan: The worst year ever. However, there’s a much different rate environment now, so people do get paid to be in investment grade assets, or even paid to be in short-term assets or cash. As it relates to the battle against inflation, obviously, the core of this was one, the Federal Reserve being very aggressive in raising rates, but two, the money that was printed during COVID. So from the standpoint of where it sits right now as we record, the Fed futures are anticipating one more rate hike in May, and actually forecasting a cut in December. So the expectation is the Fed will be cutting before the end of the year. Now that is different than what you’re hearing out of the Fed. Most of the rhetoric coming through is that the Fed intends to leave rates where they are, and the market has been in and out of belief as it relates to what the Fed will do, and there are many market participants that believe inflation’s going to decelerate at a greater pace than what the Fed’s anticipating.

The economy’s going to slow down at a greater rate than the Fed’s anticipating, so thus the Fed will be quasi forced to cut by the end of the year. There’s certainly a camp of investors that believe that, and then there’s a camp of investors that believe inflation’s going to be sticky. The Fed is uber determined to stick to their guns, and they’re going to leave rates where they are. We’ll see. That’s a bit dynamic. Personally, I think the economy is going to slow down more than what the Fed believes. However, where I have pause on the cut is the Fed continues to anchor to a 2% long-term inflation mark. That’s the same level they anchored to prior to COVID. To me, there should be, I think, an adjustment to reflect all the M2, all the money supply that went into the system.

Maybe the long-term rate should go from two to two and a half or three, I don’t know. It’ll take a few years to really get a sense of what should a long-term rate be. However, the Fed has not made that adjustment, so thus it leads me to believe that they’re going to stick to their guns, right or wrong, and leave rates where they are and not cut. However, the new information, and by new, I mean in the past 60 days are the banking issues. We have the second and third-largest failure in our banking history, and as a result, most banks up and down the size, so from money center banks to super-regionals, regionals, community banks, credit unions, etc. I would expect those banks to begin tightening their lending standards, which that tightens monetary policy as well. So if you incorporate that, and fast-forward six to nine months, I believe the economy will slow down. I believe the job market will get worse. Is that enough for the Fed to cut? Right now, it doesn’t seem like it, but it sure would surprise me if it got to that point.

Alex Warren: Broadly speaking, fear and volatility were hallmarks of 2022. Do you think fixed income investors have done a good job in 2023 with discounting the headlines?

Dominic Nolan: In general, I do. And the reason I say that is spreads have held in and rates are moving because the economy’s very difficult to underwrite right now. The recession element has been debated for the past year, and we have not gone into recession. First quarter print on GDP was around 1%, so technically the economy’s holding in, and the job market has been very resilient. So you’ve seen positive returns from a fixed income standpoint. So in general, I’d say they have. Fear and volatility to me from 2022, which is certainly the case, I think has been replaced with just a tremendous amount of uncertainty on the banking situation, and the economic situation.

Alex Warren: Given those uncertainties, are there any areas of the market that give you pause right now?

Dominic Nolan: For me, it’s really the private markets, and when you think about the repricing of assets. So the thing about liquid assets is they’re reflected in their risk premium daily. And when you had a tightening cycle last year, the first thing to reprice were liquid assets. The equity markets repriced, the fixed income markets repriced, those are liquid. Then you start to get into semi-liquid assets, things like office, retail, single family. There’s a lot of uncertainty in single family. I think there’s a lot of certainty that there are struggles happening in the office, commercial property, in particular with office and retail. Certainly, uncertainty on single family and multifamily, but that’s also going through the repricing element. We haven’t quite seen the full repricing in private markets. Private markets are not transparent, and a lot of times they’ll mark the same value, because no one has traded out of it.

And essentially, if you think about what’s the value of your house, well, you arbitrarily assign a number, but you really don’t know unless you sell. In liquid markets, things are selling every day. So you have that transparency. In private markets, I think there’s a lot of price discovery going on, and I don’t believe that’s been, certainly, not fully reflected. I think there’s more to go on the private side, so that gives me pause.

Alex Warren: That’s fascinating, and that’s certainly food for thought. It has been a great conversation and we have time for one final question. What is your outlook for corporate credit over the next few years, and where do you see opportunities?

Dominic Nolan: I’m very much constructive on corporate credit. A few reasons: one, there was a repricing. In investment grade bonds, a year, year and a half ago we were yielding 2%, now they’re yielding 5 plus percent. High yield was yielding sub 5%. Now it’s yielding 8 to 9%. Floating rate loans, with the Fed being aggressive, has discount margins or rate yields of around 9 to 10%. So from an investor’s standpoint, I feel the compensation you’re getting for that risk is substantially higher today. So that’s one. Two, when you look through to implied default rates versus forecasted rates, the markets are already pricing in defaults that are really higher than what Moody’s and S&P are forecasting. Now, that doesn’t mean we won’t get there, but it’s already discounting that in.

So you have that element and then, just when you look through the coupons, those coupons offer significant protection against capital loss, as it relates to credit relative to other asset class, private assets to me haven’t been repriced fully. Meanwhile, you have tightening conditions in an economy that’s slowing down, from an equity standpoint. I think that’s a lot of pressure on the economy and thus equities, whereas at least now in corporate credit, you have coupons to help offset that volatility. So I’m very much in the camp that, structurally, corporate credit, I think, feels pretty good after a decade plus of kind of being secondary to equity returns and private market returns. So I feel the time is quite nice right now for corporate credit.

Alex Warren: A good setup and a challenging environment. Well, that brings us to the end of this episode. Thank you so much, Dominic, for joining us today. We hope you’ve enjoyed it and learned more about Aristotle. Thank you for listening to the Power of Patience. To learn more about Aristotle, please visit www.aristotlecap.com or follow the link in the show notes. If you enjoyed the show, please rate and review us on Spotify and Apple Podcasts. And on behalf of Aristotle, this is Alex Warren, and thank you for listening.

For additional disclosures please refer to www.aristotlecap.com. 

• Disclosures (00:00 to 00:34)
• Episode introduction (00:35 to 01:22)
• Introduction to the episode’s guest: Aristotle Atlantic’s Nicholas Daft (01:23 to 02:35)
• Aristotle Atlantic’s unique investment approach (02:36 to 04:11)
• Why Cybersecurity represents an investible secular theme (04:12 to 06:30)
• Changes in the digital landscape and the evolution of cybersecurity (06:31 to 09:39)
• The Internet of Things (IoT) explained (09:40 to 11:55)
• Common cyberattack techniques and their consequences (11:56 to 14:20)
• Why cybercrime is a national security concern (14:21 to 17:32)
• The costs of cyberattacks (17:33 to 20:13)
• Opportunities for growth in the cybersecurity industry (20:14 to 22:14)
• Areas of the market that may benefit from the growth of cybersecurity (22:15 to 24:08)
• Conclusion (24:09 to 24:40)

Alex Warren: The term Aristotle is used to represent a family of affiliates, which is comprised of Aristotle Capital Management, Aristotle Capital Boston, Aristotle Credit Partners, Aristotle Atlantic Partners, and Aristotle Pacific Capital, which collectively operate under a unified platform known as Aristotle. Each firm is an independent investment advisor registered under the Investment Advisors Act of 1940, as amended.

Welcome to the Power of Patience, Aristotle’s podcast, where we share our views on topics actively explored by our investment teams and across our organization. I’m Alex Warren, Product Specialist at Aristotle, and I’ll be your host today.

Coming up on today’s episode, we’ll be speaking with Nick Daft, Director and Senior Research Analyst at Aristotle Atlantic Partners. Nick’s coverage includes the information technology, energy, and material sectors.

If you enjoy this podcast, please like and share it on LinkedIn to help spread the word.

Today on the show we’ll discuss how the digital transformation of the past decade has led to network vulnerabilities, the growth of cyberattacks and techniques used, the impact of cybercrime and national security and cybersecurity market growth and investment opportunities. Without further ado, let’s get started.

Nick, thank you so much for joining me today. To lead off the discussion, can you introduce yourself and provide a brief history of your role at Aristotle Atlantic?

Nicholas Daft: Absolutely. Thank you, Alex. And hello to everyone listening to the Power of Patience podcast. Let me go ahead and introduce myself.

My name is Nick Daft and I’m a member of the five-person investment team here at Aristotle Atlantic Partners. I have worked in financial services for almost two decades in various roles over the years, but for the past 16 years, I have worked as an investment research analyst with my current team. The team and I, we joined Aristotle Atlantic in 2016 when we made the move from the asset management group of a large bank. Here at Aristotle Atlantic, we manage equity funds across both core and the growth strategies.

Now in my role as a senior research analyst on the team, as you mentioned, my areas of investment focus are the information technology sector, the energy sector and the materials sector, but with my primary focus being the technology sector. And this includes investing in leading companies in the software, semiconductor, and the hardware industries.

Alex Warren: Wonderful. Thank you, Nick.

Now, what do you believe makes Aristotle Atlantic unique?

Nicholas Daft: I would highlight two features that I think make Aristotle Atlantic unique.

One is the industry experience and longevity of the team. The five of us on the team have an average of 26 years of industry experience, and the average tenure of the members of the team is 17 years. We’ve worked together through many different economic cycles and events, and so we have had the benefit of experiencing a wide variety of market conditions, which we leverage as part of our investment process.

Another area of focus I would highlight, it’s the three pillars of our investing process. Those three pillars are secular themes, product cycles, and cyclical trends. We use these three pillars as the foundation for our specific company research. Within these three secular themes is the largest driver of our research process that underpins the portfolio investments.

What we’re looking for is themes, these secular themes that we believe represent significant longer-term shifts in spending across either the public or the private sector. And then within that theme, we use our bottom-up fundamental research to identify specific company investments that we believe will see out-sized returns from those secular theme-driven spending shifts.

And so today’s podcast subject, cybersecurity, it’s one of those secular themes, one of those 20 secular themes in fact that we’ve identified as part of our investment outlook, and we see it as a key beneficiary of increased spending by both business and governments over a multi-year period.

Alex Warren: Wonderful. Thank you, Nick. That leads to my next question.

Can you provide an overview of why you believe cybersecurity represents an investible secular theme?

Nicholas Daft: Absolutely. Happy to. In my research over the past few years, I’ve identified cybersecurity as a leading share gainer in IT budgets, and this has been happening as the digital world continues to transform and evolve at a rapid pace. If you look at companies that are investing in the digital capabilities, these enhance internal efficiencies, and they improve customer experiences and interactions.

As an example, let’s think about team members at companies around the world. They collaborate on work presentations with their colleagues who are also around the world. They’re doing this in real time using software tools such as Microsoft Teams. Or think about how easy it is to bank and shop online through your smartphone, or order groceries through your Alexa speaker, things like that. All of these they’re simple but powerful examples of the role of digital transformation in our everyday lives. But while these investments in digital technologies make our lives easier and more productive, we also have to realize the increased risks that come from this connectivity, and that’s the increased risks from cyber criminals.

The reliance on technology by businesses and consumers, it means more data is created. It’s estimated to be about two megabytes per second per person. And much of this data, it’s stored online in the cloud, which means more areas where data is exposed to attacks and vulnerabilities. And unfortunately, just as you and I benefit from this new technology in our daily lives, there are estimated to be 2000 hacking groups and cyber criminals around the world, and they’re using the same technology, the same technological advancements to increase the frequency and sophistication of their attacks.

So what this means is that businesses, they need to invest in cybersecurity to protect themselves as well as their customers, and they have to continue to invest each year to stay ahead of these cyber criminals, because an obsolete or an ineffective cyber defense, it leaves everyone vulnerable. So that’s why I see so much value investing in cybersecurity, in this secular theme. It’s finding those companies which offer the leading technology that is mission critical in cyber defenses that will ultimately reward investors through attractive, long-term profitable growth.

Alex Warren: Absolutely. That makes sense.

Nick, can you discuss how the digital landscape has changed over the past decade, and how has the cybersecurity market evolved with the rest of the digital market?

Nicholas Daft: Over the past decade, as businesses have shifted spending within their IT budgets as they implement these digital transformation initiatives, so the objective is ultimately to drive better business outcomes, and that’s through improving productivity and efficiency metrics. A study that was done in 2021 by a tech research firm showed the clear financial benefits from digital transformation. Companies that were far along in these initiatives have about twice the revenue growth of those that are early or haven’t even started on a digital transformation journey. It’s real tangible benefits.

So if you look at the Gartner data for worldwide IT spending from 2017 to 2022, it’s increased from about $3.5 trillion to about $4.5 trillion a year. That’s a cumulative 28% increase over those five years. But digging deeper, according to IDC, over that same time period, we see that global spending on digital transformation technologies and services, that spending has increased from just under $1 trillion to almost $1.9 trillion, and that’s cumulative spending growth of over 90%.

Alex Warren: Wow. Those are some big numbers.

Nicholas Daft: Yeah. For sure. For sure.

And so what does that mean? And what have companies done with those dollars to implement that digital transformation?

Well, we’ve seen companies shift from on-premise servers and remote networking access that was done solely through those clunky VPNs – very slow, very unwieldy types of technology, which I think it almost felt like dial up versus what we have now. Now we’ve shifted to this idea of cloud computing and the ability to access from anywhere using any device. Businesses are investing in efficiency tools provided by these infrastructure and platforms-as-a-service vendors, such as Microsoft, Azure, and Amazon’s AWS, and software-as-a-service vendors such as Salesforce.com or Adobe. Businesses have also shifted from using mail and telephone calls as contact points with customers and consumers. And now they’re spending on the engagement platforms that leverage multi-channel communication strategies like Facebook or TikTok or Instagram and Google.

So businesses have benefited with real tangible benefits. They have more data, they have better analytics, automation of workflows, improved work-from-anywhere capabilities and more efficient customer acquisition and retention strategies. But as these businesses have rushed to modernize their network and software infrastructure to capitalize on these benefits, cybersecurity has often lagged behind. And as a result, IT executives… There was a recent study where they disclosed that they have seen an increase in cyberattacks and breach rates because they haven’t kept up. So businesses, they’re tempting to use legacy solutions to protect their new cloud-based infrastructure, and because of that, there are these gaps in defenses, which creates security issues.

Alex Warren: Gotcha. That makes sense. It’s like putting old parts on a new car.

Away from some of the examples that you just shared, software is a service and that, I understand the digital transformation has made its way to industrial companies as well. Can you talk about internet of things?

Nicholas Daft: Yes. I think it’s fascinating to see the transformation taking place in industrial companies specifically. We’re seeing these companies, they’re digitizing their technology stacks and they’re leveraging 5G technology and internet of things (IOT), which just to abbreviated as IOT, they’re using these IOT devices to enhance their operations. These industrial companies, they’re using IOT for automation, remote monitoring of tools, predictive maintenance or supply chain optimization.

Another area where we see growth of IOT devices is also actually in healthcare, where hospitals use IOT for remote patient monitoring. Or in the energy space, where oil and gas producers are using them for monitoring well performance and flow rates or to predict or abnormalities that could be occurring because of pressure changes.

So these are examples of businesses using IOT to drive efficiencies and positive outcomes. And as a result, we’re seeing hyperbolic growth in the number of connected IOT devices around the world. In 2015, there were about 4 billion connected devices. That grew to 13 billion in 2022. And conservative estimates have this growing to almost 30 billion by 2030. So that’s the good news, but here’s the bad news. All these billions of devices they represent billions of new entry points for cyber criminals.

To demonstrate this, a statistic from a 2020 survey that I recently read, it was a survey of global IT professionals, and it showed 84% of organizations have IOT devices on their corporate networks. Of this group, 70%, (seven zero), 70% have had attempted or successful hacks, yet still more than 50% of these organizations are not using security measures beyond the default password. Just astounding to me.

Alex Warren: Yeah. Oh my goodness. I’m thinking about those numbers that you’re mentioning and trying to visualize the chart in my head about how big of a growth in internet of things and connected devices, what that chart must look like. And that brings me into my next question.

What are some of the common cyberattack techniques that companies are trying to protect against, and what are the consequences of these attacks?

Nicholas Daft: The most common attack threats continue to be malware, ransomware, phishing, identity-based attacks, and then denial of service (DDoS) attacks. And the objective with all these attacks is to infiltrate a company’s network and gain access to sensitive data or effectively hold the company’s network ransom for a payment.

So cyber criminals are capitalizing on the larger tax surface and the proliferation of endpoints like smartphones and IOT devices and laptops, and based on current trends, they’re successful most of the time due to the unfortunate fact of human error. There was a Stanford University study that estimated that almost 90% of all data breaches are due to human error and employee mistakes.

Alex Warren: Wow.

Nicholas Daft: Yeah. And these errors, they have massive and far-reaching implications. In 2022, the Uber network was breached when a contractor did not follow security protocols and accepted a malicious email request for two-factor authentication log on. And because of that breach or because of that acceptance, the hackers they gained access to sensitive customer data.

On a much larger national scale, there was the May 2021 Colonial Pipeline ransomware attack by a Russia-based cybercriminal group. This, too, was accomplished due to human error. They used a former employee’s password to access a VPN that wasn’t adequately secured by multi-factor authentication. I’m sure you remember, Alex, from the news stories and the photos, as a result, this attack forced the company to shut down the entire pipeline, and this pipeline supplies almost half of the US east coast supply of gasoline.

And so as a result of shutting down the pipeline, there were fuel shortages and traffic jams for people trying to get gas at gas stations because there was a shortage of gas. And this continued until the company paid a ransom to the hackers. It was about $4.5 billion, and they paid it in Bitcoin. Cyber criminals are leveraging Bitcoin. It’s a frictionless and anonymous payment method, and they’re leveraging Bitcoin, which emboldens them further to do more ransomware attacks.

Alex Warren: Absolutely. That makes sense. I can only imagine what the process is for a pipeline operator to go out and try to find or buy Bitcoin. I personally don’t know myself. So that example you gave about the pipeline leads into our next question well.

Why is cybercrime a national security concern?

Nicholas Daft: Yeah, that’s a very prominent issue, and it feels like it’s always in the headlines. It’s really over the past decade that we’ve seen a dramatic increase in state-sponsored cybercriminal activity by groups from China, Russia, North Korea, and Iran. These actions are often tied to economic incentive, but now, more often ,there’s an adversarial nature to the threats; corporate espionage, or the attempted theft of national intelligence.

If we go back to 2015, a pretty prominent hack, a group of hackers broke into the Office of Personnel Management (OPM), and they stole records associated with all 21 million civilian employees of the U.S. government. These stolen records they had the potential to be used for malicious purposes with a potential threat to state security.

If we look at corporate espionage, an example over a multi-year period, it was a Chinese state-sponsored hacker group known as APT41, and it’s reported that they have successfully stolen hundreds of gigabytes of technical documents and intellectual property. And the data that was stolen, is associated with manufacturing, energy and pharmaceutical companies. And digging even deeper, some of this data relates to fighter jets and missiles, so that is a real national security threat there. And in fact, cybersecurity experts believe that there is evidence that Chinese state hackers, many years ago, began a hacking campaign to steal sensitive data on the U.S. Air Force’s F-35 stealth fighter program. And then this data that was stolen was used to accelerate the Chinese development of their own stealth fighter.

So there’s national security implications, and there’s also a significant economic cost to the country. The FBI has estimated that this type of cyber theft leads to annual losses to the U.S. economy of between $225 billion and $600 billion – so, some real significant numbers.

What this shows, it shows that businesses and governments need to work together to defend against these cyber threats across their daily operations. And that includes critical business operations and national infrastructure. Just thinking about the implications, if you think about state-sponsored cybercriminal groups shutting down regional electrical grids or the US air traffic control system or the New York Stock Exchange, these would have massive negative impacts on the safety and economic life of all Americans.

Fortunately, in good news, the U.S. government is getting more proactive in addressing these increasing threats. And just recently, on March 2nd of this year, the Biden administration released a national cybersecurity strategy, and this will create a more focused plan on defending against cyberattack groups. And based on what I’ve read so far, I think it’s truly a step in the right direction.

Alex Warren: That’s good news. Good news. You gave some great… I guess not great, but more staggering examples or headlines of breaches that have taken place over the years.

What are some of the costs of these cyberattacks?

Nicholas Daft: Sure, sure. Yeah. And as you just said, none of these examples are great, and they’re all unfortunately damaging. The three different types of costs are financial, operational, and reputational, of course.

If we look at the financial side, to put a dollar figure on it: the average cost of a data breach globally in 2022 was $4.35 million. But in the U.S. that went up to %9.44 million. So the U.S. was the highest area in terms of the cost of a breach. And these costs were up over 12% versus 2020.

There are, of course, many examples where costs have been significantly higher. Taking that Uber example that I mentioned earlier: that breach required the company to pay $100,000 to delete the stolen data, but then the company was required to pay $148 million to settle a legal dispute that the company had covered up the breach.

Another attack that has garnered significant headlines recently or in the past few years was the SolarWinds breach. That one impacted an estimated 18,000 customers that used this software. And many of those customers were Fortune 500 companies. The cost of repairing the damage done by that breach, the SolarWinds breach, it’s expected to be in the tens of billions of dollars.

As hackers continue to refine their techniques and gain more advanced technology themselves, and that includes artificial intelligence (AI, there has been a noticeable uptick in ransomware attacks that require companies to pay to unlock their systems that are being held hostage. As we discussed earlier, Colonial Pipeline, they paid $4.5 million to restore their operations. And in the same year, in 2021, can Financial, which is a large insurance company, they paid $40 million to hackers to have their data unlocked after they suffered from a ransomware attack.

Alex, putting this all together, it’s very clear that the economic costs of cybercrime are large and growing. If we look at it on a global scale, a publication from Cybersecurity Ventures, estimated global costs from cybercriminal activity to be $6 trillion. That’s up from $3 trillion in 2015 and growing to over $10 trillion by 2025. And these numbers they shouldn’t leave any doubt that there’s a huge economic cost from cybercrime.

Alex Warren: Absolutely. And those are some massive numbers. I want you to put on your investor hat for a second here.

Where do you see opportunities for growth within the cybersecurity industry?

Nicholas Daft: Yeah. As the global digital transformation has accelerated, the complexity of securing the technology stack across multiple clouds and vendors has also increased. And the cybersecurity industry has, until recently, been quite fragmented with vendors being relatively siloed in their product offerings.

What I mean by this is they’re focused on one area of expertise, and IT departments at companies, they relied on multiple different vendors for the full suite of cybersecurity products. But this status quo, it’s not suitable given the rapid evolutions in cloud computing and network structures that we’re seeing, and particularly when considering the current threat environment. The increased economics of cybercrime means more R&D being spent by criminal groups, as I mentioned in one of the prior answers. This includes the use of artificial intelligence to enhance the effectiveness of their threats.

So businesses and governments they need to respond. And the key areas of investment going forward need to be in four areas of cybersecurity. That’s (1) cloud network and workload security, (2) endpoint security, (3) access management security, and (4) application security. The good news is that the focus on cybersecurity is happening at the board and C-suite level, and businesses are now prioritizing cybersecurity within their IT budgets.

A recent study by Gartner estimates that spending on cybersecurity in total will grow by low-to-mid double digits over the next few years from the 2022 level of $175 billion. And this is while IT budgets themselves will only grow in the low single digits. But within the four key areas of focus that I just highlighted; those four key areas will represent almost two thirds of this total cybersecurity spending growth.

Alex Warren: Nick, this has been a great conversation. We have time for one final question.

What companies or areas of the market do you believe can benefit most from the growth of cybersecurity?

Nicholas Daft: Yeah. In my opinion, the key beneficiaries of this increasing cybersecurity spend are next-generation cloud native companies that are exposed to the four key areas that I mentioned earlier. And these next-gen cybersecurity firms will provide a modular approach to security and integrate AI. This modular approach allows the cybersecurity companies to efficiently innovate and then deploy new defensive products to their customers, and then their customers can seamlessly integrate these new product modules into their network security stack. This facilitates the consolidation of vendors onto fewer platforms. This provides a stronger defense posture for the customer due to the reduction in breach gaps, and it also improves the ROI.

Finally, the best cybersecurity companies will be those that use artificial intelligence and machine learning to detect and prevent threats in real time. One issue that businesses and IT departments face is a shortage of trained cybersecurity experts. And so, while IT security departments will always have human oversight in some form, it is my opinion that it will be imperative for these next-gen cybersecurity providers to integrate advanced AI into their software technology. Using AI will allow for more efficient monitoring of threat signals and proactive threat hunting so businesses can identify and respond to advanced threats before they can cause damage.

So in conclusion, as the digital transformation journey continues, I believe that next-generation cloud native cybersecurity companies will be the key to defending businesses and governments from the increasing threats from malicious cybercriminals and state-sponsored hackers.

Alex Warren: That brings us to the end of this episode. Thank you so much, Nick, for joining us today. We hope you enjoyed it and learned more about Aristotle. Thanks for listening to the Power of Patience.

To learn more about Aristotle, please visit www.aristotlecap.com, or follow the link to the show notes. If you enjoyed the show, please rate and review us on Spotify and Apple Podcasts. And come back next time for a discussion on Aristotle Pacific Capital. Until then, this is Alex Warren, and thank you for listening.

The opinions expressed herein are those of Aristotle Atlantic Partners, LLC (Aristotle Atlantic) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to purchase or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Atlantic makes in the future will be profitable or equal the performance of the listed in this report. The portfolio characteristics shown relate to the Aristotle Atlantic Focus Growth strategy. Not every client’s account will have these characteristics. Aristotle Atlantic reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Atlantic’s Focus Growth Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Atlantic does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Atlantic Partners, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Atlantic, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request.  AAP-2304-31

Composite returns for all periods ended March 31, 2023 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

The Russell 1000® Growth Index measures the performance of the large cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. This index has been selected as the benchmark and is used for comparison purposes only. The Russell 1000® Value Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Dow Jones Industrial Average® is a price-weighted measure of 30 U.S. blue-chip companies. The Index covers all industries except transportation and utilities. The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite includes over 3,000 companies, more than most other stock market indices. The Bloomberg U.S. Aggregate Bond Index is an unmanaged index of domestic investment grade bonds, including corporate, government and mortgage-backed securities. The WTI Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for oil consumed in the United States. The 3-Month U.S. Treasury Bill is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of three months.  The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. The volatility (beta) of the Composite may be greater or less than its respective benchmarks. It is not possible to invest directly in these indices.

The opinions expressed herein are those of Aristotle Atlantic Partners, LLC (Aristotle Atlantic) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to purchase or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Atlantic makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle Atlantic Large Cap Growth strategy. Not every client’s account will have these characteristics. Aristotle Atlantic reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Atlantic’s Large Cap Growth Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Atlantic does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Atlantic Partners, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Atlantic, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. AAP-2304-29

Composite returns for all periods ended March 31, 2023 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

The Russell 1000® Growth Index measures the performance of the large cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. This index has been selected as the benchmark and is used for comparison purposes only. The Russell 1000® Value Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Dow Jones Industrial Average® is a price-weighted measure of 30 U.S. blue-chip companies. The Index covers all industries except transportation and utilities. The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite includes over 3,000 companies, more than most other stock market indices. The Bloomberg U.S. Aggregate Bond Index is an unmanaged index of domestic investment grade bonds, including corporate, government and mortgage-backed securities. The WTI Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for oil consumed in the United States. The 3-Month U.S. Treasury Bill is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of three months.  The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. The volatility (beta) of the Composite may be greater or less than its respective benchmarks. It is not possible to invest directly in these indices.

The opinions expressed herein are those of Aristotle Atlantic Partners, LLC (Aristotle Atlantic) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to purchase or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Atlantic makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle Atlantic Core Equity strategy. Not every client’s account will have these characteristics. Aristotle Atlantic reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Atlantic’s Core Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Atlantic does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Atlantic Partners, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Atlantic, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. AAP-2304-30

Composite returns for all periods ended March 31, 2023 are preliminary pending final account reconciliation.

The Aristotle Core Equity Composite has an inception date of August 1, 2013 at a predecessor firm. During this time, Mr. Fitzpatrick had primary responsibility for managing the strategy. Performance starting November 1, 2016 was achieved at Aristotle Atlantic.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

The Russell 1000® Growth Index measures the performance of the large cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. This index has been selected as the benchmark and is used for comparison purposes only. The Russell 1000® Value Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Dow Jones Industrial Average® is a price-weighted measure of 30 U.S. blue-chip companies. The Index covers all industries except transportation and utilities. The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite includes over 3,000 companies, more than most other stock market indices. The Bloomberg U.S. Aggregate Bond Index is an unmanaged index of domestic investment grade bonds, including corporate, government and mortgage-backed securities. The WTI Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for oil consumed in the United States. The 3-Month U.S. Treasury Bill is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of three months.  The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. The volatility (beta) of the Composite may be greater or less than its respective benchmarks. It is not possible to invest directly in these indices.

The opinions expressed herein are those of Aristotle Capital Boston, LLC (Aristotle Boston) and are subject to change without notice.

Past performance is not indicative of future results. The information provided in this report should not be considered financial advice or a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Boston’s Small Cap Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions Aristotle Boston makes in the future will be profitable or equal the performance of the securities discussed herein. Aristotle Boston reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Recommendations made in the last 12 months are available upon request.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

Effective January 1, 2022, the Aristotle Small Cap Equity Composite has been redefined to exclude accounts with meaningful industry-specific restrictions or substantial values-based screens hampering implementation of the small cap strategy.

Effective January 1, 2022, the Russell 2000 Value Index was removed as the secondary benchmark for the Aristotle Capital Boston Small Cap Equity strategy.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs.

These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks. The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments.

The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass.

The firm’s coverage of Signature Bank includes time at a predecessor firm.

Aristotle Capital Boston, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Boston, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACB-2304-16

Sources: SS&C Advent, Russell Investments

Composite returns for periods ended March 31, 2023 are preliminary pending final account reconciliation.

^*The Aristotle Small Cap Equity Composite has an inception date of November 1, 2006 at a predecessor firm. During this time, Jack McPherson and Dave Adams had primary responsibility for managing the strategy. Performance starting January 1, 2015 was achieved at Aristotle Boston.

^**For the period November 2006 through December 2006.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized.

Effective January 1, 2022, the Aristotle Small Cap Equity Composite has been redefined to exclude accounts with meaningful industry-specific restrictions or substantial values-based screens hampering implementation of the small cap strategy.

Effective January 1, 2022, the Russell 2000 Value was removed as the secondary benchmark for the Aristotle Capital Boston Small Cap Equity strategy.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Please see important disclosures enclosed within this document.

The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Growth® Index measures the performance of the small cap companies located in the United States that also exhibit a growth probability. The Russell 2000 Value® Index measures the performance of the small cap companies located in the United States that also exhibit a value probability. The Russell 1000® Index measures the performance of the large cap segment of the U.S. equity universe. The Russell 1000 Index is a subset of the Russell 3000® Index, representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership. The volatility (beta) of the composite may be greater or less than the benchmarks. It is not possible to invest directly in these indices.

The opinions expressed herein are those of Aristotle Capital Boston, LLC (Aristotle Boston) and are subject to change without notice.

Past performance is not indicative of future results. The information provided in this report should not be considered financial advice or a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Boston’s Small/Mid Cap Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions Aristotle Boston makes in the future will be profitable or equal the performance of the securities discussed herein. Aristotle Boston reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Recommendations made in the last 12 months are available upon request.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

Effective January 1, 2022, the Russell 2500 Value Index was removed as the secondary benchmark for the Aristotle Boston Small/Mid Cap Equity strategy.

Non-fee-paying accounts represented less than 5% of the SMID Cap Composite assets from December 31, 2010 to December 31, 2013. As of December 31, 2014, there were no non-fee-paying accounts in the Composite. In instances where non-fee paying accounts were included in the SMID Cap Composite, the highest model fee was applied to recalculate the net returns for composite purposes and the impact on the since inception return of the composite was deemed immaterial.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs.

These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments.

The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass.

The firm’s coverage of Signature Bank includes time at a predecessor firm.

Aristotle Capital Boston, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Boston, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACB-2304-17

Sources: SS&C Advent, Russell Investments

Composite returns for periods ended March 31, 2023 are preliminary pending final account reconciliation.

^*The Aristotle Small/Mid Cap Equity Composite has an inception date of January 1, 2008 at a predecessor firm. During this time, Jack McPherson and Dave Adams had primary responsibility for managing the strategy. Performance starting January 1, 2015 was achieved at Aristotle Boston.

Effective January 1, 2022, the Russell 2500 Value Index was removed as the secondary benchmark for the Aristotle Boston Small/Mid Cap Equity Strategy.  Non-fee-paying accounts represented less than 5% of the SMID Cap Composite assets from December 31, 2010 to December 31, 2013. As of December 31, 2014, there were no non-fee-paying accounts in the Composite. In instances where non-fee paying accounts were included in the SMID Cap Composite, the highest model fee was applied to recalculate the net returns for composite purposes and the impact on the since inception return of the composite was deemed immaterial. Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Please see important disclosures enclosed within this document.

The Russell 2500 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2500 Growth® Index measures the performance of the small/mid cap companies located in the United States that also exhibit a growth probability. The Russell 2500 Value® Index measures the performance of the small/mid cap companies located in the United States that also exhibit a value probability. The Russell 1000 Index is a subset of the Russell 3000® Index, representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership. The volatility (beta) of the composite may be greater or less than the benchmarks. It is not possible to invest directly in these indices.

The opinions expressed herein are those of Aristotle Capital Management, LLC (Aristotle Capital) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to buy or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Capital makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle International Equity strategy. Not every client’s account will have these characteristics. Aristotle Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Capital’s International Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Capital does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Capital Management, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Capital, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACM-2304-42

Composite returns for all periods ended March 31, 2023 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. The information provided should not be considered financial advice or a recommendation to purchase or sell any particular security or product. Performance results for periods greater than one year have been annualized.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI ACWI captures large and mid-cap representation across 23 developed market countries and 24 emerging markets countries. With approximately 3,000 constituents, the Index covers approximately 85% of the global investable equity opportunity set. The MSCI ACWI Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 developed markets countries (excluding the United States) and 24 emerging markets countries. With approximately 2,300 constituents, the Index covers approximately 85% of the global equity opportunity set outside the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Brent Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese market. With approximately 250 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Global Aggregate Bond Index is a flagship measure of global investment grade debt from 28 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the U.K. market. With nearly 100 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in the United Kingdom. The MSCI Europe Index captures large and mid-cap representation across 15 developed markets countries in Europe. With approximately 430 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. These indices have been selected as the benchmarks and are used for comparison purposes only. The volatility (beta) of the Composite may be greater or less than the respective benchmarks. It is not possible to invest directly in these indices.