Quarterly Update

Jan. 2019

Garrett R. D'Alessandro, Chief Executive Officer | Jan. 2019

From the Desk of Garrett D’Alessandro, CFA, CAIA, AIF®

Although 2018 returns were negative for equity investors and about flat for bond investors, City National Rochdale achieved positive results in several new strategic alternative asset classes through our purposeful expansion to our investment universe by focusing on new strategic opportunistic investing.

A Mountain Too High

Investing in 2018 was like climbing to the top of Mount Everest, reaching the apex, then losing our footing and tumbling all the way down. The S&P 500 achieved a record high in September, with investors having earned approximately 11.2%, then fell to a net loss of about 4.38% for the year.

What matters is whether the U.S. economy and equity markets will regain their footing and produce good returns this year. We believe they will—during 2019, the markets should generate positive equity returns again. First we have to collect our senses, brush off the uncertainty, and regain our confidence. To do this, we need to get clarity on a few key issues, including: tariffs, interest rate concerns, and slowing growth in corporate earnings. Nonetheless, we are hopeful that the economy will remain solid enough for U.S. equities to generate returns of 6% to 8% in 2019. For fixed income investors, current yields are more appealing than a year ago—which we expect will remain modestly attractive.

Although 2018 returns were negative for equity investors and about flat for bond investors, City National Rochdale achieved positive results in several new strategic alternative asset classes through our purposeful expansion to our investment universe by focusing on new strategic opportunistic investing. Over the next two to three years, we seek to generate better returns and diversification by considering adding the addition of new opportunistic investment strategies to client portfolios.

We use a three-dimensional framework when structuring how we generate potentially superior returns.

City National Rochdale’s investment outlook over the next two to three years indicates a likelihood of generating lower than average returns from traditional asset strategies. This is why our research team is dedicating more effort toward identifying and offering higher-returning opportunities to our clients.

Our goal is to create more wealth for our clients than what is achievable by only investing in traditional investment choices.

While we expect individual stocks and bonds to remain a core representation for client portfolios, we believe the outermost circle—New Strategic Investment Opportunities—will offer clients unique return and diversification choices to meet their investment objects. City National Rochdale’s extensive research enables us to find promising investment opportunities that can add sustainable strategic value to client portfolios. These are higher returning investments that are difficult to discover, have limited access, and require extensive intellectual research efforts.

After an unusual year in which bonds and U.S. core stocks were flat to negative, City National Rochdale clients can be reassured that our unique and differentiated research has been successful over many such cycles by focusing on quality companies and now adding New Strategic Investment Opportunities. The goal is simply to find investment returns wherever present.

Although 2018 returns were negative for equity investors and about flat for bond investors, City National Rochdale achieved positive results in several new strategic alternative asset classes through our purposeful expansion to our investment universe by focusing on new strategic opportunistic investing.

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Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. Investing in international markets carries risks such as currency fluctuation, regulatory risks, and economic and political instability. Emerging markets involve heightened risks related to the same factors, as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks and less developed legal and accounting systems than developed markets.

Concentrating assets in the real estate sector or REITs may disproportionately subject a portfolio to the risks of that industry, including the loss of value because of adverse developments affecting the real estate industry and real property values. Investments in REITs may be subject to increased price volatility and liquidity risk; concentration risk is high.

Investments in Master Limited Partnerships (MLP) are susceptible to concentration risk, illiquidity, exposure to potential volatility, tax reporting complexity, fiscal policy, and market risk. Investors in MLPs are subject to increased tax reporting requirements. MLP investors typically receive a complicated schedule K-1 form rather than Form 1099. MLPs may not be appropriate investments for tax-advantaged accounts because of potential negative tax consequences (Unrelated Business Income Tax).

There are inherent risks with fixed-income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer-duration fixed-income securities and during periods when prevailing interest rates are low or negative. The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar income-bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax (AMT), and taxable gains are also possible. Investments in below-investment-grade debt securities, which are usually called “high yield” or “junk bonds,” are typically in weaker financial health and such securities can be harder to value and sell, and their prices can be more volatile than more highly rated securities. While these securities generally have higher rates of interest, they also involve greater risk of default than do securities of a higher-quality rating.

Investments in emerging market bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging market bonds can have greater custodial and operational risks and less developed legal and accounting systems than developed markets.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Returns include the reinvestment of interest and dividends. Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk. Past performance is no guarantee of future performance.

Index Definitions

The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.

Indices are unmanaged, and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.

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