TSC Advisor Call Summer 2019

1. TSC Advisor Call Summer 2019

2. Economy & Equity Markets Summer 2019

3. "Everything about recessions are easy to predict except the timing, location, duration, magnitude, and policy response.” – Morgan Housel

4. Mid-year snapshot… • TAILWINDS • Strong labor market and wage increases • Avg. U.S. earnings growth and net margins (albeit slower than last year) • Manufacturing and service sectors expanding (PMI) at non-recession levels • Corporate balance sheets are strong • Corporations are increasing capital expenditures • Valuations back to 2014 levels • Rate hikes aredone. • Household balance sheets are solid • GDP is still 2+% (2018 >3%) • HEADWINDS • Trade tensions & tariffs. How much worse will it get? • Weaker global economies – especially in China? • Lower earnings growth rate in 2019 • Volatility has returned making investors nervous • Oil prices have fallen – is that signaling a global recession? • Real estate has softened for several quarters (Refi market up)

5. Earnings growth is normal – but slower than 2018

6. Corporate earnings depend on the region… • Source: FactSet Quarterly Earnings Update as of June 30, 2019

7. Vietnam is winning the trade squirmish…

8. Earnings drive stock prices… • Since 1960: • Average annual earnings growth is 6.42% (S&P 500) • The avg. annual return of the S&P 500 is6.44% (not including dividends) • Source: Columbia Threadneedle. 1/1/1960 to 12/31/17 using S&P 500 returns not including dividends reinvested.

9. Market is cheaper than 18 months ago… The S&P 500 is up roughly 3% in 18 months. Earnings of those companies are 23% higher. The market is ‘cheaper’ than in Feb 2018. • Source: FactSet Quarterly Earnings Update as of June 30, 2019

10. How ‘expensive’ the market has been over time

11. Profit margins are excellent and slightly lower… • Source: JP Morgan Guide to the Markets, Q3 2019, Data as of June 30, 2019

12. The labor market is in great condition…

13. More openings than workers available… • Source: Atlanta Federal Reserve Data as of April 30, 2019

14. US GDP has been positive 36 out of 40 quarters • Source: Baird “Market Chartbook”, Q2 2019, data as of June 30, 2019

15. The recoveries have been trending longer… * • Source: JP Morgan Guide to the Markets, Q3 2019, Data as of June 30, 2019 Chart assumes current expansion started in July 2009 and continued through June 2019, lasting 120 months so far. Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ and reflect information through June 2019. Past performance is not a reliable indicator of current and future results.

16. Inflation has been steady for years… CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixedweight basket used in CPI calculations.

17. Business owners plan on investing more… • Source: LPL

18. Corporate balance sheets look good… Delinquencies are falling on commercial and industrial loans, and are near their lowest levels of the past 30 years. • Source: Bespoke

19. Household balance sheets look good… • Source: JP Morgan Guide to the Markets, Q3 2019, Data as of June 30, 2019

20. Decade long winners: U.S. and Growth Stocks • For most of the past decade: • The US has trounced Int’l stocks • Growth stocks have outpaced value • Source: Baird “Market Chartbook”, Q2 2019, data as of June 30, 2019

21. International stocks much cheaper than US… Forward price to earnings ratio is a bottom-up calculation based on the most recent index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on price movement only, and do not include the reinvestment of dividends. Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price, as provided by FactSet Market Aggregates. Past performance is not a reliable indicator of current and future results.

22. “But the market is at a top” From 1950 to 2017, the S&P 500 has spent roughly 32% of its life within 5% of its all time high. • Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only.

23. Buying into a strong market is scary, HOWEVER… …six months later, the market is higher 82% of the time.

24. Most years are positive with large selloffs… Since 1950, the S&P 500 has averaged an 11.0% annual gain. But the average intra-year drop has been nearly 14%.

25. Our Playbook • The markets may have more volatility ahead, it’s impossible to say. • When the market has exhibited this type of recent behavior, forward returns are very compelling. • Do not try and time the market – it’s impossible to know when to get back in. Develop the right long term plan and stick with it. • Very little (preferably none) of the money you need to live on over the next 5 to 7 years should be in the stock market. This is always the rule. • If (reduced) earnings estimates are correct for 2018, S&P 500 valuationsare 16.4x earnings – right at the long run average. • Emerging markets are very cheap compared to U.S. assets. (Twice the growth rate, half as expensive) • U.S. Small and Mid Caps are cheap compared to Large Cap stocks. (More growth, lower valuations) • Rate hikes are done. Likely at least one rate cut. • Own individual bonds rather than bond funds if at all possible.

26. Rates and The Fed

27. Strong economy but Fed still pressured to cut… • Economic indicators that the Fed uses point to strong economy • Unemployment rate lowest this century at 3.70% • GDP growth at 3.1% last quarter • Inflation low at 2.1% on CPI, 2.30% on PPI (Ex-Food and Energy) • Tariff talk and global lowdown concerns weigh on markets • General public believes the Fed tightened too much last year and need to cut rates this year to make up for it • Inverted (downward sloping yield curve) makes many concerned that a recession is coming • Shape of the curve indicates the market sees lower rates (perhaps due to recession or slowdown) in the future • Question is: Is the market right and if/so what is the timing? • Markets pricing in a the likelihood of at least two rate cuts (25 bp each) this year • Would probably result in lower rates only on the short end of the curve and a return to an upwardly sloping yield curve

28. Where we see rates heading… Source: Bloomberg, L.P. and Townsquare Capital

29. Quarterly Bond Market Monitor Source: Bloomberg, L.P. and Townsquare Capital

30. Bond Portfolio Opportunities

31. Yield Update * Yields are typical of portfolios created as of 7/17/19 but can vary widely depending on specific client requirements.

32. Mortgage rates back near all-time lows… • Source: Federal Reserve Bank of Atlanta and Charlie Bilello, Director of Research at Pension Partners, LLC

33. U.S. Treasuries are ’high yield’ when compared… • Source: Federal Reserve Bank of Atlanta and Charlie Bilello, Director of Research at Pension Partners, LLC

34. Advantages to Bond SMAs • Similar to Equity Separately Managed Accounts (SMAs), Bond SMAs have a number of advantages: • Customization – Everyone has different needs, and our portfolios are designed to be tailored to fit those individual needs, including monthly withdrawals, yield targets, one-time or recurring liquidity, and risk appetite, all while providing the benefit of direct ownership. • Direct Ownership – We strongly believe that directly owning securities is superior to owning indexes due to the ability to buy, hold, or sell individual positions as needed for liquidity or other purposes. • Clarity – With a portfolio of bonds that are directly owned, it is easy to predict future cashflows. • Liquidity– We actively strive to buy highly liquid bonds that can be sold quickly and efficiently if a liquidity event arises. • Diversification– Consistent with our investment philosophy, we have semi-concentrated portfolios that allow for the potential to outperform the index while seeking adequate diversification. • Tax Efficiency – Bond owners are not forced to recognize gains or losses due to other investors liquidating, which occurs in a mutual fund or ETF structure, helping to create a more tax-efficient strategy. We can also strategically harvest gains or losses for tax purposes as needed by clients.

35. Investment Philosophy • Our Philosophy: Identify and purchase undervalued bonds using top-down and bottom-up research while managing interest rate risk, liquidity risk, and concentration risk. • Top-Down and Bottom-Up – We find value in approaching our investment portfolios through the dual lenses of top-down and bottom-up analysis. Understanding the overall economic cycle and where we are at in that cycle is important in adjusting sector exposures. Additionally, the bottom-up, fundamental analysis is important to identify companies whose bonds are undervalued or overvalued. • Interest Rate Risk– We invest in the three to seven year part of the curve because interest rate risks are significantly diminished compared to investing in the long end of the curve and the yield is still relatively attractive. We do no speculate on where interest rates are going in the future. • Liquidity Risk– We invest in larger issuances that typically provide better liquidity and layer in shorter maturities that provide greater liquidity if a cash event arises. We avoid illiquid bonds or complex structures that tend to be less liquid during periods of volatility. • Diversification– We limit exposure to single issuers (5%) and sectors (25%) to allow for the benefits of diversification. • Semi-Concentrated Positions– We target 20-40 issuers in our portfolios to reduce transaction costs and to avoid being a closet indexer. • Transaction Costs – We avoid transaction costs in all their forms as best we can by purchasing bonds that we plan to hold to maturity.

36. Portfolio Construction • Bond Ladder Approach– We believe that bond ladders are a time-tested approach to managing custom bond portfolios that are designed to provide a steady source of cash to clients, while managing interest rate risk and liquidity risk: • Interest Rate Risk – Self-correcting during rising rate environment due to maturing bonds being reinvested at higher yields. • Liquidity Risk– Short-dated maturities provide liquidity and can be sold as needed by clients. • Bond Purchasing Processes– We source bonds from a variety of brokers, including the largest online trading platforms that give us access to 400+ financial institutions, helping us achieve best execution. We also utilize data from TRACE, FINRA's real-time price dissemination service for the fixed income market, to prevent overpaying for bonds. • Ongoing Management – We continue to monitor issuers that we own and reinvest coupons and maturities to prevent cash from building up and becoming a drag on the performance of a portfolio. • Surveillance – We constantly monitor individual bonds for changes in credit spreads or prices and issuers for news and earnings updates. • Periodic Review – We routinely perform credit reviews of the individual issuers on our buy list to remove issuers that we no-longer want to own. • Cash Reinvestment – We actively reinvest coupons and maturities once cash has built up beyond our tolerance threshold (typically 2%)

37. Bond Selection Process • Four Screen Approach– We utilize a multi-step screening process to add or remove bonds from our buy list. Our screens are designed to utilize a combination of algorithms and individual, fundamental analysis in order to identify companies with compelling stories and bonds that are underpriced. Fit-Screen Five Financial Factor Screen • Issuance Size • Credit Rating • Maturity • Coupon Type • Dollar Price • Yield Fundamental Screen • Cash Flow • Profitability • Liquidity • Leverage • Asset Coverage Final Screen • Quantitative Factors • Qualitative Factors • Economic Factors • Relative Value • Covenants • Subordination • Options • Price Verification

38. Portfolio Metrics vs. Benchmark 3P Corp Benchmark – LD06TRUU The Bloomberg Barclays US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers. EIP Benchmark – LIHYTRUU Bloomberg Barclays Intermediate US High Yield Total Return Index 3P Muni Benchmark – I00783US Bloomberg Barclays 3-10 Yr Blend Total Return Index 3P Treasury Benchmark – LTR1TRUU The Bloomberg Barclays US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Treasury bills are excluded by the maturity constraint. Cash Benchmark – LD21TRUU The Bloomberg Barclays US Treasury Bill Index tracks the market for treasury bills issued by the US government. US Treasury bills are issued in fixed maturity terms of 4-, 13-, 26- and 52-weeks. The US Treasury Bill Index is a component of the US Short Treasury Index along with US Treasury notes and bonds that have fallen below one year to maturity. Source: Bloomberg L.P., Bloomberg PORT Function

39. Paperwork Reminder

40. Performance Q2 2019

41. Cornerstone & Foundation Performance * EDUCATION AND INTERNAL USE ONLY. Performance figures as of 6.30.19; returns stated above do not include advisory fees.

42. BRIX Performance * EDUCATION AND INTERNAL USE ONLY. Performance figures as of 6.30.19; returns stated above do not include advisory fees.

43. SMA Performance – Q2 2019 * EDUCATION AND INTERNAL USE ONLY. Performance figures as of 6.30.19; returns stated above do not include advisory fees. Source: Morningstar

44. TownSquare Capital, LLC is an SEC Registered Investment Advisor, 5314 River Run Drive, Suite 210, Provo, UT 84604. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. TownSquare is not affiliated with any other named entity. TownSquare and its representatives do not provide tax or legal advice. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from TownSquare Capital, LLC to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.