Fixed Income Markets – Then and Now Chartwell Investment Partners Jason B. Stewart, CIMA Regional Director, Managed Accounts December 4, 2015 Pacific Region Investment Conference Chartwell Investment Partners Institutional and Private Asset Management

MunicipalCredit Ratings GovernmentCoupon Rates CorporateMaturities Mortgage-BackedDuration Asset-BackedYields TIPSCall Features CDsCapital Structure Chartwell Investment Partners Institutional and Private Asset Management Bond Types and Considerations

Chartwell Investment Partners Institutional and Private Asset Management Global Bond Market Today R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Geopolitical Considerations Accounting Practices Currency Fluctuations Liquidity Quality

R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Overall Bond Demand Remains Strong

Chartwell Investment Partners Institutional and Private Asset Management U. S. Bond Market Spectrum R E S E A R C H Q U A L I T Y C O N S I S T E N C Y

All bonds are debt securities issued by organizations to raise capital for various reasons High Yield bonds are issued by companies that do not qualify for “investment grade” ratings by one or more of the major ratings agencies (Moody’s, S&P, and Fitch) These issuers must pay a higher interest rate in order to attract investors to compensate them for the risk associated with investing in organizations of lower credit quality Chartwell Investment Partners Institutional and Private Asset Management High Yield Bonds Defined

Investment Grade High Yield Risk/Yield Lower Higher Moody'sS&P AaaAAA AaAA AA BaaBBB BaBB BB CaaCCC CD Chartwell Investment Partners Institutional and Private Asset Management U. S. High Yield Bond Market R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Highly Leveraged High Risk/Return Troubled Credit Takeover Potential

Source: J.P. Morgan R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management U. S. High Yield Bond Market Overview

“Fallen Angels” – formerly investment grade “Rising Stars” – small or newer companies High Debt Companies – refinancing debt, takeovers Capital Intensive Companies (cable TV, telecom) Foreign Governments and Corporations Source: SIFMA Chartwell Investment Partners Institutional and Private Asset Management Who Issues High Yield Bonds?

Energy Exploration & Production gets all the headlines Chartwell Investment Partners Institutional and Private Asset Management The High Yield Bond Market by Sector

Sprint Corp First Data Corportation Chrysler Group LLC Reynolds Group Tenet Healthcare Softbank Corp Royal Bank of Scotland Dish DBS Corp Rite Aid Corp Hilton Worldwide Caesars Entertainment Wynn Las Vegas MGM Resorts Alcoa Chartwell Investment Partners Institutional and Private Asset Management Who Issues High Yield Bonds? Source: iShares HYG Holdings

A high rate of income due to the higher interest rates of the bonds Low correlation with other parts of the bond market Often perform well in a rising interest rate environment – Investment Grade bonds trade on interest rates and rate expectations. HY tends to trade on credit and economic sensitivity. The potential for capital appreciation if the bond is upgraded or if tendered at a premium by the issuer Chartwell Investment Partners Institutional and Private Asset Management Investing in High Yield - Benefits

Source: JP Morgan Guide to the Markets 9/30/15 R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Correlations in the Bond Market High Yield Correlation to 10-Year -.24 Yield 8.04%

Source: J.P. Morgan 25 Year High-Yield/ High Grade Trade-Off R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Diversification Benefit of Investing in High Yield

Chartwell Investment Partners Institutional and Private Asset Management Historical Composition by Quality (MV%) – Trailing 5 Years 84% BB or B

Higher Returns with Less Risk Source: Bloomberg R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management High Quality vs. Lower Quality

R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Quality Matters – Esp. in Energy Exploration & Production

R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Quality Matters Throughout the Index

R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Returns and Volatility Vary - CCC

R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management Returns and Volatility Vary – BB – A Smoother Experience

Source: Moody’s R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management High Quality vs. Lower Quality

R E S E A R C H Q U A L I T Y C O N S I S T E N C Y Chartwell Investment Partners Institutional and Private Asset Management High Yield Now

The US High Yield Bond Market Offers: A large opportunity set High current income Low correlation to other bonds Historical performance when interest rates rise Portfolio diversification benefits Attractive total return potential – Absolute and risk adjusted (Sharpe Ratio) Compelling returns with manageable risk – Credit research, duration management, quality constraints, sector diversification, active management Chartwell Investment Partners Institutional and Private Asset Management Conclusion