T. Rowe Price 2018 Investment Themes

Three investment trends that could impact your clients in 2018.

We understand how important it is—and how challenging it can be—to stay informed in a constantly changing investing environment. You need timely market insights so that you can make confident decisions and deliver the outcomes your clients expect. We’ve identified three key themes that may present opportunities for your clients to stay on the right side of change in 2018.

1. The Pillars of International Equity

Consider reexamining your international equity allocation as the performance cycle turns.

Since 2010, U.S. equities have enjoyed their longest period of outperformance in 47 years. However, economic activity is growing faster in developed international markets than in the U.S., balance sheets in foreign companies are generally strong, and valuations of international equities look attractive relative to U.S. equities.

Current U.S. outperformance cycle is the longest in duration.

ROLLING THREE-YEAR RETURNS, MSCI EAFE VS. S&P 500 – EAFE minus S&P 500

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The information above is index performance. Index performance is for illustrative purposes only and is not indicative of any investment product. Investors cannot invest directly in an index. The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada. The Standard & Poor’s 500 Index (S&P 500) is an index of 500 leading U.S. stocks designed to represent the performance of the U.S. large-cap stock market. Past performance is no guarantee of future results.

2. Balancing Yield and Risk in a Changing World

As policy conditions change, make sure your fixed income allocation balances yield and risk.

As global monetary stimulus begins to fade and yields become scarcer, a portfolio that includes high yield, emerging markets (“EM”), and bank loans could satisfy yield-hungry investors. But some of these assets are correlated to equities, which can alter a portfolio’s risk profile. It’s important to stay mindful of these risks and maintain a fixed income portfolio that appropriately balances risk and yield potential.

Seek broadly for yield, but beware of unintended risk.

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The information above is index performance. Index performance is for illustrative purposes only and is not indicative of any investment product. Investors cannot invest directly in an index. Past performance is no guarantee of future results.

3. Disruptive Technology Creates Opportunity

Maximize the opportunities that disruption will offer.

Technological innovation, changing consumer preferences, and political or regulatory initiatives are disrupting key global industries as new sector leaders emerge. Here are some examples of sectors we’ve identified as being in the midst of transformative disruption:

A time of unprecedented disruption.

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IMPORTANT INFORMATION

Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in high-yield bonds and bank loans involve greater risk of price volatility, illiquidity, and default than other debt securities. Foreign investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets. Investments in the technology sector may be subject to additional risk and volatility due to rapidly changing industry dynamics, product obsolescence, increased competition, and other factors.

Correlation: A statistic that measures the degree to which two securities move in relation to each other.

Duration: The value of principal of a fixed-income investment to a change in interest rates, expressed in a number of years. Yield to maturity (YTM): The total return anticipated on a bond if the bond is held until the end of its lifetime, expressed as an annual rate.

Indices and benchmarks used for Exhibit 2 include: U.S. Treasury represented by the Bloomberg Barclays Global U.S. Treasury Index, U.S. Aggregate represented by the Bloomberg Barclays U.S. Aggregate Bond Index, Municipal Bonds represented by Bloomberg Barclays Municipal Bond Index, U.S. Investment-Grade Corporate represented by Bloomberg Barclays U.S. Investment Grade Corporate (300MM) Index, Global Aggregate represented by Bloomberg Barclays Global Aggregate Index, Bank Loans represented by S&P/LSTA U.S. Leveraged Loan 100 Index, Muni High Yield represented by Bloomberg Barclays Municipal Bond High Yield Index, Emerging Markets Dollar represented by JP Morgan EMBI Global Index, Emerging Markets Local represented by JP Morgan GBI-EM Global Diversified Composite Index, U.S. High Yield represented by Bloomberg Barclays U.S. Aggregate Credit- Corporate-High Yield (2000) Index, Global High Yield represented by Bloomberg Barclays Global High Yield Index.

Bloomberg Index Services Ltd. Copyright© 2017, Bloomberg Index Services Ltd. Used with permission.

Bloomberg Index Services Ltd. Copyright© 2017, Bloomberg Index Services Ltd. Used with permission.

T. Rowe Price Investment Services, Inc., Distributor.

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