STR ATEGY

REPORT
OCTOB E R 201 7

There is a better way...

TM
P U R E I N V EST I N G
AT ZAC KS
IN D E PE N D E N T
RESEARCH | THINKING | RESULTS

S ea rchin g fo r G row t h O p p ort unit ie s? Look Ab road

 Z AC K S I N V E S T M E N T M A N AG E M E N T

W HAT C A N YO U E X P E C T FRO M TH I S GUI D E?

Are you searching for growth? This guide dives into some of the most significant
growth stories in this economic expansion and bull market. It evaluates simultaneous
global GDP and earnings growth while also giving answers to questions like:
u Why does global exposure matter for your portfolio?
u How do you get global exposure?
u What current market trend hasn’t been seen since 2007?
u Where is this growth coming from?

A BO U T Z AC KS I N V E ST M E NT M ANAGEM ENT

Zacks Investment Management is an industry leader in investment strategies. As

an asset management leader born out of one of the country’s largest providers of
independent research, we offer our clients the advantages of unbiased advice, greater
transparency and fully customized portfolios. Zacks strategies are derived from our
own research and innovation, including the proprietary Zacks Rank stock selection
model as well as our pioneering earnings surprise and estimate revision factors. Learn
more at www.ZacksPCG.com

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SEARCHING FOR GROWTH OPPORTUNITIES? LOOK ABROAD

With the seemingly endless distractions stemming from the political sphere, many investors are
losing sight of one of the most significant growth stories in this economic expansion and bull market:
simultaneous global GDP and earnings growth.

It’s a big deal, but no one seems to care! Consider this: when was the last time you heard about
‘synchronized global growth’ in the news? Not in a while, or perhaps not ever?? Exactly.

There is a strong case (made below) for having a material allocation
to foreign stocks at this point in the cycle, and at Zacks Investment Does your portfolio
Management we allocate abroad both through investment in robust have an adequate
multinationals and also by investing directly in companies domiciled
international
abroad.
allocation?
Ask yourself: Does your portfolio have an adequate international
allocation? When was the last time you reviewed your positioning?

Global exposure matters: the latest S&P 500 earnings per share (EPS) growth rate was +10.3%. But
break down that number between domestic and foreign, and you’ll find that of +8.5% was attributed to
companies with > 50% in domestic U.S. sales, while +14.5% accrued for companies with less than 50% in
domestic sales (meaning, foreign companies or multinationals).

So, how do you get global exposure? One example is via investment in Info Tech (IT), which for Zacks
Investment Management has been identified as an “attractive” sector for some time. IT is arguably
the most internationally exposed of any S&P 500 sector. Semiconductors are the largest contributor to
IT growth, and the global semiconductor ‘value chain’ comprises an intricate network of researchers,
designers, manufacturer assemblers, and suppliers from all over the world.

A typical semiconductor production process, for instance, spans multiple parts of the world: 4+
countries, 4+ U.S. states, 3+ trips around the world, 25,000 miles travelled, 100 days of Time Partition
Testing (TPT), and 12 days in transit. Here is an example of the value chain:

1. Silicon ingots are cut into wafers in Japan.

2. A bare wafer goes into a fab wafer in Southern California.
3. A fab wafer is sorted, and cut into die in Northern California.
4. The die are assembled, packaged, and tested in Australia.
5. The final product is shipped for inventory in Malaysia.
6. An end product manufacturer in Taiwan and/or Mainland China integrates the chip into a
consumer product.
7. The customer buys the end product in the USA.

Another example from everyday life is the iPhone. In the realm of trade statistics, the iPhone does
just one thing: goes from China to the U.S. But, that only tells a fraction of the story—before final
manufacturing, the iPhone is constructed with a French accelerometer, Bluetooth and Wi-Fi from Japan
and Taiwan, a Korean touch-screen display, a Japanese memory chip, flash memory from the U.S., and
software and design from the U.S. – amongst several other components.
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 E C O N O M I C O U T LO O K

BUT THE GLOBAL STORY GETS EVEN BIGGER

What we’re seeing now in the global economy is a trend we haven’t seen since 2007, and prior to 2007 we
had not seen it since the late 1980’s. In fact, it’s a trend that has been exceedingly rare in the last 50 years.

That trend is simultaneous growth. As it stands today, all 45 countries tracked by the Organization for
Economic Cooperation and Development (OECD) are on pace to grow this year, and 33 of them are actually
on pace to see growth rates accelerate from the year before. That’s not only growth, that’s improving
growth – an important distinction. If those 33 countries manage to improve on last year’s growth rates,
it would mark the most number of countries experiencing accelerating growth since 2010, when many
countries were simply participating in the “v-shaped” bounce from the depths of the financial crisis. In
all, the global economy is expected to expand by 3%–4% in 2017, which is a very respectable growth rate
particularly nine years into this expansion and bull market. More growth is expected in 2018.

Where is this growth coming from? A major turning point for the global economy has been Europe.
Economic growth in the 19-nation Eurozone outpaced growth in the United States in Q1 and Q2, and
the negative impact of hurricane season may take the trend into Q3. Growth has extended beyond the
traditionally sturdy countries like Germany and the Netherlands, with weaker members like Spain and
Portugal posting their strongest numbers in years. Indeed, growth and recovery has been broad-based—
economic confidence is at its highest level in a decade, and unemployment in the currency bloc has
dropped to an eight-year low of 9.1%.

The world is also benefiting from stabilizing commodity prices, as China’s crude oil production has been
trending lower and as OPEC countries and Russia have largely stuck with production quotas. The IMF’s
global price index for all commodities is up 27% from the start of 2016, which benefits exporters like Brazil
and other Emerging Markets that have felt pressure since the global commodity rout of 2014. The tides of
growth and positive equity performance are starting to turn for Emerging Markets, and in particular Nigeria
and Brazil. Manufacturing activity has been following suit, as no developed country’s PMI fell below 50
(signaling contraction) in Q2.

Simultaneous growth across the world is expected to result in positive earnings per share (EPS) growth
across all major markets in the world in 2017, which would mark the first synchronized earnings growth
since 2010. To note, there are two different types of growth being referenced here: GDP growth and
earnings growth. And it’s the latter that really matters for stocks. In our view, broad-based global earnings
growth should function as the engine propelling global equities higher from here, and it is a main driver
behind our constructive outlook for equities in the months ahead.

BOTTOM LINE FOR INVESTORS

The seemingly never ending stream of political and social news tends to distract investors from economic
fundamentals, which can be a good and a bad thing. Good in the sense that it prevents too much optimism
from building, bad in that good opportunities may be missed. For investors that want to hear our ideas on
how to position portfolios today to participate in the growth we see ahead for 2017 and perhaps beyond,
the way forward is simple – just give us a call here at Zacks Investment Management – 1-800-701-9830. We

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 Z AC K S I N V E S T M E N T M A N AG E M E N T

will take a look at your current investment portfolio, make recommendations, and going forward we will
make sure to keep you allocated in accordance with the changing cycle.

WORK WITH A ZACKS INVESTMENT MANAGEMENT REPRESENTATIVE.

The benefits of partnering with Zacks Investment Management:

• Experience – the Zacks Investment Committee and Portfolio Managers have over 100 years of
combined experience in capital markets analysis and wealth management.
• Research – Thousands of subscribers use Zacks Investment Research’s products and platforms. This
coveted research fuels our investment decision-making process and sets us apart.
• Results - in 2010, Zacks Investment Management was declared Manager of the Decade1 for our flagship
strategy.
• Relationships – your Personal Investment Consultant will be there to review your portfolio, discuss any
changes, and respond to your needs.

Take Charge of Your Financial Future and Let Us Work to Make It Better.

Zacks Invesment Management has been in business and growing since 1992, and we may have the type of
result-driven experience you need and deserve.

Let us show you who we are and how we can work with you and for you. There is no cost to learning more
about our strategies and our approach when you call, and we’re happy to take the time to answer your
questions and tell you more about what we do.

WA N T TO L EA R N M OR E A BOUT
ZACKS INVEST M EN T M A N AG EM EN T ?
Here are two ways to get started:
u Phone Us: 1-800-701-9830 
u Go to our website at www.ZacksPCG.com
u Schedule a time to talk with us by clicking here

1
Please see the PSN disclosures at the bottom of the document.

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 Z AC K S I N V E S T M E N T M A N AG E M E N T

DISCLAIMER

Past performance is no guarantee of future results. Zacks Investment Management, Inc. is a wholly-
owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent
Registered Investment Advisory firm and acts as an investment manager for individuals and institutions.
Zacks Investment Research is a provider of earnings data and other financial data to institutions and to
individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment,
legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely
upon the information and advice given in this publication without seeking the services of competent
and professional legal, tax, or accounting counsel. The information contained herein has been obtained
from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication
and distribution of this article is not intended to create, and the information contained herein does not
constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any
investment or strategy is suitable for a particular investor. It should not be assumed that any investments
in securities, companies, sectors or markets identified and described were or will be profitable. All
information is current as of the date of herein and is subject to change without notice. Any views or
opinions expressed may not reflect those of the firm as a whole.

PSN Manager of the Decade:

The results submitted to PSN portray the performance history for a representative managed separate
account gross of fees, and do not include the deduction of investment advisory fees. An investor’s
actual return will be reduced by the advisory fees and any other expenses which may be incurred in
the management of an investment advisory account. Upon request, Zacks Investment Management
will provide gross and net performance information for the Rank Strategy

Past Performance is no guarantee of future results. Inherent in any investment is the potential for
loss. Results for the Zacks Rank Strategy reflect the reinvestment of dividends and other earnings.
Individual results may differ. PSN and Informa Investment Solutions have no affiliation with Zacks, but
rather evaluate investment managers’ performance on an objective basis.

For the ten year period ending December 31, 2009, PSN Manager of The Decade products, must have
an R-Squared of 0.80 relative to the style benchmark, have returns greater than the style benchmark
and also Standard Deviation less than the style benchmark. At this point, the top ten performers
for the latest 10 year period ending December 31, 2009 become the PSN Top Guns Manager of the
Decade.

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