AAM Alternative Investments

Improving portfolio risk/return profiles with private market alternatives

While individual investors have historically focused on publicly traded stocks and bonds, there has been growing interest in private market alternative investments – such as private credit, real estate and private equity – and for good reason.

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Private Assets

Liquid Alternatives

Idiosyncratic Investments

These are the most long established and popular strategies. These include private equity, private debt, real estate, infrastructure and natural resources. Within each of these is a range of styles and themes. And in the case of debt, varying credit quality offerings.

These are mainly hedge funds and commodity strategies that use publicly traded assets as their building blocks.

Art, collectibles, and digital assets are also alternatives. But for now, these are a small part of the overall mix and tend to be tailored to individual investor requests.

Alternatives Basics

Potential Benefits

Alternatives in Action

Risks

Key Takeaways

Who Owns Alternative Assets? Endowments were some of the earliest adopters of alternatives with large investors also including foundations, pension funds, sovereign wealth funds, insurance companies and family offices. These institutional investors typically point to higher return potential and portfolio diversification as key reasons for their allocations.

Today, there is significant opportunity for individual investors to allocate to alternatives and potentially benefit from similar characteristics.

Increased Total Return

Alternatives have typically generated higher returns relative to public assets. This additional return potential is primarily driven by the compensation for lower liquidity in private markets (the illiquidity premium), as well as the additional value derived from the customization, due diligence information advantage, control, and speed of execution available in private markets.

10-year period ending 12/31/2023.Sources: Aladdin, Morningstar, Pitchbook, National Council of Real Estate Investment Fiduciaries, 2022. Proxy benchmarks used: Bloomberg US Aggregate Bond Index (IG public bonds), S&P 500 Index (US Equity), Morn¬ingstar LSAT Leverage Loan Index (Leveraged Loans), Pitchbook North American Private Debt Index (Private Credit), NCREIF Fund Index – Open End Diversified Core Equity (Real Estate), MSCI EAFE Index (International Equitiy, and Bloomberg US Corporate High Yield Index (High Yield Bonds). Past performance does not guarantee future results. It is not possible to invest directly in an index.

Increased Total Return

Diversification

Downside Protection

Liquidity describes how easily an asset can be converted to cash without affecting its market price. For investors facing the potential for unforeseen expenses necessitating the sale of current investment holdings, having a portion of their portfolios held in highly liquid assets is important. However, investors can sometimes overestimate the amount of liquidity they need. This comes at a cost in terms of the additional compensation that investors forgo by missing out on the illiquidity premium. The illiquidity premium has contributed to the meaningful historical outperformance of private assets over their public counterparts.

Explore 3 Potential Benefits of Incorporating Alternatives Into a Diversified Portfolio

Diversification

Alternative asset classes have historically displayed relatively low correlation to traditional stocks and bonds. As a result, adding an allocation to alternatives can increase portfolio diversification, and possibly provide more stable portfolio returns over time.

Downside Protection

Many alternatives have covenants or collateral that can provide investors an additional layer of security in tougher market conditions. Private markets are generally less susceptible to volatility driven by macroeconomic shifts and geopolitical events. Additionally, private assets often provide a more stable investor experience as valuations can be less volatile than their public market equivalents. Given ongoing economic and geopolitical risks, this is an important part of the value proposition of investing in alternatives.

Alternatives in Action

Let’s look at how adding an allocation to alternative investments in a diversified portfolio has impacted both total returns and volatility. As illustrated in the table to the right, start with a traditional 60% bond / 40% equity portfolio. In each subsequent portfolio, the allocation to bonds and equities is each reduced by 5% and the difference added to the alternative allocation. In this example, as the allocation to alternatives increased, the overall return of the portfolio increased. In addition, because of the relatively low correlation of alternatives to public equity and bonds, the portfolio’s overall volatility was reduced as well. When modeling median investor profiles and cash flow needs, we anticipate private asset class allocations could potentially range from 10% to 30% of an investor’s portfolio with the decision a function of return goals, time horizon, risk appetite and cash flow needs. Financial professionals can help with this type of analysis.

10-year period ending 12/31/2023.Sources: Equities: S&P 500 Index, Bonds: Bloomberg US Aggregate Bond Index, Commercial Real Estate: NCREIF ODCE Index, Private Credit: Pitchbook North American Private Debt Index. Past performance does not guarantee future results. It is not possible to invest directly in an index.

Principal Risks

Share price, valuation, and portfolio holdings may be difficult to assess.

LESS REGULATION & HIGHER FEES

Compared to mutual funds, private funds are subject to less regulation and often charge higher fees.

COMPLEX TAX STRUCTURES

There may be delayed tax reporting due to complex tax structures.

Sometimes referred to as "high yield bonds" or "junk bonds," these securities have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. They may also be illiquid and difficult to value.

MARKET & Default RISK

Market risk is prevalent since many of the companies invested in are unproven, which can lead to significant losses. Default risk is also higher with less established companies.

ILLIQUIDITY

An investor may not have access to their investment for an extended period of time.

LACK OF TRANSPARENCY

BELOW INVESTMENT GRADE SECURITIES

Alternative investments offer the potential to increase portfolio diversification, generate higher returns, and increase downside protection, however they come with their own set of risks and challenges including but not limited to:

Key Takeaways

Alternatives have the potential to provide...

We expect uneven economic growth to continue, global Central Banks to maintain their accommodative stances, corporate earnings to recover and an increase in overall consumption, however risks remain.

MORE STABLE PORTFOLIO RETURNS

Alternative asset classes have historically displayed relatively low correlation to traditional stocks and bonds, indicating that adding an allocation to alternatives could result in more stable portfolio returns over time. It is worth noting that much of the lower volatility can be attributed to the lack of observable market values in private assets and often does not reflect the true mark-to-market volatility.

ATTRACTIVE RISK/RETURN PROFILE

DOWNSIDE PROTECTION

Record liquidity can be seen in frothy equity pricing. The higher level of optimism may begin to cannibalize future growth at some point. To offset this, we tend to see higher levels of merger and acquisition (M&A) activity that may be cynically masking lower growth metrics. For those that suffer this blessing, massive stock buy backs will likely be needed to help boost the growth needed to support fundamental metrics.

For more information on the Alternative Investments offered by AAM, please complete the form below and we will be in touch shortly.

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1 Source: Credit Suisse, Barclays Live, as of June 30, 2022. Past performance is not a guarantee of future results. Traditional Short-Term Bonds represented by the Bloomberg 1-3 Year Govt./Credit Index. Intermediate Credit represented by the Bloomberg U.S. Credit 1-5 Year Index. ABS represented by the Bloomberg ABS Index. Short Duration CMBS (Commercial Mortgage Backed Securities) represented by the Bloomberg CMBS 1-3.5 Year Index. Intermediate High Quality High Yield represented by the Bloomberg High Yield Corporate Ba/B 1-5 Year Index. High Quality Bank Loans represented by the CS Leveraged Loan BB Index. It is not possible to invest directly in an index. Investment process subject to change at any time without notice. 2. Short duration and weighted average life generally result in less volatility from moves in interest rates and credit spreads relative to traditional fixed income. The Weighted Average Life of the Fund is the average time to receipt of unpaid principal of each security weighted by its respective contribution to the total market value of the fund, including principal and accrued interest. 3. A laddered portfolio is a portfolio of fixed income securities of varied maturity dates. A laddered portfolio has the potential to provide cash flow for liquidity or to be reinvested in what HIMCO believes are higher income opportunities. * Morningstar Rating is for the Class I share class only; other classes may have different performance characteristics. For the period ended 9/30/22, the AAM/HIMCO Short Duration Fund Class I shares was rated against 216 Ultrashort Bond funds over the last three years and 177 funds over the last five years. With respect to these Ultrashort Bond funds, AAM/HIMCO Short Duration Fund Class I shares received a Morningstar Rating of 3-stars for the three-year period and 4-stars for the five-year period based on risk-adjusted returns. Past performance is no guarantee of future results. ** The Chartered Financial Analyst (CFA) designation is an international professional certification offered by the CFA Institute (formerly AIMR) to financial analysts who complete a series of three examinations. To become a CFA charterholder candidates must pass each of three six-hour exams, possess a bachelor’s degree from an accredited institution (or have equivalent education or work experience) and have 48 months of qualified, professional work experience. CFA charterholders are also obligated to adhere to a strict Code of Ethics and Standards governing their professional conduct.

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product.Certain information contained herein has been obtained from third party sources and such information has not been independently verified by AAM. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by AAM or any other person. While such sources are believed to be reliable, AAM does not assume any responsibility for the accuracy or completeness of such information. AAM does not undertake any obligation to update the information contained herein as of any future date. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future. RISKS: Alternative investments offer the potential for diversification, higher returns, and protection against inflation, however they come with their own set of risks and challenges. Past performance is not a guarantee of future results. All investments are subject to risk, including the loss of the principal amount invested. There is no guarantee of downside protection and losses may occur, including the loss of the entire principal amount invested. Diversification will not guarantee profitability or protection against loss. Alternative investments may lack transparency as to share price, valuation and portfolio holdings. Complex tax structures often result in delayed tax reporting. Compared to mutual funds, private funds are subject to less regulation and often charge higher fees. Bonds that are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.” Below investment grade securities have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be illiquid and difficult to value. An investor may not have access to their investment for an extended period of time. Market risk is prevalent since many of the companies invested in are unproven, which can lead to significant losses. Default risk is also higher with less established companies. Additional risks include limited operating history, uncertain distributions, inconsistent valuation of a portfolio, changing interest rates, leveraging of assets, reliance on the investment advisor, potential conflicts of interest, payment of substantial fees to the investment advisor and the dealer manager, potential illiquidity, and liquidation at more or less than the original amount invested. Performance may be volatile, and the NAV may fluctuate. DEFINITIONS: Correlation is a statistical measure of how two variables move in relation to each other with coefficients ranging from +1 to -1. A correlation coefficient of +1 implies that as one variable moves, the other will move in exact lockstep. Alternatively, a correlation coefficient of -1 implies that if one variable moves, the other moves in the same amount in the opposite direction. If the correlation is 0, the movements of the variables are completely random. The Bloomberg US Aggregate Bond Index is an unmanaged, broad-based index composed of US dollar denominated, investment grade, fixed rate taxable bonds with at least $250 million par amount outstanding and at least one year to final maturity. S&P 500 Index is an unmanaged market capitalization weighted index used to measure 500 companies chosen for market size, liquidity and industry grouping, among other factors. The Morningstar LSTA US Leveraged Loan 100 Index is designed to measure the performance of the 100 largest facilities in the US leveraged loan market. Index constituents are market-value weighted, subject to a single loan facility weight cap of 2%. Pitchbook: PitchBook’s fund returns data is primarily sourced from individual LP reports, serving as the baseline for our estimates of activity across an entire fund. When available, however, GP reported data will take precedence in calculations. For any given fund, return profiles will vary for LPs due to a range of factors, including fee discounts, timing of commitments and inclusion of co-investments. This granularity of LP-reported returns – all available on the PitchBook Platform – provide helpful insight to industry practitioners but results in discrepancies that must be addressed when calculating fund-level returns. To be included in pooled calculations, a fund must have: (i) at least one performance report within two years of the fund’s vintage, and (ii) performance reports in at least 45% of applicable reporting periods. To mitigate discrepancies among multiple performance reports, the PitchBook Benchmarks (iii) determine returns for each fund based on data from all performance reports in a given period. For periods that lack a performance report, (iv) a straight-line interpolation calculation is used to populate the missing data; interpolated data is used for approximately 10% of reporting periods, a figure that has been steadily declining. All returns metrics are net of fees and carry. Private credit includes: direct lending, infrastructure debt, mezzanine debt, real estate debt, special situations, distressed debt, venture debt. National Council of Real Estate Investment Fiduciaries (NCREIF) Fund Index – Open End Diversified Core Equity is a capitalization-weighted index of gross-of-fee investment returns of 38 open-end commingled funds marketed as a being a diversified core investment strategy, primarily investing in private equity real estate.

Duration is a measure of the sensitivity of the price of a fixed income investment to changes in the general level of interest rates. Correlation is a statistical measure of how two variables move in relation to each other with coefficients ranging from +1 to -1. A correlation coefficient of +1 implies that as one variable moves, the other will move in exact lockstep. Alternatively, a correlation coefficient of -1 implies that if one variable moves, the other moves in the same amount in the opposite direction. If the correlation is 0, the movements of the variables are completely random. There can be no assurance that the fund objectives will be met or that losses will be avoided. Diversification cannot assure against market loss. It is not possible to invest in an index. Past performance does not guarantee future results. ©2022 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Morningstar Rating™ for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% received 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Past performance is no guarantee of future results. No securities are being offered. Unless otherwise stated, all information and opinions were produced by sources we believe to be accurate and are subject to change. Additional information may be required to make an informed investment decision. AAM may make a market in or have other financial interests in any given security with which this analysis suggests may be benefited from its conclusions. AAM does not offer tax advice. Past performance does not guarantee future results. Any forward-looking statements are not to be considered as forecasts but rather are presented for your consideration. Not FDIC Insured. Not Bank Guaranteed. May Lose Value. Distributed by IMST Distributors, LLC. Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. SEC registration does not imply a certain level of skill or training; nor does it imply that the SEC has sponsored, recommended or otherwise approved of AAM. AAM, HIMCO and IMST are not affiliated. 18925 Base Camp | Monument, CO 80132 | www.aamlive.com CRN: 2022-0520-10053 R Link 8313

Important Disclosures

Sources and Disclosures

IMPORTANT INFORMATION:

Definitions:

[Source]

1 Source: Ned Davis Research. The return of the price index is referred to as capital appreciation. Income return is assumed to be the Index’s total return minus its capital appreciation. Total Return = Capital appreciation plus reinvested dividends during the time period. Time period from stats above = 12/31/1929–3/31/2018 2 Source: Ned Davis Research. Based on equal-weighted geometric average of total returns (including dividends) of dividend-paying and non-dividend-paying historical S&P 500 Stocks. Uses Indicated Annual Dividends to identify dividend- paying stocks on a rolling 12-month basis.

Dividend Payment Risk: An issuer of a security may be unwilling or unable to pay income on a security. Common stocks do not assure dividend payments and are paid only when declared by an issuer’s board of directors. The amount of any dividend may vary over time. An investment in the Fund is subject to risks and you could lose money on your investment in the Fund. The principal risks of investing in the Fund include, but are not limited to, investing in foreign securities, investing in small-and mid-cap companies, and focused risk. The prices of foreign securities may be more volatile than the securities of U.S. issuers because of economic conditions abroad, political developments, and changes in the regulatory environment of foreign countries. Investments in small and mid-cap companies involve greater risks including increased price volatility compared to the market or larger companies. Although the Fund is diversified, the Sub-advisor intends to focus its investments in the securities of a comparatively small number of issuers. Investment in securities of a limited number of issuers exposes the Fund to greater market risk and potential losses than if its assets were diversified among the securities of a greater number of issuers. More information about these risks may be found in the Fund’s prospectus.

The performance data quoted represents past performance and is not a guarantee of future results. It is not possible to investin an index.

DJIA: The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. DJIA covers all industries with the exception of transportation and utilities. S&P 500 Index: The S&P 500 Index is an unmanaged market capitalization-weighted index used to measure 500 companies chosen for market size, liquidity and industry grouping, among other factors. Dividend-Paying vs. Non-Dividend-Paying Stocks: Each stock’s dividend policy is determined by its indicated annual dividend. Ned Davis Research classifies a stock as a dividend- paying stock if the company indicates that it is going to be paying a dividend within the year. A stock is classified as a non-payer if the stock’s indicated annual dividend is zero. The index returns are calculated using monthly equal-weighted geometric averages of the total returns of all dividend-paying (or non-paying) stocks. A stock’s return is only included during the period it is a component of the S&P 500 Index. The dividend figure used to categorize the stock is the company’s indicated annual dividend, which may be different from the actual dividends paid in a particular month.Dividend-Growing, No-Change-In-Dividend, and Dividend-Cutting: Dividend Growers and Initiators include stocks that increased their dividend anytime in the last 12 months. Once an increase occurs, it remains classified as a Grower for 12 months or until another change in dividend policy. No-Change stocks are those that maintained their existing indicated annual dividend for the last 12 months (i.e., companies that have a static, non-zero dividend). Dividend Cutters and Eliminators are companies that have lowered or eliminated their dividend anytime in the last 12 months. Once a decrease occurs, it remains classified as a Cutter for 12 months or until another change in dividend policy. You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund's prospectus and summary prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus and summary prospectus by calling 888.966.9661. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity within the meaning of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisers. Unless otherwise stated, all information and opinions were produced by sources we believe to be accurate and are subject to change. Additional information may be required to make an informed investment decision. AAM may make a market in or have other financial interests in any given security with which this analysis suggests may be benefited from its conclusions. AAM does not offer tax advice. Past performance does not guarantee future results. Any forward looking statements are not to be considered as forecasts but rather are presented for your consideration. Not FDIC Insured. Not Bank Guaranteed. May Lose Value. Distributed by IMST Distributors, LLC | (866) 966-9661 | www.aamlive.com Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC.

©2025 Advisors Asset Management. Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. Registration does not imply a certain level of skill or training. 18925 Base Camp Road • Monument, CO 80132 • www.aamlive.com CRN: 2024-0617-11771 R

Alternatives

Resources

Private asset investments are typically originated by experienced specialty asset managers who analyze, structure and oversee the assets through the investment cycle. Their goal is to deliver a return advantage over comparable public assets through active management.

Private vs. Public Assets

A key difference between traditional (public) assets and most alternative (private) assets is that public assets trade on exchanges or over-the-counter markets, while many alternative assets do not .

Studies have shown that manager style and skill is important, and that the variation around the average is wider the riskier the asset class.

Remember that the return advantage can vary significantly, and understanding the manager's strategy, process, and track record are important.

limited operating history, uncertain distributions, inconsistent valuation of a portfolio, changing interest rates, leveraging of assets, reliance on the investment advisor, potential conflicts of interest, payment of substantial fees to the investment advisor and the dealer manager, potential illiquidity, and liquidation at more or less than the original amount invested. Performance may be volatile, and the NAV may fluctuate.

Additional risks include:

Many alternatives come with enhanced downside protection features such as more advantageous structures and covenant packages. With economic and geopolitical risks that exist today, this built-in downside protection could be important in dampening overall portfolio volatility.

Allocations to alternatives have been shown to enhance risk-adjusted returns when added to a diversified portfolio. As shown in the Alternatives in Action, the overall return of the portfolio increased, while the volatility was reduced given the low correlation of alternatives to public equity and bonds.

The "alternatives" label can be a catchall for a wide range of assets, but for the sake of simplicity, alternatives can generally be split into three main groups:

Alternative Investment Basics:

Alternatives typically have lower correlations to traditional stocks and bonds

Alternatives delivered solid returns over the last decade.

4.3%

Leveraged Loans

High Yield Bonds

7.6%

12.0%

U.S. Equity

Source: Credit Suisse, Barclays Live, as of 12/31/2022.

Past performance does not guarantee future results.

4.6%

4.9%

8.7%

Real Estate

Private Credit

International Equity

1.8%

Investment Grade Public Bonds

AAM is a part of SLC Management, the institutional alternatives and traditional asset management business of Sun Life. AAM is proud to represent these SLC affiliate firms in offering alternative investments to the high-net-worth marketplace.