紐約梅隆銀行：2025未來(lái)10年資本市場(chǎng)假設(shè)+Above+the+Noise：10-Year+Capital+Market+Assumptions

ANALYSIS

ANALYSIS

SISYLANA

AbovetheNoise

10-YEAR

CAPITALMARKET

ASSUMPTIONS

2025

INVESTMENTINSTITUTE

FORINSTITUTIONAL,PROFESSIONAL,QUALIFIEDINVESTORS&QUALIFIEDCLIENTSONLY.

FORGENERALPUBLICDISTRIBUTIONINTHEUSONLY.

ANALYSIS

CONTENTS

01

02

03

04

05

06

07

INTRODUCTION3

ATIME-TESTEDAPPROACH5

THEMESTOWATCHFORTHENEXTDECADE8

EQUITY

23

FIXEDINCOME

29

ALTERNATIVES

35

CURRENCY

38

VOLATILITY&CORRELATION

42

08THEIMPORTANCEOFCAPITALMARKETASSUMPTIONS44

Annually,theBNYInvestmentInstitutedevelopscapitalmarketassumptionsforapproximately50assetclassesspanningglobalmarkets.Theassumptionsare

basedona10-yearinvestmenthorizonandareavailableintermsoftheUS

dollar,Britishpound,Japaneseyen,andeuro.Ourassumptionsaremeantto

guideinvestorsindevelopinglong-termstrategicassetallocations.

OVERVIEW

Sofarin2024,wehaveenjoyedhealthyequityperformanceasmarketssuccessfullynavigatedadirectionalshiftinmonetarypolicy.Thebattlebetweencentralbanksandinflationhasreacheditsinflectionpoint;

inflationisnowseeminglyontheretreatattheexpenseofcoolingthe

globaleconomy.Aswelookaheadto2025,thestageissetforaseriesofadditionalratecuts,looserfinancialconditions,andthelaunchofanewphaseofgrowth.

Weanticipatecontinuedmacroeconomicuncertaintyin2025.Thekey

questioniswhethermarketswillperceivefutureratecutsasstabilizingactionsoremergencymeasures.IftheUSFederalReserve(Fed)delaysaction,thelaggedeffectsoftighterconditionsandpoliticalinstabilitycouldpressuretheUSeconomyintoashallowrecession.Nonetheless,ourbasecaseisthattheUSeconomywillslowtobelow-trendgrowthwhileavoidingoutrightrecessionasinflationdeclinestotargetlevels.Wemayalsoseelaborproductivityacceleratefromhasteningthe

adoptionofartificialintelligence(AI),proppinguprevenuesandkeepingcorporatemarginshealthy.Takingeverythingintoaccount,2025is

expectedtobeatransitionalyearfortheeconomywithpotentialopportunitiesforinvestors.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.3

?BusinessesthatintegrateAIearlyaremorelikelytoincreasetheirprofitabilitythroughhigherworkerproductivity.OurassumptionsreflecthigherearningsgrowthinUSequitymarketsastheUSislikelytobethemostrapidadopterofinnovativeAItechnology.

?Astheeasingcycleprogresses,theopportunitytolengthendurationisfading.WeforecastUSTreasurybillstoearna1.1%realreturnoverthenextdecade,whileUSTreasurymarketsareprojectedtoachieve2.2%.

?ForUSinvestors,weanticipatethehighestfixedincomereturns

willcomefromdomesticbondallocations.Weexpectinternationalallocationstoearnhigherreturnswhentheircurrencyexposureishedged.Wethinkinvestorsshouldconsiderhedginginternationalbondallocationsthisyeartohelpmaximizerisk-adjustedreturns.

?Thelatestmarketfluctuationsunderscoretheimportanceof

diversifiedportfoliosinwithstandingmarketvolatility.Webelieve

alternativesmayoffermorediversificationifthecorrelationbetweenstocksandbondsremainselevated.

KEY

TAKEAWAYS

EXHIBITO1

2025vs.2024

CapitalMarketReturnAssumptions

Expected

Expected

Standard

Return2025

Return2024

Deviation2025

EQUITY

Weanticipateamodestimprovementinequityearningsgrowthasthe

adoptionofAIenhancesworker

productivityandimprovescorporateprofitability.

7.5%

7.4%

16.2%

USEquity

6.7%

6.3%

16.3%

Non-USDeveloped

7.7%

7.3%

18.7%

EmergingMarkets

FIXEDINCOME

Thecurrentlevelofyields,combinedwiththeglobaltrajectoryofmonetarypolicy,enhancestheattractiveness

offixedincomemarketsatthisentrypoint.

4.8%

4.8%

5.1%

USAggregate

6.0%

5.8%

8.4%

USHighYield

3.2%

2.5%

8.3%

GlobalAgg.Ex-US

4.0%

2.9%

9.0%

EMLocalCurrency

ALTERNATIVES

Alternativeassetclassexpected

returnsareinlinewithpubliclytradedmarketsonarisk-adjustedbasiswithadditionalreturnopportunitiesfor

alphaandcompensationforilliquidity.

4.5%

5.0%

4.6%

AbsoluteReturn

5.3%

5.5%

6.3%

HedgeFunds

9.7%

8.8%

20.1%

USPrivateEquity

Source:BNYMellonAdvisors,Inc.(BNYAdvisors)asofNovember2024.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.4

5

01

ATIME-TESTEDAPPROACH

THAT

APPROXIMATESREALWORLDRESULTS

01|ATIME-TESTEDAPPROACH

Foryears,BNYhasdevelopedcapitalmarketassumptionstoassist

ourclientsindesigningtheirlong-termassetallocations.Webelieve

itisessentialtocompareforward-lookingreturnexpectationsagainstactualmarketreturns.Weconsistentlyreviewandassesstheaccuracyofourassumptionstorefineandenhanceourmethodology.Evaluatingour10-yearassumptionsfrom2015revealsthatourexpectationsforUSlarge-capequitiesweretoolow,whilemid-andsmall-capequitieswereapproximatelyinline.Projectionsforinternationalandemergingmarketequitieswereoverlyoptimistic,andfixedincomeexpectationswere

slightlytoohigh.

Whileweexploretherootcausesofthesedeviations,weshould

highlighttheaccuracyoftheprojectionforahypotheticalstrategic

assetallocation(SAA),shownatthefarrightoftheExhibit.TheaccuracyoftheSAA’sassumptionwasonlysurpassedbyoneassetclassand

demonstratesthevalueofabalancedassetallocation.Accuratelyforecastinga10-yearreturnforanymarketisbeyondchallenging,butthereturnofawell-diversifiedportfoliohasproventobemore

predictableoverthelongterm.Webelievethisresulthighlights

theimportanceofourassumptionsintheirapplicationtoportfolioconstruction.

EXHIBITTTA1

2015CapitalMarketAssumptionsvs.Actual10-YearReturns

+2StandardDeviations

2015ExpectedReturn

.

9.0

-

7.3

8.0

8.4

7.0

9.0

7.5

5.8

7.0

.

4.3

.

3.2

6.1

2.74.34.8

5.7

1.3

25

20

15

10

5

0

-5

Actual10-YearReturn

2StandardDeviations

12.5

4.84.8

USREIT

USHighYield

US

Aggregate

USMid

Cap

Equity

USSmall

Cap

Equity

HedgeFunds

BalancedPortfolio

USLarge

Cap

Equity

Emerging

Markets

Equity

Int

Developed

Equity

Sources:BNYAdvisors,Bloomberg.DataasofJune30,2024.

Note:StrategicAssetAllocationrepresentsahypotheticalportfoliowithweightsof20%USLargeCapEquity,7%USMidCapEquity,3%USSmallCapEquity,16%InternationalDevelopedEquity,7%EmergingMarketsEquity,2%USREIT,25%USAggregateFixedIncome,5%USHighYield,and15%HedgeFunds.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.6

01|ATIME-TESTEDAPPROACH

Inouranalysisofwhereourforecastsdeviatedmaterially,weexploredwhylarge-cap

companieshaveoutperformedsmall-capcompanies.Weattributetheirdivergent

performancetovaluationsandprofitability.Thesefactorsliftedtheannualizedreturnsof

largecaptoover12%buthadotherwiseflatimpactsonsmall-capequities.Thestrongestevidencesupportingasmall-cappremiumisthatsmallerfirmsachievedhigherrevenue

growththanlargerones.Weseelittleevidencesupportingthepersistenceofanypreviouslymentionedtrendsandbelievesomehavepotentialtoreverse.Forthisyear,weestimate

asmall-cappremiumof0.5%,whichisabouthalfthepremiumprojectedin2015.

EXHIBITTTA2

AnnualizedPercentageChangeinUSEquityFundamentals

2014–2024

USLargeCap

USSmallCap

7.3

5.7

5.9

5.1

3.2

2.1

0.2

-0.7

EarningsValuationsRevenueProfitMargin

Sources:BNYAdvisors,Bloomberg.DataasofJune30,2024.

Whileinternationalandemergingmarketequitiesunderperformedexpectations,realizedreturnsfellwithinonestandarddeviationofourassumptions.Reflectingonour2015

buildingblockframework,ourprojectionsofinflation,dividends,andbuybackyieldsprovedthemostaccurate,whereasourexpectationsofrealearningsgrowthdidnotmaterialize.Lower-than-expectedvaluationsfurthercompoundedunderperformanceinemergingmarkets.

Infixedincomemarkets,thereturnsofUSAggregatebondsfellshortofexpectations

despiteouraccurateforecastoftheUS10-yearTreasuryyield.Theendingyieldwas

4.4%,just0.1%aboveourprojection.TheprimaryreasonfortheunderperformanceofUSAggregatebondsisduetoamuchlaterriseinyieldsthananticipated.Thiscausedbonds

toberepricedlaterthanexpectedandledtolessincomeovertime.USHighYieldbondsfellbelowexpectationsforsimilarreasons,thoughshorterdurationhelpedmitigaterepricinglosses.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.7

8

02

THEMES

TOWATCH

FORTHENEXTDECADE

Weacknowledgethatamultitudeof

short-andlong-termthemesandtrends

willshapecapitalmarketsinthecoming

decade.Theextenttowhichthesethemesaffectourinvestmentsisinherently

uncertainandunderscorestheimportanceofawell-designedportfoliostrategy.Here,wehighlightthekeythemeswebelieve

willhaveasignificantinfluenceonmarketsoverthenext10years.

9

THEMES

STOCK-BONDCORRELATION10

Theelevatedstock-bondcorrelationislikelytonormalizeastheeconomy

continuestostabilize.However,increasingconcernsaboutdebtsustainabilitycouldleadtosteeperandmorevolatileyieldcurveswithlessdiversificationfromequitymarkets.

THESECONDWAVEOFARTIFICIALINTELLIGENCE14

ThecontinuedadoptionofAIwillhavemorewidespreadimpactsbeyond

semiconductormanufacturingandelectricindustries.AIhaspotentialtoboostproductivityincorporatesectorsleadingtohigherrevenuegenerationand

costsavings.

DEGLOBALIZINGEMERGINGMARKETS17

TheEmergingMarketsEquitygrowthpremiumisnotwhatitusedtobe.Chinaistryingtoreflateandboostequitymarketsentiment,butitfaceslong-term

economicchallengesandincreasingprotectionistmeasures.Despitethis,itsshifttoadvancedmanufacturingandIndia’spositiveoutlookoffersopportunitiesforrealgrowth.

SHIFTINGGEARSINPRIVATECREDIT19

Demandforalternativefinancingawayfromtraditionalbankshasledtoarapidriseintheprivatedebtindustry.Themarketoffersattractiveyieldsforincome

investorsalthoughitisfacingseveralnear-termchallenges,whichcouldcompressprivatecredityieldstowardtheUShighyieldmarket.

CLIMATERISK&RESILIENCE21

With2024ontracktobethehottestyearonrecord,globalpolicymakershaveworkedtoaddressphysicalandtransitionclimaterisks.Theabilitytonavigatetheserisksiscriticaltobuildingmarketresiliencyandimplementingscalable,sustainablesolutions.

02|THEMESTOWATCH

STOCK-BONDCORRELATION

Diversificationisacoreprincipleofportfoliomanagementreflectedthroughourcorrelationassumptions.Therefore,thecorrelationbetweenstocksandbondsshouldbecarefully

studiedwhendesigningastrategicassetallocation.InExhibitSBC1,wedisplaytheefficientfrontierofatwo-assetportfolioconsistingofUSequitiesandUSTreasuriesundermultiplecorrelationassumptions.Thekeyfindingisthatapositivecorrelationincreasesthevolatilityofallportfolios,butmoreworryingly,itraisesthevolatilityofdefensiveportfoliosmore

thanaggressiveones.Weassumeaslightlypositivelevelforthelong-termstock-bondcorrelationandwethinkinvestorswithlow-to-mediumrisktolerancesshouldconsiderallocatingagreatershareoftheirportfoliostoalternativeassetclassesforadditionaldiversification.

EXHIBITSBC1

EfficientFrontierUnderMultipleStock-BondCorrelation(SBC)Assumptions

8

7

ExpectedReturn(%)

6

5

4

Stock-BondC

Stock-BondCStock-BondC

orrelation=0.5

orrelation=0.0orrelation=-0.5

26101418

Volatility(%)

Source:BNYAdvisorsasofNovember2024.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.10

02|THEMESTOWATCH

Anegativestock-bondcorrelationhasbenefited

traditionalportfoliosforover20years,butasshowninExhibitSBC2,thistrendhassharplyreversed.Theexhibittracesthecorrelationfromthe1970sand

suggeststhatareasonableassumptionwouldbe

approximatelyzero,althoughfewperiodsreflectthisoutcome.Ahelpfulwaytounderstandchangesinthestock-bondcorrelationistoexaminetheinfluence

ofsupplyanddemandshocksongrowth,inflation,monetarypolicy,andtheirsubsequentimpactsonfinancialmarkets.Thefollowingsectionwillprovideabriefoutlineofwhateconomicshocksmean

formarkets,particularlyhowtheyshapetheco-movementbetweenstocks,bonds,andalternativeassetclasses.Wehavechosentoincludegrowthandinflationalongsideourassetclassforecaststhisyear;ExhibitSBC3providesasubsetoftheirassumptions.

Ademandshockreferstoanunexpectedchangeinthedemandforgoodsandservicesintheeconomy.Apositivedemandshockoccurswhendemand

increasesunexpectedly(e.g.,duetofiscalpolicy),

typicallyresultingingreaterutilizationofresourcesand,inturn,greaterpricepressures.Equitymarketsriseinthisenvironmentasearningsexpectations

arerevisedhigher,whilebondpricesfall,inlinewithexpectationsformorerestrictivemonetary

policy.Theoppositeholdstrueinanegativedemandshock,wheredemandandinflationfalltogether,

weighingonequitymarketsbutliftingbondprices.

Thisdynamic,wheregrowthandinflationmovein

similardirections,isafundamentaltraitofdemandshocksandleadstonegativelycorrelatedequityandbondmarkets.Asdemandshocksweretheprevalentdriveroftheglobaleconomyfrom2000through2022,thestock-bondcorrelationwasconsistentlynegativeovertheperiod.

Asupplyshockreferstoanunexpectedchangein

thesupplyofgoodsandservicesintheeconomyandisassociatedwithgrowthandinflationmovingin

oppositedirections.Anegativesupplyshockoccurswhenthereisadecreaseintheavailabilityofgoodsorservicesintheeconomy,thedeclineinoutputthenshocksinflationsharplyhigher.Growthisfurther

stiflediftightermonetarypolicyisrequiredtoreduceinflation.Bothequityandbondmarketsselloffin

thisenvironment,astheydidin2022,causinganastycorrelationonthewaydown.2022wastheyearwhenthestock-bondcorrelationbeganarapidascensionupward,drivenbysignificantsupplychainchallengesrelatedtosemiconductorshortages,China’szero-

Covidpolicy,andtheRussia-Ukraineconflict’s

impactonenergyandagriculturalmarkets.Inflationrosetolevelsnotseensincethe1980sandleadingeconomicindicatorsfellsharplyovertheyear.

EXHIBITSBC2

Rolling3-YearS&P500?/USTreasuryCorrelation

1.0

0.5

0.0

-0.5

-1.0

'76'80'84'88'92'96'00'04'08'12'16'20'24

Sources:BNYAdvisors,Bloomberg.DataasofJune30,2024.

Note:12-monthmovingaverageofarolling3-yearcorrelation(S&P500?Indexvs.BloombergUSTreasuryIndex).

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.11

02|THEMESTOWATCH

Wheneconomiesexperiencesupplyshocks,alternativemarketshave

historicallyservedasaballasttoportfolios.Assetsthathedgeagainstsupplyshocksarethosewithapositivecorrelationtoinflation,offeringdiversificationandinflationmitigationatjustthemomentwhenthe

stock-bondcorrelationrises.During2022,commoditiesandnatural

resourceswereamongthefewassetclassestoachievepositivereturns,whileinfrastructureallocationsremainedflat.Incontrast,bothequityandbondmarketsdeclinedbyover10%.Weexpectthesealternative

assetclassestoplaylargerrolesindiversifiedassetallocationsoverthenextdecadeduetotheirdefensiveinflationsensitivity.

Weexpectthestock-bondcorrelationtoaverageslightlyabovezerooverthenexttenyears,contrastingthetwodecadesbeforeCovid.Inourview,astheworldundergoesseveralstructuraltransitions—rangingfrom

theAI-relatedtechnologicaldisruptionanditseffectonproductivity,

decarbonizationanditsimpactonenergymarkets,geopoliticsandthereconfigurationofsupplychains,todemographicsandadeclineinthegloballaborforce—thesupplysideoftheglobaleconomywillbecomemorevolatile,withsupplyshocksbecomingmorefrequent.

EXHIBITSBC3

AssetClassCorrelationstoGrowthandInflation

USGrowth

USInflation

USEquity

0.19

-0.01

USTreasury

-0.11

-0.32

Commodities

0.29

0.27

GlobalNaturalResourcesEquity

0.15

0.11

GlobalListedInfrastructure

0.23

0.04

AbsoluteReturn

0.33

0.09

HedgeFunds

0.32

0.06

Sources:BNYAdvisors,USConferenceBoard,USBureauofLaborStatistics,Bloomberg.DataasofJune30,2024.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.12

02|THEMESTOWATCH

Inaddition,weseethepotentialforanincreasein

thecreditriskoffixedincomeassets,whichwouldalsopushuponthecorrelationwithequitymarkets.Globaldebt-to-grossdomesticproduct(GDP)

ratioshavebeendeterioratinginmosteconomies,

asshowninExhibitSBC4,andtheInternational

MonetaryFund(IMF)projectsacontinuedworseningofdebtsustainability.Intheabsenceoflargefiscaladjustments,wemayseegreaterbondmarket

activismsteepeningyieldcurvesglobally,pushingboththevolatilityofsovereignbondmarketsandtheircorrelationtoequitymarketshigher.

ThedebtburdenoftheUnitedStateswasbrought

somewhatintoquestionlatein2023asFitchRatingsissuedtheseconddowngradeofUnitedStatesdebt,pushingTreasuryyieldstodecadehighs.Therating

citedconcernsoverthedeterioratingfiscaloutlookandagovernancestructurethatpreventsthecountryfromaddressingmedium-termissuessuchasSocialSecurityandrisinghealthcarecosts.Furtherbond

marketactivismwasseeninFrance,asspreadsof

FrenchOATs1toGermanBundswidenedinJune2024followingthecountry’ssnapelections.FearthatthesecondlargesteconomyinEuropewouldbeunabletoadheretothefiscalrulesoftheEuropeanUnion

havenowbecometopofmindforinvestors.

EXHIBITSBC4

DebtBurdensAreGrowingGlobally

2023to2029(IMFForecast)

2018to2023

11.7

9.0

27.0

15.3

14.7

12.9

7.6

2.8

-0.6

60

50

IncreaseinDebt-to-GDP(%)

40

30

20

10

0

-10

26.4

20.0

4.5

2.4

-6.6

United

United

France

Germany

Italy

Japan

China

States

Kingdom

Sources:BNYAdvisors,IMFGlobalDebtDatabase,Bloomberg.DataasofNovember30,2024.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.13

02|THEMESTOWATCH

THESECOND

GenerativeAIcanbeusedinseveralusecasesacrossalmostevery

industryasitcancreatenew,originaloutputs(e.g.,content)basedon

WAVEOF

patternsitlearnedduringitstraining.It’saGeneral-PurposeTechnology(GPT).Likesteaminternalcombustionengines,electrificationand

ARTIFICIAL

computers,itcouldfundamentallyreshapeindustrialorganizationandtheworldofwork;andstimulatesthedevelopmentofcomplementary

INTELLIGENCE

technologies.ItisextremelyhardtopredictexactlyhowAIwilldevelop,butwethinkitwillhavealarge,directimpactonarangeofindustriesandjobfunctions.AIisbothlaborsaving(e.g.,autonomousvehicles),

AIandGenerativeAIinparticular,

andlaboraugmenting(e.g.,demandprediction).Inextremes,itcouldbeaviablesubstituteforallcurrenthumancognitivefunctions.

couldrepresent

Artificialintelligence(androbotization—i.e.,machinescontrolledby

animportanttechnological

computers)arenot“new”innovations,sowhyshouldtheystartlifting

productivitygrowthsoon?InnovationscanbesubjecttoaJ-curvebeforetheyboostproductivity,whereitsimpactisabsentorlowforsometime

innovationforthe

buteventuallyacceleratesexponentially.Atthemacrolevel,theJ-curve

globaleconomy.

frameworkisconsistentwiththemarkedslowdowninproductivity

growthoverthepreviousdecadebutnowpointstowardasurgein

productivityoverthenearhorizon.Further,theadoptionofartificial

intelligencemustbeaccompaniedbydatacentersandsemiconductorplantstosupportitsglobaluse.ExhibitAI1showsthepercentage

changeininvestmentsforresearchanddevelopment(R&D)andcapitalexpenditures(capex),highlightingUSleadershipandfacilitatingearlierAIadoptioncomparedtoothercountries.

EXHIBITAI1

PercentChangeinCapex&R&Dfrom2018to2023

Russell3000

30.8%

94.2%

MSCIWorldExUSA

-1.3%

21.1%

MSCIEmergingMarkets

-9.1%

45.3%

InvestmentinR&D

CapitalExpenditures

Sources:BNYAdvisors,Bloomberg.DataasofNovember30,2024.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.14

02|THEMESTOWATCH

Historyhasdemonstratedthattechnological

revolutionscomeintwobroadphases.Duringthe

firstphase,technologyisdevelopedandrolledout

totherestoftheeconomy,withbenefitsmostly

accruingtofirmsthataredirectlyinvolvedinrelatedactivities.Thenextphaseisadoption,wherethe

technologythenspreadsintotheeconomyanddrivesproductivitygrowth,benefitingfirmsnotdirectly

involvedwiththetechnology’sdevelopment.

Artificialintelligencehasbeenaroundforsome

timeandisnowtransitioningtowardthesecond

phase.WepresentExhibitsAI2andAI3tohighlightrecentadoptiontrendswithinUSbusiness.Itis

unsurprisingtofindtechnologyfirmsadoptingAI

soquickly,butwenotethebroadertheme—AI

adoptionandusecasesheavilyfavorcognitive

laborcomparedtophysicallabor.AItechnologyis

nowassistingmarketingspecialistswithcontent

generationandvirtualchatagentsarehelping

developersacceleratesoftwaredevelopmentcycles.

Furtheranalysisrevealsthatsmallerfirmsare

adoptingartificialintelligencefasterthanlarger

ones.Additionally,smallerfirmswhoadoptAI

appeartobeassociatedwithhigherlevelsof

revenuegrowth.Adoptionratesarestilllowintheconstructionandmanufacturingsectors.Wethinkthisisbecauseimplementingroboticsautomationdemandssignificantcapitalinvestment,with

potentialforconsumerstobenefitfromtherelatedcostsavingsratherthanfirms.WeanticipateAI’smanifestationwithintheeconomyoverthenext

decadebut,consideringrecentadoptionrates,notforatleastanothertwotothreeyears.

EXHIBITAI2&AI3

ReportedUseCaseofAIWithinBusiness

1.5%ExpectedAIUse

Construction

1.0%CurrentAIUse

Manufacturing

4.0%

2.5%

RealEstate

9.0%

Leasing

8.0%

Educational

10.0%

Services

9.0%

Finance

10.5%

&Insurance

6.5%

Technical

15.0%

Services

12.0%

21.0%

Information

18.0%

ReportedAIUseCases

3.8%ExpectedAIUse

3.4%CurrentAIUse

AIDecision

MakingSystems

14.1%

5.7%

Machine

22.1%

Learning

13.6%

Speech

Recognition

22.2%

15.9%

DataAnalytics

23.0%

17.0%

VirtualAgents

28.2%

21.6%

MarketingAutomation

Robotics

Automation

28.4%

36.5%

Sources:BNYAdvisorsasofNovember2024.USCensusBureau.BusinessTrendsOutlookSurvey,ArtificialIntelligenceSupplement.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.15

02|THEMESTOWATCH

WhetherAIwillbebeneficialordisruptiveforanyindustry,will

dependon(1)thedegreetowhichAIisproductivity-enhancingand(2)thenewcompetitivedynamicscreatedbythespreadofAI.

IndustrieswheretheimpactofAIwillbesignificantandcompetitivedynamicshigharemostprone

todisruption.Pricesandprofitmarginsarelikely

todeclineandaddedvaluewillbeprogressively

capturedbytheconsumer.Incontrast,industrieswheretheimpactofAIonproductivitywillbehighandcompetitivedynamicslowareexpectedto

benefitthemost,asadditionalvaluecreatedis

retainedbythefirm.WeillustratethesedynamicswithinExhibitAI4.Itisimportanttonotethata

fallinpricescouldleadtoariseindemand,liftingrevenues.Thus,evenifprofitmarginsdecline,

corporateearningsmaystillbenefitfromdisruptivetechnology.2

Asnoted,wehaveadjustedourassumptionsof

equityearningsgrowthaccordingtothisthematic

report.Ouradjustmentsconsideredwhichregionalmarketshavethelargestpotentialforvaluecreation,accordingtoexhibitAI4,andhowquicklyAIislikelytobeadoptedwithintheseregions.Inaggregate,

theseadjustmentsprovideaboosttocorporateearningsthroughimprovedprofitmargins.

Weanticipatedevelopedmarketswillhavemoreopportunitiesforvaluecreationduetohigher

exposuretosoftwareandpharmaceuticals

industries.Further,innovativetechnologyislikely

tobemoreaccessiblewithindevelopedmarkets

givenhigherinvestmentsinR&Dandinfrastructureinvestment.Dynamiceconomies,suchastheUnitedStates,areparticularlylikelytobenefitfromAIduetohigheradoptionrateswithininnovationhubs.DataprivacyandcontentregulationsinEuropemayhinderAIadoption.Wedonotexpectemergingmarkets

tobenefitasgreatlyoverthenext10yearsgiven

thelowerreadinesstoadoptanddiffuseAIintheeconomy,andthehighershareofGDPthatisdrivenbysectorswheremanualtasksareprevalent.

EXHIBITAI4

AIDynamics

PRODUCTIVITYIMPACT

INDUSTRYCOMPETITION

HIGHLOW

PronetoDisruption(ConsumerCaptured)

PoisedtoBenefit(FirmCapture)

LowValueCreation(ConsumerCaptured)

MinimalImpact

HIGH

LOW

Source:BNYAdvisorsasofNovember2024.

PASTPERFORMANCEISNOTNECESSARILYINDICATIVEOFFUTURERESULTS.16

02|THEMESTOWATCH

IncontrasttoChina’schallenges,Indiaisabrightspotinthe

emergingmarketlandscape.

DEGLOBALIZING

EMERGINGMARKETS

Investorshavelongassumedthatemergingmarketequitiesoffera

premiumoverdevelopedmarkets,predicatedonhigherexpectations

ofrealearningsgrowth.However,overthepastdecade,thisrealized

premiumhasbeenonasteadydecline.In2015,ourassu