High Dividend Stocks In Rising Interest Rate Environments - Global X ETFs

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High Dividend Stocks In Rising Interest Rate Environments 2018 Disclosure: This research is provided for educational purposes only and is not intended to provide investment or tax advice. All numbers are approximate. Past performance does not guarantee future results. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate.

Outline 1 Executive Summary 3 2 Methodology 4 3 Characteristics Of High Dividend Stocks 5 4 Long Term Outperformance 6 5 Rising Interest Rate Periods 7 6 Performance In Rising Rate Environments 8 7 Looking Ahead 9 8 Conclusions 10 GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 2

Executive Summary With interest rates in the US expected to trend upwards, many investors are eager to understand how high dividend yielding stocks may react The following analysis is based on the performance and behavior of the highest decile1 of dividend paying stocks (“high dividend stocks”) 1960 to 2017. % 1. High Yield High dividend stocks have generated an average annual dividend yield of 6.4% Long Term Outperformance The total return for these stocks outperformed the S&P 500 by nearly 3.0% on an annualized basis Strong in Rising Rate Regimes In 7 out of the 10 rising interest rate periods since 1960, high dividend stocks outperformed the S&P 500 Speed Matters The three instances of underperformance occurred in environments of unusually rapid rate increases Although interest rates are expected to continue to rise in the near future, many economists expect these increases to be gradual, creating a slow rate increase environment that has historically led to high dividend stocks outperforming the broad market. Deciles are ten tiers of stocks based on the ranking of a common characteristic. For this analysis, all stocks are ranked by dividend yield and those in the 90th percentile or higher are included in the highest, or 10 th decile. Stocks in the 80th to 90th percentile range are included in the 9th decile, and so on. Stocks with the lowest dividend yields are in the 0 th to 10th percentile range and are included in the lowest, or 1st decile. Past performance is not a guarantee of future results. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 3

Methodology 1) Time Frame: 58 years of monthly data Jan 1960 to Dec 2017 2) Stocks Considered: French & Fama portfolios of highest decile of US dividend yielding stocks (Decile 10) 3) Interest Rates: 10-year US Treasury bond rates used as rate benchmark 4) Benchmark for Market Returns: S&P 500 Total Return Index High Dividend Stock Portfolio Average Dividend Yield of Decile Portfolios (1960-2017) 7% 6.36% 6% 5.07% 5% 4.28% 4% 3.35% 3% 2.51% 2.87% 2.04% 2% 1% 3.77% 1.60% 0.93% 0% Decile1 Decile2 Decile3 Decile4 Decile5 Decile6 Decile7 Decile8 Decile9 Decile10 Portfolio returns sourced Fama and French Portfolios Formed on Dividend Yield rench/data library.html) where all stocks listed on NYSE, AMEX, and NASDAQ have been considered. Stocks have been segregated into 10 portfolios (deciles) based on dividend yield (D/P). GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 4

Characteristics Of High Dividend Stocks Source of Returns: Dividends vs. Price Appreciation 100% 80% 60% 92% 88% 84% 82% 79% 76% 73% 71% 63% 27% 29% 37% 50% Half of high dividend stocks’ returns came from dividend payments during the rising interest rate periods High Dividend stocks have a low correlation to the S&P 500 and Barclays Agg They demonstrate value characteristics with significantly higher correlation to value stocks 40% 20% 8% 0% 12% 16% 18% 21% 24% 50% Decile1 Decile2 Decile3 Decile4 Decile5 Decile6 Decile7 Decile8 Decile9 Decile10 Dividend Return Price Return High Dividend Stock Correlation Analysis1 0.75 0.80 0.60 0.56 0.40 0.15 0.20 0.00 0.00 S&P 500 S&P 500 Value Barclays US Agg Bond Correlations since 1985 US 10 Yr Yield 1. Data 1985 to 2017, constrained by the S&P 500 Value Index. Correlation is a statistical measure that represents how the price movements of two securities move in relation to each other. A correlation of 1 indicates that the historical price movements of two securities have been in perfect lockstep. A correlation 0 indicates that the historical price movements of two securities are entirely unrelated. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 5

Long Term Outperformance 1960 to 2017, high dividend stocks demonstrated higher absolute and risk-adjusted returns than the S&P 500 Annualized Returns Volatility of Returns1 Sharpe Ratio2 Correlation to S&P 500 Beta3 to S&P 500 High Dividend Stock Portfolio4 13.02% 15.19% 0.84 0.58 0.72 S&P 500 (market portfolio) 10.00% 12.16% 0.81 - - High Dividend Stock Portfolio vs. S&P 500 Index 1200 Index Level* 1000 800 600 400 200 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 High Dividend Portfolio S&P 500 Index *Indexes are normalized to have a starting value of 1 in January 1960. 1. Volatility of returns is measured as the annualized standard deviation of daily price changes. Standard deviation is a measure of the dispersion of returns around the mean returns. 2. Sharpe Ratio is a measure of risk-adjusted returns and is calculated as the annualized returns, minus the risk free rate divided by the standard deviation of returns. 3. Beta measures the volatility of the portfolio returns relative to the volatility of the market index and can also be defined as the expected percent change in the value of the portfolio given a 1% change in the market index. 4. High Dividend Portfolio represents the highest decile (10th decile) of dividend yielding stocks, as per Fama and French. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 6

Rising Interest Rate Periods Since 1960, there have been 10 periods of meaningful interest rate increases. These are defined as periods where the yield of 10 Year US Treasuries increased by more than 100 basis points over a period of 10 months or longer US Rising Interest Rate Regimes 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Rising IR Periods Rising Rate Period 10 Yr Treasury bond rate 1 2 3 4 5 6 7 8 9 10 Jul-65 Oct-71 Jan-77 May-83 Dec-86 Oct-93 Jan-99 Jun-03 Dec-08 Jul-12 May-70 Aug-75 Sep-81 Jun-84 Oct-87 Nov-94 Jan-00 May-06 Apr-10 Jan-14 Number of Months 59 47 57 14 11 14 13 36 17 19 Rise in basis points 371 247 811 318 241 263 194 178 143 133 From To Source: US Federal Reserve GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 7

Performance In Rising Rate Environments Across rising interest rate regimes, high dividend stocks outperformed the market by an annualized average of 0.80% High dividend stocks outperformed the market in 7 out of the 10 observed rising interest rate regimes The three instances of underperformance occurred in periods with among the most rapidly increasing interest rates Annualized Period Returns Period Number of Months US 10-Year Treasury Increase (bps) Average rate of increase per month (bps) High Dividend Stock Portfolio S&P 500 Index Difference Jul-65 to May-70 59 371 6.3 11.17% 0.94% 10.23% Oct-71 to Aug-75 47 247 5.3 3.82% -0.24% 4.06% Jan-77 to Sep-81 57 811 14.2 11.05% 7.80% 3.25% May-83 to Jun-84 14 318 22.7 8.53% 1.84% 6.69% Dec-86 to Oct-87 11 241 21.9 -2.50% 19.15% -21.65% Oct-93 to Nov-94 14 263 18.8 -8.38% 3.14% -11.52% Jan-99 to Jan-00 13 194 14.9 5.35% 19.60% -14.26% Jun-03 to May-06 36 178 4.9 17.24% 13.19% 4.05% Dec-08 to Apr-10 17 143 8.4 50.06% 27.20% 22.86% Jul-12 to Jan-14 19 133 7.0 29.21% 24.93% 4.28% Average 29 290 12 12.55% 11.76% 0.80% GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 8

Looking Ahead Increase in interest rates are expected to remain gradual3 “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that--for now--the best way forward is to keep gradually raising the federal funds rate. – Fed Chair Jerome H. Powell1 “The United States Government Bond 10Y is expected to trade at 3.10 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 3.26 in 12 months time.” – Trading Economics2 Sources: Bank of England, Bloomberg, European Central Bank (ECB) and Federal Reserve, 2018 United States Government Bond 10 Yr Forecasts* Forecast Actual Q4/18 Q1/19 Q2/19 Q3/19 2020 Government Bond 10Y 3.15% 3.10% 3.15% 3.21% 3.26% 3.47% 1) 2) 3) US Federal Reserve, “Semiannual Monetary Policy Report to the Congress”, Jul 17, 2018. Trading Economics, United States Government Bond 10Y – Forecast. Bank of England, Inflation Report, August 2018. *United States Government Bond 10Y Forecasts are projected by Trading Economics, using an autoregressive integrated moving average (ARIMA) model calibrated using their analysts expectations, as on Oct 14, 2018. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 9

Conclusions With an average yield of 6.4%, high dividend stocks are often included in a portfolio to generate income for investors. However, they have also historically demonstrated outperformance versus the S&P 500, delivering an annualized alpha1 of nearly 3.0%. In rising rate regimes, which are typically assumed to be adverse environments for income-generating securities, high dividend stocks continued to outperform the market 7 out of 10 times and by an average annualized 0.80%. In the three periods where high dividend stocks underperformed the market, interest rates increased unusually rapidly. Although interest rates are expected to continue to rise in the near future, many economists expect these increases to be gradual, creating a slow rate increase environment that has historically led to high dividend stocks outperforming the broad market. 1. Alpha: excess return relative to a benchmark. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 10

Disclosures This information is not an offer to sell or a solicitation of an offer to buy shares of any Fund to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Carefully consider a Funds’ investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds’ full or summary prospectus. Global X Funds prospectus may be obtained by calling 1-888-GX-FUND-1 (1.888.493.8631), or by visiting globalxfunds.com. Read the prospectus carefully before investing. Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Solactive AG, FTSE, Standard & Poors, NASDAQ, S-Network, Indxx, or MSCI nor do these companies make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with Solactive AG, FTSE, Standard & Poors, NASDAQ, S-Network, Indxx, or MSCI. Investing involves risk, including the possible loss of principal. High yielding stocks are often speculative, high risk investments. These companies can be paying out more than they can support and may reduce their dividends or stop paying dividends at any time, which could have a material adverse effect on the stock price of these companies. Indexes are unmanaged and it is not possible to invest directly in an index. GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate. 11

4. High Dividend Portfolio represents the highest decile (10th decile) of dividend yielding stocks, as per Fama and French. 1960 to 2017, high dividend stocks demonstrated higher absolute and risk-adjusted returns than the S&P 500 0 200 400 600 800 1000 1200

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