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1. Aon Hewitt
Retirement and Investment
Quarterly Investment Outlook – October 2015
Global Asset Allocation
Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Past performance is not a
guarantee of future results.
1
Quarterly Investment Outlook
October 2015
Summary
 Recent market volatility reflects mounting
pressures on corporate profitability. Demanding
valuations had not allowed for this.
 Global GDP is down in US dollar terms this year,
dollar strength having made many countries
poorer. China is an exception.
 Though market noise is intense over when the
Fed starts to lift rates, what matters goes
beyond the first rate hike. We see expectations
over the next few years facing some upside risk.
 Real yields and break-even inflation rates have
diverged this year. Whatever the cause, TIPS
are now better value relative to fixed.
 Credit risk is now better rewarded. The economy
carries risks, but a modest preference for credit
over government bonds is warranted.
 Credit as private debt, an illiquid opportunity set
that straddles several asset classes, will
continue to grow in choice and popularity.
 We continue to see equity markets as being
neither 'bull' nor 'bear' but rather a choppy
trading environment of low risk-adjusted returns.
 Hedge fund strategies are a good plays for
these unsettled markets.
Volatility returns… growing pressure
on corporate profits
Testing conditions arrived over the summer. An
attack of market nerves saw double digit falls in
equity markets. Commentators blamed slowing
growth in China, though in truth, China had been
slowing for several years without unsettling equities.
Our read is that markets weakened when it became
clear that corporate profits growth had slowed
sharply, making equities appear more expensive
and riskier. Small cap and emerging markets fared
worse. Bonds gained, but absolute gains were
small.
Global growth and China
Our view is that China's role in the global economy
this year has been misunderstood. It is true that
China is a larger part of the global economy than it
used to be (now the world's second largest
economy). World growth is impacted by China's
slowdown, but China's growth rate remains so much
higher than other major economies that the effect is
very mild. The global picture does look weaker if we
look at current world GDP in US dollars (see chart).
The fall in 2015 mainly reflects a large number of
currencies declining against the US dollar. China is
not a contributor to this fall as its US dollar GDP is
estimated to be about 10% higher this year than in
2014. Does this fall in global dollar GDP matter? To
an extent. Most countries import in US dollars and
the fall in GDP signals less spending power.
-6.4%
-11.9%
-10.2% -9.5%
-17.8%
1.2%
-3.8%
S&P 500 Russell 2000 MSCI EAFE $ MSCI EAFE
Hedged $
MSCI Emerging
Markets $
Barclays US
Aggregate
Hedge Funds
(HFRI)
Q3 2015 Index Returns
Source: Datastream
October 26, 2015

2. Aon Hewitt
Retirement and Investment
Quarterly Investment Outlook – October 2015
Global Asset Allocation
Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Past performance is not a
guarantee of future results.
2
Commodity exporters are the largest fallers -
Australia, Canada, Russia and Latin America are
poorer now, dampening spending by their citizens
and companies on foreign goods and services.
Global economy worries are longer-
term… less about 2015
Our bigger concerns about the global economy have
a more long-term focus. Though activity has slowed
recently, the key problems are the fade in the
longer-term contributions from the key growth drivers
of demographic expansion and labor productivity.
Population ageing has already slowed growth
potential in many countries; more importantly, labor
productivity growth has stalled globally since the
financial crisis, for reasons that are not fully
understood. China's slowdown as it re-orients its
economy away from external to home demand has
dampened growth, but it is these longer-term factors
that better explain weakness in Europe and
lackluster growth in the US. Tell-tale indicators of the
long-term growth malaise are persistently low
inflation and interest rates being stuck at near zero
in the developed world seven years after the
financial crisis ended.
Fed fund rate expectations may have
been pushed down too far
The recent push-back on interest rate rises by the
Federal Reserve has created confusion on the
timing of lift-off. Opinion is divided between a first
move in December (the dominant view among
economists) and one in March (derivative pricing).
As we know, the timing of the first rate rise is trivial
when set against the trajectory of rate rises over the
next few years. Timing speculation simply creates
market noise. What is clear is that the repeated
push-back of rate rises in the 2013-15 period has
impacted the US yield curve to a point where only a
few and ultra-gradual interest rate rises are signaled.
Currently the US Treasury curve suggests that the
Fed funds rate will not even reach 2% by 2020.
Even with our view of subdued growth, risks to such
a path would appear to be on the upside.
US yields: Break-even and real yields
diverging?
US Treasury yields fell markedly last year, and
though they are up marginally this year to date, it is
clear that yields have been at far lower levels than
almost all projections over this period, and have also
substantially undershot forward rates derived from
the yield curve at the start of 2014 and this year This
year's bond market moves also show a divergence
between the two yield components of 'real' yields
and inflation. Real yields on 30 year TIPS have
been on a mild upward trend this year, whereas
break-even inflation (the gap with fixed interest
treasuries of the same maturity) has been on a
downtrend (see chart). To us the relative firmness of
real yields suggests that the market is less worried
about growth weakness whereas particularly low
break-even inflation suggests the market is more
concerned about sustained low inflation.
TIPS are cheaper for those looking to
hedge inflation risk
Is this creating an opportunity? Current break-even
inflation rates imply the Federal Reserve not
meeting its inflation target almost permanently.
While not impossible, such systematic Fed failure is
unlikely. This anomaly presents an opportunity for
shifting some fixed treasury bonds into TIPS for
return enhancement and cheaper inflation hedging.
95
100
105
110
2011 2012 2013 2014 2015
World real GDP (local currency)
World nominal GDP (US dollars)Source: IMF
Global economy does look weak in US dollars (2011 = 100)

3. Aon Hewitt
Retirement and Investment
Quarterly Investment Outlook – October 2015
Global Asset Allocation
Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Past performance is not a
guarantee of future results.
3
Global monetary easing still
suppressing the US 'term premium'
The extension of global monetary easing – the
postponement of US interest rate rises, a recent hint
of more aggressive monetary easing from the
European Central Bank, interest rate cuts in China
and many other emerging and developed markets
have continued to push down the front end of many
countries' yield curves. In turn, this has suppressed
the so-called term premium – the element of longer-
term bond yields that captures the risk taken by
investors in longer-term interest rates and inflation.
US data show that the term premium for 10 year
duration US Treasury bonds has fallen significantly
over the past year.
US investment grade is looking better
value …high yield a bit better too
Our view is that US credit is more attractive after a
rise in spreads this year triggered by large supply
and problems in the energy sector. Current spreads
over US Treasuries are now slightly above our fair
value estimates, with long credit spreads (at above
2%) looking more attractive than intermediate
durations. That said, there clearly are some
economic risks which warrant caution, so spread
attractions need to be weighed up in that context. So
long as a major economic slowdown is avoided, we
see a modest preference for credit over US
treasuries to be reasonable. It is obviously harder,
given still low yields, to make this a positive call on
absolute returns, however. Much the same can be
said for high yield where return prospects are
modestly better after a pronounced sell-off.
Credit as 'private debt' – a growing
opportunity set
The multi-year bank deleveraging driven by
regulatory change continues to allow pension funds
to pick up return by providing finance for expansion
in a wide variety of sectors. This heterogeneous and
growing set of investment opportunities, termed
'private debt', straddles standard asset class
boundaries of bonds, infrastructure, property and
private equity. The return pick-up in private debt
reflects specific attributes that bypasses some of the
market challenges faced by conventional asset
classes.
Equities: Why upside is limited
Though equity markets fell over the summer,
declines were not large enough to open an obvious
buying opportunity. Market upside is still constrained
by two factors. First, high valuations in the all-
important US equity market remain. Profits had been
cushioned from lackluster sales by expanding profit
margins, but this is no longer with us (see chart),
pinching earnings. Second, weaker global growth
and limited scope to stimulate growth given the level
of interest rates, is raising market risk.
Low and more volatile returns rather
than a bear market…
We do not see the ingredients for a 'bear' market of
large falls either. Though slowdown could turn to
recession, an obvious trigger for large market falls,
this is a low probability. China's slowdown and weak
commodity prices are not recessionary. Importantly,
low yields sustain equities' long-term appeal given
dividends and (limited) capital growth. Low returns in
a more volatile trading environment are more likely.
…some opportunities from trend
reversal?
Some good relative value opportunities could boost
returns; a few strong trends could be overshooting
now before a reversal – the strength of defensive
sectors for example or large US outperformance
over emerging markets. Active managers positioned
to take advantage should benefit.
0
2
4
6
8
10
0
0.5
1
1.5
2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
%
US non-financial profit margins (RHS)
S&P 500 Forward Price/Sales ratioSource: Datastream
US proft margins vs valuations

4. Aon Hewitt
Retirement and Investment
Quarterly Investment Outlook – October 2015
Global Asset Allocation
Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Past performance is not a
guarantee of future results.
4
Hedge funds: appropriate for these
market conditions
These are the times when hedge fund allocations,
appropriately structured, make their value most felt.
Our return expectations from different hedge fund
approaches have moved a little lower recently
reflecting managers' greater difficulty in adding
value. This has not changed our view that this
investment style is well matched for unsettled market
conditions. We prefer strategies less dependent on
rising markets.

5. Aon Hewitt
Retirement and Investment
Quarterly Investment Outlook – October 2015
Global Asset Allocation
Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Past performance is not a
guarantee of future results.
5
Appendix: Index Definitions
S&P 500 Index – The market-cap-weighted index includes 500 leading companies and captures approximately
80% of available market capitalization.
Russell 2000 Index - The Russell 2000 Index measures the performance of the small-cap segment of the U.S.
equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10%
of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a
combination of their market cap and current index membership. The Russell 2000 is constructed to provide a
comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger
stocks do not distort the performance and characteristics of the true small-cap opportunity set.
MSCI EAFE Index $ - The MSCI EAFE Index is designed to measure the performance of the large and mid-cap
segments of developed European Australasian and Far East Markets. The index covers approximately 85% of the
free float-adjusted market capitalization and is measured in USD dollar terms.
MSCI EAFE Index (Hedged) - The MSCI EAFE hedged Index is designed to measure the performance of the
large and mid-cap segments of developed European Australasian and Far East Markets. The index covers
approximately 85% of the free float-adjusted market capitalization and is measured in hedged dollar terms.
MSCI Emerging Markets Index – The MSCI Emerging Markets Index captures large and mid-cap representation
across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market
capitalization in each country and is measured in USD terms.
Barclays Capital Aggregate Index - The Barclays U.S. Aggregate Index represents securities that are SEC-
registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market,
with index components for government and corporate securities, mortgage pass-through securities, and asset-
backed securities.
HFRI: The Hedge Fund Research, Inc. Monthly Indices (HFRI) are fund-weighted (equal-weighted) indices. Unlike
asset-weighting, the equal-weighting of indices presents a more general picture of performance of the hedge fund
industry. Any bias towards the larger funds potentially created by alternative weightings is greatly reduced,
especially for strategies that encompass a small number of funds. All single-manager HFRI Index constituents are
included in the HFRI Fund Weighted Composite, which accounts for over 2000 funds listed on the internal HFR
Database.

6. Aon Hewitt
Retirement and Investment
Quarterly Investment Outlook – October 2015
Global Asset Allocation
Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company. Past performance is not a
guarantee of future results.
6
Contact Information
Tapan Datta
Head of Global Asset Allocation
Aon Hewitt Limited
+44 (0)20 7086 9076
tapan.datta@aonhewitt.com
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Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. (“AHIC”). The information
contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at
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This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment
recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall
only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of
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This document is intended for general information purposes only and should not be construed as advice or opinions on any
specific facts or circumstances. The comments in this summary are based upon AHIC’s preliminary analysis of publicly
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About Aon Hewitt Investment Consulting, Inc.
Aon Hewitt Investment Consulting, Inc., an Aon plc company (NYSE:AON), is an SEC-registered investment adviser. We
provide independent, innovative solutions to address the complex challenges of over 480 clients in North America with total
client assets of approximately $1.7 trillion as of June 30, 2014. More than 270 investment consulting professionals in the U.S.
advise institutional investors such as corporations, public organizations, union associations, health systems, endowments, and
foundations with investments ranging from $3 million to $310 billion.
AHIC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. AHIC is also registered
with the Commodity Futures Trade Commission as a commodity pool operator, and is a member of the National Futures
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