It has been more than eight years since the S&P 500® Index hit a low during the financial crisis. During this time, the S&P 500 Index has returned more than 350% (March 10, 2009 – December 31, 2017), and in the past year U.S. equity investors have benefited from twelve consecutive months of positive returns. The rally from March 2009 to December 2017 has lasted 106 months, significantly longer than the 80-month average for all rallies since 1970. The most recent rally has not only produced substantial returns, it has done so in a relatively consistent manner. The chart below plots the number of months with positive returns in each calendar year. The strong market performance has inflated U.S. equity valuations, potentially moving the risk/return ratio out of the investor's favor.

Analysis is as of December 31, 2017, and is based on S&P 500 Index monthly price return data. Past performance is no guarantee of future results.

Source: FactSet, Standard & Poor's. As of December 31, 2017. Past performance is no guarantee of future results.

Source: Chicago Board of Exchange. As of December 31, 2017.
Past performance is no guarantee of future results.

According to the most common indicator of volatility, the VIX Index, volatility fell below the long-run average of 20.4 on June 28, 2016. Since then it has continued its downward path closing the year at 11.04, approximately half the long-term average. With such levels, volatility can certainly increase. It only requires a look back to the start of the prior cycle to provide a reminder that volatility can swiftly spike and that equity investments contain risk.

Strong market performance has inflated U.S. equity valuations, potentially moving the risk/return ratio out of the investor's favor. At the end of the year, the S&P 500 Index price-to-earnings ratio (P/E) was more than 50% higher than the MSCI EAFE Index (32.3 vs. 20.1).

Source: Bloomberg, Robert Shiller, Yale. S&P 500 Index and MSCI EAFE Index as of December 31, 2017. MSCI Emerging Markets (EM) Index as of September 30, 2017. The Shiller price-to-earnings (P/E) ratio is a cyclically adjusted valuation measure defined as price divided by average of the past 10 years of earnings adjusted for inflation. Past performance is no guarantee of future results.

Strong market performance combined with unusually low volatility may have investors feeling a false sense of security. As the equity market rallied from March 10, 2009, to the end of 2017, individual investors have steadily decreased their cash allocation to near 20-year lows.

Source: American Association of Individual Investors, FactSet. As of December 31, 2017.

For investors who still want—and require—U.S. equity exposure despite the current late cycle bull market and divergent valuations, consider a More Conservative Approach. Seek investments that may alter the nature of that exposure by combining:

• Strong attention to risk and allocation to investments that may potentially provide greater downside protection relative to an index
• A conservative approach focused on undervalued stocks

Over time, the challenges facing investors change. However, many of those challenges have arisen before, and recognizing that fact may provide an advantage in navigating uncertain markets. It may be the key to turning cyclical markets into consistent success.

During times of uncertainty, it is important to have a manager with a proven track record and experience in successfully investing through multiple market cycles. The AMG Yacktman Fund (YACKX) and the AMG Yacktman Focused Fund (YAFFX) have produced strong results relative to the S&P 500 benchmark over their respective histories. Although the Funds’ managers expect some performance lag late in a market rally due to their focus on managing risk, the Funds have provided significant outperformance during market declines and off market lows when bargain hunting is often best.

Yacktman maintains a long-term investment approach, attempting to identify companies with low purchase prices, good long-term businesses and shareholder-oriented management teams. They manage the Funds with a broad mandate, are benchmark agnostic and will utilize cash as an integral part of their portfolio construction process. Historically, the Yacktman Funds have performed especially well on a relative basis after equity market peaks. The Yacktman team does not attempt to prognosticate market direction as part of their investment process. The charts below demonstrate the Yacktman Funds results compared to the S&P 500 Index in the years following market peaks reached in 2000 and 2007:

Source: FactSet. Recovery based on months with value less than $1,000,000 at any point during the month. Past performance is no guarantee of future results.

The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. For performance information through the most recent month end, please call 800.835.3879 or visit our website at amgfunds.com.

Source: FactSet. Past performance is no guarantee of future results.

Source: FactSet. Recovery based on months with value less than $1,000,000 at any point during the month. Past performance is no guarantee of future results.

Source: FactSet. Recovery based on months with value less than $1,000,000 at any point during the month. Past performance is no guarantee of future results.

Yacktman’s value oriented, long-term investment philosophy has served its investors well. Based on a 20-year period ending December 31, 2017, the median long-tenured, actively managed large-cap fund has outperformed the S&P 500 Index 58% of the time.³ The chart to the right illustrates an AMG Yacktman Fund investor’s over or under performance versus the S&P 500 Index based on a rolling 3- or 10-year investment. While the 3-year AMG Yacktman Fund investor's outcome was inconsistent, outperforming the benchmark 41% of the time (37 out of 90 rolling 3-year periods), a 10-year AMG Yacktman Fund investor was rewarded for her patience and outperformed the benchmark 98% of the time (61 out of 62 rolling 10-year periods). Long-term AMG Yacktman Fund investors have benefited from their investment discipline and patience.

As of December 31, 2017. The chart above displays the frequency of over performance vs. the Funds' benchmark, S&P 500 Index on a rolling 3- and 10- year basis. Returns are calculated using quarterly performance since the Funds' first full quarter of performance. YACKX analysis begins October 1, 1992 and YAFFX analysis begins July 1, 1997. Past performance is no guarantee of future results.

¹ Returns for periods less than one year are not annualized.
² The performance information shown for periods prior to June 29, 2012, is that of the predecessors to the Funds, the Yacktman Fund and the Yacktman Focused Fund, which were reorganized into the Funds on June 29, 2012, and were managed by Yacktman Asset Management LP with the same investment objective and substantially similar investment policies as those of the Funds.
³ Source: AMG Funds: When Active Management Matters Most. Based on median actively managed large-cap funds, with manager tenure of greater than 10 years (longest-tenured portfolio manager), annualized three-year rolling returns (with a quarterly frequency) over the 20-year period ending December 31, 2017 against the S&P 500 Index returns.

Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For this and other information, please call 800.835.3879 or visit amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
A short-term redemption fee of 2% will be charged on redemptions of Fund shares within 60 days of purchase.
The Funds are subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall.
High-yield bonds (also known as “junk bonds”) are subject to additional risks such as the risk of default.
Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets.
The Funds can invest in securities of different market capitalizations (small-, mid- and large-capitalizations) and styles (growth vs. value), each of which will react differently to various market movements.
Companies that are in similar businesses may be similarly affected by particular economic or market events; to the extent the Fund has substantial holdings within a particular sector, the risks associated with that sector increase.
The Funds invest in value stocks, which may perform differently from the market as a whole and may be undervalued by the market for a long period of time.
A greater percentage of the AMG Yacktman Focused Fund’s holdings may be focused in a smaller number of securities which may place the Fund at greater risk than a more diversified fund.
The AMG Yacktman Focused Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance.
The AMG Yacktman Focused Fund may suffer significant losses on assets that it sells short. Unlike the possible loss on a security that is purchased, there is no limit on the amount of loss on an appreciating security that is sold short.
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
The MSCI Emerging Markets (EM) Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The S&P 500® Index is a capitalization-weighted index of 500 stocks. The S&P 500® Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Unlike the Fund, the S&P 500® Index is unmanaged, is not available for investment and does not incur expenses.
The S&P 500® Index is proprietary data of Standard & Poor’s, a division of McGraw-Hill Companies, Inc. All rights reserved.
The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options, calculated and published by the Chicago Board Options Exchange (CBOE).
AMG Funds are distributed by AMG Distributors, Inc., a member of FINRA/SIPC.
Not FDIC Insured | May Lose Value | Not Bank Guaranteed