Today’s economic landscape may challenge the performance of traditional investments going forward. Recent positive cyclical momentum looks set to continue for some time, but long-term structural headwinds remain firmly entrenched. Despite strong growth, low interest rates could challenge investors in 2018.

Low yields

Declining long-run potential growth, contained inflation expectations, and low global yields have all put downward pressure on interest rates for years. Interest rates peaked in the high inflation days of the 1980s, and today’s lower rates mean investors have fewer options to meet their income needs.

10-year treasury yield Source: Macrobond, as of December 29, 2017. 1960 1970 1980 1990 2000 2010 2017 0% 2% 4% 6% 8% 10% 12% 14% 16% U.S. 10-YEAR TREASURY YIELD

Economic indicators

We expect interest rates to remain relatively low for some time, particularly by historical standards. To monitor markets going forward, we are watching:

Slowing growth

Real GDP growth has trended lower over the last 50 years, caused primarily by slowing labor force growth and productivity. Positive cyclical momentum has caused growth to pick up in the second half of 2017, and 2018 could see a further boost from pro-growth policies and improved optimism. Yet the gravitational pull of structural headwinds is powerful, and we believe investors may need to prepare their portfolios for a lower-for-longer growth environment.

Real gdp growth values Sources: Bureau of Economic Analysis, FS Investments as of January 10, 2018. -6% -4% -2% 0% 2% 4% 6% GROWTH CONTINUES TO BE RANGE BOUND Real GDP growth 1985 1991 1997 2003 2009 2015

Economic indicators

To gauge whether the recent state of positive growth data is cyclical or structural in nature, we are monitoring the following:

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.