Economic growth in the United States and overseas will remain
tepid for several years before returning to historical norms, with
fixed income returns staying low to the point of offering little or
no return above inflation. Equities are not expected to be hurt as
much as fixed income as more meaningful growth eventually resumes.
These are two of the primary conclusions of Wilmington Trust’s
2011-2017 Capital Markets Forecast,
the new installment of the company’s annual long-term outlook for
the financial markets.
“The global economy is continuing to recover slowly from a
severe financial crisis,” said Rex Macey, CFA®, CFP®, CIMA®, senior
vice president and chief investment officer for Wilmington Trust’s
Wealth Advisory Services (WAS) business. “As a result, we see
lingering weak economic growth and low inflation for several years
to come. Toward the end of our forecast period, we expect growth to
accelerate, which should be accompanied by an increase in interest
rates and inflation.”
The forecast, which is produced by Wilmington Trust’s Investment
Strategy Team, underscores the importance of diversification among
a variety of asset classes, including global equities, real assets
(commodities, inflation-linked bonds, and real estate), and hedged
strategies. This year’s edition calls for inflation to rise
averaging about 1.5% annually, or roughly half of its historical
level, given the current low inflation environment, excess
capacity, and high unemployment. It also introduces an allocation
to quality, income-oriented equities for some investors and sees
continued relatively brighter expectations for non-U.S.-based
equities.
Income-oriented and international equities favored
Quality income equities will produce more income over our
forecast horizon than bonds, but investors will have to tolerate
the additional price volatility associated with stocks, Mr. Macey
said. “We describe income as ‘quality’ if investors can be
reasonably confident that the income stream, generally in the form
of dividends, can continue for an extended period.”
In addition, Wilmington Trust’s expectations for international
equities, both in developed and emerging markets, are higher than
those for U.S. equities, though they are still modest compared with
historical returns over the long term. As a result, the company is
recommending a greater commitment to international equities in many
client portfolios. “Broad indices of developed and emerging
international equity markets have been fairly consistently
outperforming broad indices of the U.S. equity market for many
years,” Mr. Macey added. “We project that international equities
will continue to outperform over the next seven years, albeit with
greater volatility than the U.S. market.”
Struggles ahead for fixed income
Fixed income securities will likely have to endure a period of
diminished returns, especially for cash equivalents and
inflation-linked bonds, which are going to struggle to produce any
positive real yields, Mr. Macey said. The outlook for
investment-grade, nominal bonds – those whose prices are not
indexed to the rate of inflation – is also subdued. “There may be a
relatively small silver lining for municipal bonds, whose
taxable-equivalent returns should exceed those of taxable bonds,
especially in light of the great likelihood of increasing marginal
tax rates. But both categories are apt to disappoint large numbers
of investors who use historical returns as a benchmark for likely
future returns.”
Wilmington Trust’s Wealth Advisory Services business offers a
comprehensive array of personal trust, wealth planning, fiduciary,
asset management, and family office services that help
high-net-worth individuals and families grow, preserve, and
transfer wealth. WAS maintains offices in many key high-net-worth
markets throughout the United States and serves families with whom
it can build long-term relationships, including many that have
lasted for several generations.
Mr. Macey is a member of Wilmington Trust’s Investment Strategy
Team and Investment Research Team. He holds an MBA from the
University of North Carolina’s Kenan-Flagler Business School and
bachelor’s degree from Vanderbilt University. He is an instructor
for a CFA review course sponsored by the Atlanta Chapter of the CFA
Institute. He chairs the editorial advisory board for Investments
& Wealth Monitor, a bi-monthly publication of the Investment
Management Consultants AssociationSM (IMCA®). He has twice received
IMCA’s Stephen L. Kessler Writing Award for editorial excellence,
most recently in 2010.
About the Capital Markets Forecast
Each year, Wilmington Trust’s Investment Strategy Team (IST)
undertakes a multi-year forecast of financial market performance.
In preparing the forecast, the IST is concerned primarily with
valuations. Implicit in its approach is the idea that extreme
evaluations tend to revert, over extended periods, toward
long-term, historical averages. In making tactical asset allocation
recommendations, the IST considers not only its impressions about
valuations and forecasts for longer-term market performance, but it
also considers shorter-term trends in securities prices.
Ultimately, its tactical recommendations reflect the collective
judgments and expectations of team members. The IST aims to deliver
higher-than-benchmark total returns for investors with varying
appetites for risk.
About Wilmington Trust
Wilmington Trust Corporation (NYSE: WL) is a financial services
holding company that provides Regional Banking services throughout
the mid-Atlantic region, Wealth Advisory services to high-net-worth
clients in 36 countries, and Corporate Client services to
institutional clients in 89 countries. Its wholly owned bank
subsidiary, Wilmington Trust Company, which was founded in 1903, is
one of the largest personal trust providers in the United States
and the leading retail and commercial bank in Delaware. Wilmington
Trust Corporation and its affiliates have offices in Arizona,
California, Connecticut, Delaware, Florida, Georgia, Maryland,
Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York,
Pennsylvania, South Carolina, Vermont, the Cayman Islands, the
Channel Islands, London, Dublin, Frankfurt, Luxembourg, and
Amsterdam. For more information, visit www.wilmingtontrust.com.
Additional media contacts:DAI
PartnersAngela Dailey, 714-322-7202,
dailey@daicommunications.comElizabeth Powell, 202-248-1186,
powell@daicommunications.com
CFA® and Chartered Financial Analyst® are trademarks owned by
the CFA Institute. CFP® and Certified Financial Planner® are
trademarks of Certified Financial Planner Board of Standards. IMCA®
and CIMA® are registered trademarks and Investment Management
Consultants AssociationSM and Certified Investment Management
AnalystSM are service marks of Investment Management Consultants
Association Inc.
Journalists may obtain a copy of Wilmington Trust’s 2011-2017 Capital Markets Forecast, which includes
detailed analysis of potential risk and returns of various asset
classes and historical performance data on Wilmington Trust’s
investment strategies, from the media contacts shown above.
The information contained herein is not intended to be an offer
or solicitation for the sale of any financial product or service or
a recommendation or determination by Wilmington Trust that any
investment strategy is suitable for a specific investor. Investors
should seek financial advice regarding the suitability of any
investment strategy based on the investor’s objectives, financial
situation, and particular needs. Investment products are not
insured by the FDIC or any other governmental agency, are not
deposits of or other obligations of or guaranteed by Wilmington
Trust or any other bank or entity, and are subject to risks,
including a possible loss of the principal amount invested. Some
investment products, including hedge funds, may be available only
to certain “qualified investors” – that is, investors who meet
certain income and/or investable assets thresholds. Past
performance is no guarantee of future results.
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