Capital Markets 2018 Forecast Webinar - Wilmington Trust · Capital Markets 2018 . Forecast Webinar...

Capital Markets Forecast Webinar 2018

This webinar is for general financial, investment, and retirement information purposes only and is not an offer for the sale of, or solicitation or recommendation of, any financial product or service. The material and information presented at the webinar is for informational purposes only and does not constitute legal or other professional advice. As such, this information should not be used as a substitute for consultation with professional data security, legal or other advisers. Neither M&T Securities, nor any of its affiliates, offers legal or tax advice and, accordingly, nothing presented herein or during the webinar should be deemed or construed to be legal or tax advice.

2 © 2018 Wilmington Trust Corporation and its affiliates. All rights reserved. Please see disclosures for important information.

Capital Markets Forecast 2 0 1 8


Wilmington Trust’s Capital Markets Forecast Today’s presenters

Matt McAfee Group Vice President Wealth Management M&T Securities, Inc.

Tony Roth Chief Investment Officer Wilmington Trust Investment Advisors

Luke Tilley Chief Economist Wilmington Trust Investment Advisors



Wilmington Trust’s core investing guidelines Understanding what’s important

Risk: Our approach focuses on what really matters to you: loss of capital

The degree of risk a portfolio takes must be balanced against potential return and let you sleep at night

Diversification: Portfolios should be truly diversified*

A diversified portfolio has investments that react differently to various economic influences, that may affect one investment negatively but another positively

Taxes: It’s not what you reap, but what you keep

We make decisions through a tax-sensitive lens in an effort to preserve portfolio values and maximize net returns

Costs: Paying only for anticipated value

We seek solutions with lower fees and only use higher-cost investments where we believe returns will exceed costs

High-quality solutions: No matter where they come from

Whether ours or another firm’s, we seek investments with the greatest potential for attractive, risk-adjusted returns

* Diversification does not guarantee a profit or protect against a loss.



Wilmington Trust’s investment process Our best thinking in action

M&T Bank’s emphasis on qualitative factors in the manager selection process is likely to result in the Wilmington Funds and other funds and investment vehicles managed by M&T Bank’s affiliated advisers, being included in the Strategies. As a result, participation in Portfolio Architect is likely to result in the payment of fund-level fees or other compensation to M&T Bank-affiliated investment advisers.

*



Capital Markets Forecast 2 0 1

Capital Markets Forecast themes for 2018

Theme II

U.S. vs. global growth and inflation

Theme III

Consider alternative investments

Theme I

The U.S. economy approaching late-cycle status




What does it mean and why does it matter? Theme I: A mid- to late - stage U.S. economy

Financial market performance

Economic cycle

Financial markets peak 6−9 months before economic growth

Signs of middle cycle • Low inflation

• Stable profit margins

• Easy overall financial conditions

• Low yields Signs of late cycle • Elevated valuations

• Tight labor market

• Gradual tightening of monetary policy

• Accelerating wages

• Flattening of the yield curve

W E A R E H E R E




Causes of low inflation are likely numerous but difficult to quantify Several factors are contributing to low inflation

Low U.S. inflation

Demographics

Global disinflation

Technology




Retail’s new reality




Inflation rates on many goods and services are well below those in the previous expansion Supply chain efficiencies are weighing on inflation

Inflation rates on selected consumer items (y/y %)

As of December 31, 2016. Source: Bureau of Economic Analysis




We expect baseline growth (ex-tax reform) to slow slightly in 2018, but the tax plan could push growth above the cycle peak

The U.S. economy and tax reform

As of December 18, 2017. Sources: Bureau of Economic Analysis, WTIA

Real GDP (% change year-over-year)




As of December 31, 2017. Sources: Bloomberg, WTIA

Few major international economies are exhibiting late-stage signals U.S. economy is further along in the cycle

U.S

. Developed Emerging

Can

ada

UK

Euro

zone

Japa

n

Chi

na

Kor

ea

Taiw

an

Indi

a

Recovery (months) 102 103 102 57 33 102 12

Unemployment 4.1% 5.7% 4.3% 8.7% 2.7% 4.0% 3.6% 3.7% N/A

Inflation 1.7% 1.3% 2.7% 0.9% 0.3% 2.2% 1.5% 1.6% 4.7%

Monetary policy

Cycle Indicator Key

Early

Middle

Late

* *

Monetary Policy Key Tightening Easing On hold

Did not enter recession *




Stocks are less expensive overseas

Next-12-month forward P/E

As of November 30, 2017. U.S. equities is represented by the S&P 500 index. Non-U.S. equities are represented by the MSCI ACWI ex-U.S. Index.

Sources: Bloomberg, MSCI, Standard & Poor’s

U.S. valuations are the high, with the rest of the world more reasonable



High valuations, low yields, and higher expected volatility Today’s state of the world presents a challenge to investors

High equity valuations

Low yields

Higher expected volatility

• U.S. valuations stretched

• International equities offer more value

• Valuations suggestive of meager medium-term returns

• Yields depressed globally

• Liquid markets offer few options for generating income

• Rising yields also threaten fixed income price returns

• Volatility in 2017 has been unsustainably low

• Expect volatility to shift higher

• Higher volatility tends to coincide with challenging markets




Efficient frontier: risk / return outcome for portfolios with and without alternatives

We expect a portfolio with hedge funds and private assets to outperform a traditional stock / bond portfolio for the same amount of risk

Theme III: Alternative assets may add value

Source: WTIA, using CMF long-term projections




An all-in-one investment option engineered to fulfill a number of important goals Portfolio Architect

Core Program • Maintains a broad diversification emphasis while seeking both capital appreciation and income

• Broad asset class diversification primarily includes actively managed mutual funds (which seek to outperform an index), but also includes exchange-traded funds and passively managed mutual funds (which seek to meet or track an index)

• Is offered in strategies with risk tolerance levels that range from Conservative to Aggressive

M&T Bank’s emphasis on qualitative factors in the manager selection process is likely to result in the Wilmington Funds and other funds and investment vehicles managed by M&T Bank’s affiliated advisers, being included in the Strategies. As a result, participation in Portfolio Architect is likely to result in the payment of fund-level fees or other compensation to M&T Bank-affiliated investment advisers.

Breakdown of the investments in the portfolios differs from time to time and is for illustrative purposes only. Portfolio Architect is a managed account program sponsored and managed by M&T Bank and offered through M&T Securities, Inc. (member FINRA/SIPC). M&T Bank has engaged M&T Securities, Inc. to provide administrative services to Portfolio Architect customers. Wilmington Trust Investment Advisors, Inc. provides its asset allocation and manager research insights and advice to M&T Bank in support of Portfolio Architect.




Call (800) 724-7788 to schedule an appointment with an M&T Securities Financial Advisor.

Conclusion


17 © 2018 Wilmington Trust Corporation and its affiliates. All rights reserved.


Disclosures

Advisory Service Providers Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A., M&T Bank, and certain other affiliates provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management and other services. Wilmington Trust Investment Advisors, Inc., a subsidiary of M&T Bank, is a SEC-registered investment adviser providing investment management services to Wilmington Trust and M&T affiliates and clients. Brokerage services are offered by M&T Securities, Inc., a registered broker/dealer, wholly owned subsidiary of M&T Bank, and member of the FINRA and SIPC. Wilmington Funds are entities separate and apart from Wilmington Trust, M&T Bank, and M&T Securities.

Suitability of our Capital Markets Forecast Wilmington Trust’s Capital Markets Forecast is provided for information purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as 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. The investments or investment strategies discussed herein may not be suitable for every investor. This presentation is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional should be sought.

The forecasts presented herein constitute the informed judgments and opinions of Wilmington Trust about likely future capital market performance. This presentation is subject to a number of assumptions regarding future returns, volatility, and the interrelationship (correlation) of asset classes. Assumptions may vary by asset class. Actual events or results may differ from underlying estimates or assumptions, which are subject to various risks and uncertainties. No assurance can be given as to actual future market

results or the results of Wilmington Trust’s investment products and strategies. The estimates contained in this presentation constitute Wilmington Trust’s judgment as of the date of these materials and are subject to change without notice. Information used in the preparation of this presentation has been obtained or derived from sources believed to be reliable, but no representation is made as to its accuracy or completeness.

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, M&T, or any other bank or entity, and are subject to risks, including a possible loss of the principal amount invested.

Some investment products may be available only to certain “qualified investors”— that is, investors who meet certain income and/or investable assets thresholds. Any offer will be made only in connection with the delivery of the appropriate offering documents, which are available to prequalified persons upon request.




Disclosures

An overview of our asset allocation strategies Wilmington Trust offers seven asset allocation models for taxable (high net worth) and tax-exempt (institutional) investors across five strategies reflecting a range of investment objectives and risk tolerances: Aggressive, Growth, Growth & Income, Income & Growth, and Conservative. The seven models are High Net Worth (HNW), HNW with Liquid Alternatives, HNW with Private Markets, HNW Tax Advantaged, Institutional, Institutional with Hedge LP, and Institutional with Private Markets. As the names imply, the strategies vary with the type and degree of exposure to hedge strategies and private market exposure, as well as with the focus on taxable or tax-exempt income. On a quarterly basis we publish the results of all of these strategy models versus benchmarks representing strategic implementation without tactical tilts.

Model Strategies may include exposure to the following asset classes: U.S. large-capitalization stocks, U.S. small-cap stocks, developed international stocks, emerging market stocks, U.S. and international real asset securities (including inflation-linked bonds and commodity-related and real estate-related securities), U.S. and international investment-grade bonds (corporate for Institutional or Tax Advantaged, municipal for other HNW), U.S. and international speculative grade (high-yield) corporate bonds and floating-rate notes, emerging markets debt, and cash equivalents. Model Strategies employing nontraditional hedge and private market investments will, naturally, carry those exposures as well. Each asset class carries a distinct set of risks, which should be reviewed and understood prior to investing.

Impact of fees Unless otherwise mentioned, forecast data do not reflect the deduction of management fees, advisory fees, trading costs, or other expenses. Such fees and expenses will reduce returns. Fees are typically charged monthly or quarterly and have a compounded effect on portfolio results. In the course of implementing a given asset allocation, clients could select among a number of investment vehicles or strategies, each of which will have such fees and expenses. In cases where Wilmington Trust, or an affiliate, provides advisory, brokerage, or other services to such an investment vehicle, Wilmington Trust may benefit directly or indirectly from those advisory, brokerage, or other fees. Investors should develop a thorough understanding of the fees, expenses, and other costs of any investment prior to committing funds.

The following is a hypothetical example of the impact over time of fees. It is not meant to suggest actual fees, which may vary, and does not reflect actual returns. Assuming an initial investment of $1,000,000 account value and an average annual return of 10%, an annual fee of 100 basis points (i.e., 1%) would result in account level fees of $10,891 the first year, $35,671 over three years, and $65,064 over five years.

A schedule of Wilmington Trust’s fees is available upon request.

Risk assumptions All investments carry some degree of risk. This report uses the return volatility, as measured by standard deviation, of asset classes as a proxy for illustrating risk. Volatility serves as a collective, quantitative estimate of risks present to varying degrees in the respective asset classes (e.g., liquidity, credit, and default risks). Certain types of risk may be underrepresented by this measure. Investors should develop a thorough understanding of the risks of any investment prior to committing funds.

Correlation Correlation measures the degree of relationship between the returns of the two asset classes and characterizes it in a range between -1.00 (Perfectly Negatively Correlated—the returns of two assets move in exactly opposite directions around their average from one another) and +1.00 (Perfectly Positively Correlated—the returns move in lockstep with one another). If correlation is 0.00, the two asset classes exhibit no relationship in the movement of their returns. Correlation assumptions are based on Wilmington Trust forecasts.

Quality ratings and Issuer “Grades” Quality ratings are used to evaluate the likelihood of default by a bond issuer. Independent rating agencies, such as Moody's Investors Service and Standard & Poor’s, analyze the financial strength of each bond's issuer. Ratings range from Aaa or AAA (highest quality) to C or D (lowest quality). Bonds rated Baa3 or BBB and better are considered "Investment Grade.” Bonds rated Ba1 or BB and below are "Speculative Grade" (ak.a., “High Yield”).

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Disclosures

Continued

Actual results will vary from forecast results In managing clients’ accounts, Wilmington Trust may manage the accounts individually or may invest client assets into commingled funds managed by affiliated and unaffiliated advisers and other investment vehicles recommended or selected by Wilmington Trust, in accordance with Wilmington Trust’s asset allocation strategy. The returns for individual clients will vary depending upon the performance of each actual investment vehicle or activity, any restrictions, inception date, timing of rebalancing, actual expenses and fees, and other factors.

Investing involves risks and you may incur a profit or a loss.

Past performance is no guarantee of future results.

Diversification does not ensure a profit or guarantee against a loss.

There is no assurance that any investment strategy will be successful.

A complete explanation of the assumptions underlying this report is available upon request.

Indexes are not available for direct investment. Investment in a security or strategy designed to replicate the performance of an index will incur expenses, such as management fees and transaction costs, which would reduce returns.

The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

This webinar is for general financial, investment, and retirement information purposes only and is not an offer for the sale of, or solicitation or recommendation of, any financial product or service.

The material and information presented at the webinar is for informational purposes only and does not constitute legal or other professional advice. As such, this information should not be used as a substitute for consultation with professional data security, legal or other advisers. Neither M&T Securities, nor any of its affiliates, offers legal or tax advice and, accordingly, nothing presented herein or during the webinar should be deemed or construed to be legal or tax advice.

Capital Markets 2018 Forecast Webinar - Wilmington Trust · Capital Markets 2018 . Forecast Webinar...

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