Transcript Title Is Times New Roman 28 Pt., Line Spacing .9 Lines
Global Investment Committee Outlook July 2012 This presentation was created by the Global Investment Committee and is provided to you courtesy of [FA Name and Title]
Please refer to important information, disclosures and qualifications at the end of this material.
2012 - 2013 Outlook
European recession, but no global or US recession
Earnings expectations to come down
Slowing inflation in both developed and developing countries
Global policy: challenged in developed economies, robust options in developing ones
Modest US trade-weighted dollar strength; broad developed country currencies weak to developing country currencies, especially Asia
Source: Morgan Stanley Smith Barney Global Investment Committee, Thomson Financial, DataStream. Data as of July 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
2
Global Investment Committee Tactical Weights
Global Asset Class
•
Cash
•
Bonds
Short Duration
Developed Sovereign
Investment Grade
High Yield Emerging Markets
Tactical Weight Overweight Market weight
Overweight Underweight Overweight Underweight Market weight •
Equities
US
Developed markets ex US Emerging Markets
Underweight
Overweight Underweight Overweight •
Alternative/Absolute Return
Commodities
Global REITS
Managed Futures
Inflation-linked Securities Private Equity Hedge Funds Real Estate
Market weight
Underweight Underweight Overweight Underweight
{
Market weight only; No tactical weights
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
3
Global GDP and CPI Forecasts
Morgan Stanley & Co.
(Year-over-Year % Change) 2011F 2012F Global GDP Developed Econom ies
U.S. Euro Area U.K.
Japan
Developing Econom ies
Brazil Russia India China
Global Consum er Prices
Global Inflation Developed Economies Developing Economies U.S. Core U.S. CPI
3.9
1.3
1.7
1.5
0.7
-0.7
6.4
2.7
4.3
7.1
9.2
4.4
2.6
6.2
1.7
3.1
3.5
1.3
2.2
-0.3
0.5
2.3
5.7
2.7
5.0
5.7
8.5
3.4
1.9
4.8
2.3
1.9
2013F 3.9
6.2
3.4
4.0
6.5
9.0
1.4
2.1
0.9
1.8
1.0
3.1
1.4
4.8
2.2
1.5
% Contribution to 2012 Grow th 2012F 20
13 -1 0 4
80
2 5 10 37
Citi Investm ent Research & Analysis (Year-over-Year % Change) 2011F 2012F 2013F % Contribution to 2012 Grow th 2012F Global GDP Developed Econom ies
U.S. Euro Area U.K.
Japan
Developing Econom ies
Brazil Russia India China
Global Consum er Prices
Global Inflation Developed Economies Developing Economies Core PCE Deflator PCE Deflator
3.6
1.3
1.7
1.5
0.6
-0.7
6.0
2.7
4.3
6.5
9.2
4.2
2.3
6.1
1.4
2.5
3.0
1.2
2.1
-0.7
-0.4
2.7
4.9
2.3
3.5
6.4
7.8
3.2
1.7
4.7
1.8
1.9
3.2
1.0
2.0
-0.8
0.6
1.4
5.5
4.5
4.0
6.9
7.9
3.1
1.3
4.8
1.6
1.7
21
14 -3 0 6
79
2 4 14 39
Source: Morgan Stanley & Co. Research, Citi Investment Research & Analysis (CIRA), Morgan Stanley Smith Barney. Note: Regional and global forecast are GDP weighted averages, using Purchasing Power Parity estimates. That gives greater weights to developing economies.
Data as of June 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
4
MS Forecasts EM to Account for 80% of Global Growth
Global Real GDP Growth (%)
5 4 7 6 Forecast 3 2 1 0 -1 -2 '70 '72 '74 '76 '78 '80 '82
Recession shading
'84 '86 '88 '90
DM Contribution
'92 '94 '96 '98 '00
EM Contribution
'02 '04 '06 '08
Period Average
'10 '12 7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Source: IMF, Haver, Morgan Stanley & Co. Research estimates. See Joachim Fels and Manoj Pradhan’s “Global Economics: Dangerously Close to Recession” dated August 17, 2011.
Note: Gray shaded areas indicate recessions, light blue shaded area represents forecast. Data as of June 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
5
MSCI AC World: Weight of GEMs
Emerging Market Share of Global Equities
16% 14% 12% 10% 8% BRIC: 5.4% Emerging M arkets: 12.5% 6% 4% 2% 0% '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 16% 6% 4% 2% 0% 14% 12% 10% 8% Source: MSCI, FactSet, Morgan Stanley Smith Barney. Data as of June 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
6
Emerging Market Equities Are Leading Global Equities
Emerging Market Equities Outperformed Developed Market Equities In the Decade Before March 2009 Trough and Through the Last Cycle Peak in April 2011
Note: Returns are annual average and in local currency. Emerging Market equities trough: October 2008.
Source: MSCI (Investible Market Index), FactSet, Morgan Stanley Smith Barney. Data as of December 2011.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
7
Global Earnings Per Share
2012E Morgan Stanley & Co.
Operating EPS ($) 100.00
Citi Investment Research & Analysis YOY Change (%) 2 S&P 500 Operating EPS ($) 103.25
YOY Change (%) 6 Consensus S&P 500 Operating EPS ($) YOY Change (%) 104.80
7 MSCI AC World Operating EPS ($) YOY Change (%) 26.34
10 MSCI EM Operating EPS ($) YOY Change (%) 93.39
11 2013E 98.71
52 Week Forward -1 108.00
5 117.68
111.13
12 29.65
28.04
13 104.27
98.85
12
Source: Morgan Stanley & Co. Research, CIRA, Morgan Stanley Smith Barney, Thomson Financial, Standard & Poor’s.
Data as of June 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
8
Interest Rate Forecasts
Policy Rates (%) US Eurozone Japan UK China Morgan Stanley & Co.
Current Rate 4Q12F
0.00 – 0.25
1.00
0.10
0.50
6.31*
10-Year Government Bond Yields (%) US
1.58*
Eurozone Japan
1.52* 0.82*
UK
1.70* 0.15
0.75
0.05
0.50
6.31* 2.25
1.75
1.00
2.20
4Q13F
0.15
1.00
0.05
1.25
6.31* 2.25
2.50
1.20
3.20
Citi Investment Research & Analysis Current Rate 4Q12F Policy Rates (%)
US Eurozone 0.00 - 0.25
1.00
0.25
0.50
Japan UK China 0.10
0.50
3.25** 0.10
0.50
2.75**
10-Year Government Bond Yields (%)
US 1.58
Eurozone Japan 1.52
0.82
UK 1.70
1.80
1.25
1.10
1.65
4Q13F
0.25
0.50
0.10
0.50
3.25** 2.60
2.00
1.30
2.50
*Morgan Stanley’s current and forecast policy rate for China uses the 1-year lending rate.
**CIRA’s current and forecast policy rate for China uses the 1-year deposit rate.
Source: Morgan Stanley & Co. Research, CIRA, Bloomberg, Morgan Stanley Smith Barney. Data as of July 2012.
Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
9
S&P 500 Bear Markets and Recoveries
S&P 500 Index Bear Market Downturns and Recoveries
Downturn from Peak S&P 500 Peak to Trough
Sep 1929 - Jun 1932 Jul 1933 - Mar 1935 Mar 1937 - Apr 1942 May 1946 - Jun 1949 Aug 1956 - Oct 1957 Dec 1961 - Jun 1962 Feb 1966 - Oct 1966 Nov 1968 May 1970 Jan 1973 - Oct 1974 Dec 1976 - Mar 1978 Nov 1980 - Aug 1982 Aug 1987 - Dec 1987 Jul 1990 - Oct 1990 Jul 1998 - Aug 1998 Mar 2000 - Oct 2002 Oct 2007 - Mar 2009 Jul 2011 - Oct 2011 Average:
Decline (%)
-86.2
-33.9
-60.0
-29.6
-21.6
-28.0
-22.2
-36.1
-48.2
-19.1
-27.1
-33.5
-19.2
-19.2
-47.4
-55.3
-18.3
-35.6
Duration (Months)
33 20 62 37 15 6 8 18 21 14 21 5 3 2 31 17 2 18.5
Subsequent Return (%) 3 Months
93 27 15 16 6 7 12 17 14 15 36 21 8 22 20 40 17 22.7
6 Months
53 46 25 23 10 20 22 23 31 21 44 21 30 30 13 55 ?
29.2
12 Months
121 77 54 42 31 33 33 44 38 13 58 26 34 40 36 72 ?
46.9
Recover to Peak S&P 500 Date of Recovery
Jun 1932 - Sep 1954 Mar 1935 - Oct 1935 Aug 1942 - Jan 1946 Jun 1949 - Jun 1950 Oct 1957 - Sep 1958 Jul 1962 - Sep 1963 Oct 1966 - May 1967 May 1970 Mar 1972 Oct 1974 - Jul 1980 Mar 1978 - Aug 1979 Aug 1982 - Nov 1982 Dec 1987 - Jul 1989 Nov 1990 - Feb 1991 Sep 1998 - Nov 1998 Oct 2002 - May 2007 Mar 2009 - Apr 2011 Oct 2011 -
Duration (Months)
267 7 45 12 11 14 7 21 69 17 3 20 4 3 56 25 ?
36.3
Note: Due to the limitations of index data, price return is used before 1990 and total return is used for returns after 1990. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. All returns are in U.S. Dollars. The Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. Data are as of December 31, 2011. (1) Price Return data are used before 1987 and Total Return data are used after 1987. For the 1987 bear market, the decline is expressed in price return terms and the recovery is expressed in total return terms. (2) The valuation analysis on the S&P 500 Index peak and trough price/earnings ratio is based on monthly operating earnings.
Source: Ibbotson Associates, Morgan Stanley Smith Barney LLC and Investment Strategy Group. Standard & Poor’s; Bloomberg; Morgan Stanley Smith Barney LLC and Investment Strategy Group. Data as of December 2011.
The following disclosure pertains to Ibbotson Associates’ data on slides 10,12 and 13: (c) 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Source: Calculated by Morgan Stanley Smith Barney LLC using data provided by Morningstar. (c) 2012 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
10 Please refer to important information, disclosures and qualifications at the end of this material.
Stocks vs. Bonds and Cash Valuation
Standard Deviations From Average
4 3 Cash Rate/Dividend Yield Bond Yield/Dividend Yield Equities Relatively Expensive 3 2 2 1 1 0 0 -1 -1 -2 Equities Relatively Cheap -2 -3 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 -3 Note: Standard deviation is a statistical measurement that sheds light on historical volatility.
Source: CIRA, Morgan Stanley & Co. Research, Morgan Stanley Smith Barney, Thomson Financial. Data as of June 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
11
US Secular Stock Bear and Bull Markets and Inflation Since 1946
S&P 500 (log scale ) Core CPI (%)
2,000 1,000 500 400 300 200
Bull 1946 - 1968 Ave rage Annual Total Re turn Nom inal = 14% Real = 11% Bear 1968 - 1982 Ave rage Annual Total Re turn Nom inal = 6% Real = (2)% Bear 3/2000 -3/2009 Ave rage Annual Total Re turn Nom inal = (5)% Real = (7)%
10% 9% 8% 7% 6% 5% 100 4% 50 40 30 20 Core CPI S&P 500 Price
Bull 1982 - 2000 Ave rage Annual Total Re turn Nom inal = 18% Real = 15%
3% 2% 1% '46 '48 '50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 0% Note: Core Inflation is a 5-year moving average; headline inflation prior to 1963. Past performance is not a guarantee of future results. For illustrative purposes only and does not reflect any specific product. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of large company stocks. Index returns assume reinvestment of dividends and do not reflect any fees or expenses. Cyclical Bull cycle represents March 2009 through present.
Source: Morgan Stanley Smith Barney, Bloomberg, Ibbotson Associates and FactSet. Data as of May 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
US Secular Bond Bear and Bull Markets and Inflation Since 1946 A Secular Bull Market in Bonds Is Coming to an End
LT Bond Yield (%) Core CPI (%)
18 16 14 12 10 8 6 4 2 0
Bear 1946 - 1981 Average Annual Total Return Nominal = 2% Real = (5)%
'50 '55 '60 '65 Long Bond Yield Core CPI
Bull 1981 - 2011 Average Annual Total Re turn Nominal = 11% Rea l = 9%
'70 '75 '80 '85 '90 '95 '00 '05 '10 Note: Core Inflation is a 5-year moving average; headline inflation prior to 1963.
Source: Morgan Stanley Smith Barney, Ibbotson Associates and FactSet. Data as of May 2012.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
Global Investment Committee Equity Strategy
Equities expected to underperform
Overweight Emerging Markets and U.S.
Underweight Non-U.S. Developed Markets
Within U.S., overweight Large Caps and growth and underweight Small and Mid Caps and value
This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
14
Global Investment Committee Fixed Income Strategy
Bonds expected to outperform stocks
Developed country Sovereign Debt yield curves expected to flatten
Overweight Short Duration and Global IG Corporates (Munis for U.S. clients)
Underweight Developed Country Sovereign Debt, High Yield
Market weight Emerging Market Debt
This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
15
Global Investment Committee Alternative/Absolute Return Strategy
Overweight Managed Futures
Underweight global REITs, Commodities, and Inflation Protected Securities
This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
16
Glossary of Indices
CPI
In economics, a Consumer Price Index (CPI, also retail price index) is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by wage earners in urban areas. It is a price index that tracks the prices of a specified set of consumer goods and services, providing a measure of inflation. The CPI is a fixed quantity price index and a sort of cost-of-living index. The CPI can be used to track changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, life insurance, and homes) are not included. Core CPI excludes volatile food and energy prices.
MSCI EAFE
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada.
MSCI World Index
The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
As of May 2005 the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. An investment cannot be made directly in a market index.
S&P 500
Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it is also an ideal proxy for the total market.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
17
Important Disclosures
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Research Departments of Morgan Stanley & Co. LLC or Citigroup Global Markets Inc. The views and opinions contained in this material are those of the author(s) and may differ materially from the views and opinions of others at Morgan Stanley Smith Barney LLC or any of its affiliate companies. Past performance is not necessarily a guide to future performance.
The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley Smith Barney is involved in many businesses that may relate to companies, securities or instruments mentioned in this material.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Smith Barney has no obligation to provide updated information on the securities/instruments mentioned herein.
The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Smith Barney recommends that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley Smith Barney does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein.
This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Smith Barney is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material.
Morgan Stanley Smith Barney and its affiliates do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used or relied upon by any recipient, for any purpose, including the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each client should consult his/her personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation.
International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies.
Alternative investments which may be referenced in this report, including private equity funds, real estate funds, hedge funds, managed futures funds, funds of hedge funds, private equity, and managed futures funds, are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and risks associated with the operations, personnel and processes of the advisor.
Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention.
Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
18 Please refer to important information, disclosures and qualifications at the end of this material.
Important Disclosures
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.
Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one's state of residence and, if applicable, local tax-exemption applies if securities are issued within one's city of residence.
Treasury Inflation Protection Securities’ (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI). While the real rate of return is guaranteed, TIPS tend to offer a low return. Because the return of TIPS is linked to inflation, TIPS may significantly underperform versus conventional U.S. Treasuries in times of low inflation.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.
Stocks of medium-sized companies entail special risks, such as limited product lines, markets, and financial resources, and greater market volatility than securities of larger, more-established companies.
Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.
The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.
REITs investing risks are similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.
Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.
Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected.
Certain securities referred to in this material may not have been registered under the U.S. Securities Act of 1933, as amended, and, if not, may not be offered or sold absent an exemption therefrom. Recipients are required to comply with any legal or contractual restrictions on their purchase, holding, sale, exercise of rights or performance of obligations under any securities/instruments transaction.
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Past performance is no guarantee of future results. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
Please refer to important information, disclosures and qualifications at the end of this material.
Important Disclosures
Morgan Stanley Smith Barney is not incorporated under the People's Republic of China ("PRC") law and the research in relation to this report is conducted outside the PRC. This report will be distributed only upon request of a specific recipient. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors must have the relevant qualifications to invest in such securities and must be responsible for obtaining all relevant approvals, licenses, verifications and or registrations from PRC's relevant governmental authorities.
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