Transcript Title Is Times New Roman 28 Pt., Line Spacing .9 Lines
Global Investment Committee Outlook November 2011 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.
2011 - 2012 Outlook
US and European recession, but no global recession
Earnings expectations to come down
Slowing inflation in both developed and developing countries
Global policy: challenged in developed economies, good in developing ones
Modest US trade-weighted dollar strength; broad developed country currencies weak to developing country currencies, especially Asia
Source: Citi Investment Research & Analysis (CIRA), Morgan Stanley & Co. Research, Morgan Stanley Smith Barney Global Investment Committee, Thomson Financial, DataStream. Data as of October 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.
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
Global GDP Morgan Stanley & Co.
(Year-over-Year % Change) Developed Economies
U.S. Euro Area U.K.
Japan
Developing Economies
Brazil Russia India China
Global Consumer Prices
Global Inflation Developed Economies Developing Economies U.S. Core U.S. CPI
2011F 3.9
1.5
1.9
1.7
0.8
-0.6
6.4
3.7
4.7
7.3
9.0
4.3
2.6
6.0
1.6
3.2
2012F 3.8
1.5
2.0
0.5
1.1
1.3
6.1
3.5
5.2
7.4
8.7
3.3
1.6
5.0
2.2
1.9
% Contribution to 2012 Growth 2012F 20
10 2 1 2
80
3 4 11 33
Citi Investment Research & Analysis (Year-over-Year % Change) Global GDP Developed Economies
U.S. Euro Area U.K.
Japan
Developing Economies
Brazil Russia India China
Global Consumer Prices
Global Inflation Developed Economies Developing Economies U.S. Core U.S. CPI
2011F 3.1
1.4
1.8
1.6
0.9
-0.4
6.0
3.3
4.0
7.6
9.1
4.0
2.6
6.5
1.7
3.2
2012F 2.8
1.2
1.9
-0.3
0.7
2.1
5.3
3.5
2.5
7.5
8.7
3.2
1.7
5.6
1.9
2.0
% Contribution to 2012 Growth 2012F 30
16 -2 1 7
70
4 2 9 31
Source: Morgan Stanley & Co. Research, Citi Investment Research & Analysis (CIRA), Morgan Stanley Smith Barney. Japan GDP forecasts for 2011 and 2012 are post 3/10/11 natural disaster. Note: Morgan Stanley regional and global forecast are GDP weighted averages, using Purchasing Power Parity estimates. That gives greater weights to developing economies. CIRA forecasts use real GDP. Data as of October 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.
4
MS Forecasts EM to Account for 80% of Global Growth
Global real GDP Growth (%)
08
Morgan Stanley Forecast
8.0
7.0
Forecast .
6.0
5.0
4.0
3.0
2.0
10 1.0
0.0
-1.0
-2.0
12 -3.0
70 72 74 76 78 80 82 84 86 DM Contribution Pre-Revision Global 88 90 92 94 96 98 EM Contribution Period Average 00 02 04 06 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, blue shaded area represents forecast.
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
US Recessions and Equity Returns U.S. Economic Cycles and Equity Market Returns (%) Since 1902
Economic Cycle U.S. Equity Mkt Trough Peak to Trough Sep-1902 May-1907 Jan-1910 Jan-1913 Aug-1918 Jan-1920 May-1923 Oct-1926 Aug-1929
May-1937 Feb-1945 Nov-1948 Jul-1953 Aug-1957 Apr-1960 Dec-1969 Nov-1973 Jan-1980 Jul-1981 Jul-1990 Mar-2001 Dec-2007 Apr-2011
-
-
-
-
Aug-1904 Jun-1908 Jan-1912 Dec-1914 Mar-1919 Jul-1921 Jul-1924 Nov-1927 Mar-1933
Jun-1938 Oct-1945 Oct-1949 - May-1954 Apr-1958 Feb-1961 Nov-1970 Mar-1975 Jul-1980 Nov-1982 Mar-1991 Nov-2001 Jun-2009 ?
09-Nov-1903 15-Nov-1907 25-Sep-1911 24-Dec-1914 07-Feb-1919 24-Aug-1921 30-Oct-1923 01-Nov-1926 08-Jul-1932
31-Mar-1938 26-Mar-1945 13-Jun-1949 14-Sep-1953 22-Oct-1957 25-Oct-1960 26-May-1970 03-Oct-1974 27-Mar-1980 12-Aug-1982 11-Oct-1990 09-Oct-2002 09-Mar-09 ?
Mean Median Post World War II Mean Post World War II Median
Recession Duration (Months)
15 13 11 10
14 13 43
13
23 13 24 23 7 18
8 11 10 8 10 11 16 6 16 8 8 18 ?
Market Lead to Cycle Trough (Months)
5 5 4 5
10 8 4 0 2 -1 9 13 9
3 7 5 9 6 4 6 6 4 4 6 -11 4 ?
U.S. Equity Market % Decline U.S. Equity Market % Gain After Trough
-43 -49 -27 -44 -25 -46 -18 -12 -85
-54 -2 -21 -15 -21 -13 -35 -48 -11 -27 -20 -49 -56 ?
-33 -27 -29 -21
1 Month
13 9 11 7
7 5 68
15
12 8 7 9 9 11
9 9 4 5 7 6 19 7 18 6 15 27 ?
6 Months
26 26 25 25
16 40 21 31 27 34 5 9 64
44 19 23 18 10 25 23 31 29 44 28 11 31 ?
12 Months
57 67 28 85 21 56 19 21 171
29 35 42 38 31 31 44 38 37 58 29 34 69 ?
47 37 41 38
Equity Trough to Prior Recession Peak Duration (Days)
603 461 465 471 549 454 149 59 742
268 52 251 177 71 207 261 437 120 431 92 526 ??
?
326 268 257 229 Source: Bloomberg, NBER, Morgan Stanley Smith Barney LLC. Data as of October 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.
6
MSCI AC World: Weight of GEMs
Emerging Market Share of Global Equities
16% 14% 16% 14% 12% 10% 8% 6% 4% BRIC: 6.1% Emerging Markets : 13.1% 12% 10% 8% 6% 4% 2% 2% 0% '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 0% Source: MSCI, FactSet, Morgan Stanley Smith Barney LLC. Data as of October 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
Emerging Market Equities Are Leading Global Equities
Emerging Market Equities Outperformed Developed Market Equities In the Decade Before March 2009 Trough and Since
Pe r ce nt (%) 30 25 20 15 10 5 0 -5 -2 USA 26 25 20 15 0 Unite d Kingdom -1 Eur ope e x UK 3 / 9 9 - 3 / 0 9 3 / 0 9 - C urre nt -2 Japan 3 10 Em e r ging M ar k e ts
Note: Returns are in local currency. Emerging Market equities trough: October 2008.
Source: MSCI (Investible Market Index, FactSet, Morgan Stanley Smith Barney LLC. Data as of October 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.
8
Global Earnings Per Share
2010E 2011E 2012E Morgan Stanley & Co.
Operating EPS ($) 85.00
96.00
Citi Investment Research & Analysis YOY Change (%) 37 13 S&P 500 Operating EPS ($) 85.49
97.00
YOY Change (%) 38 13 103.00
52 Week Forward 7 101.00
4 Consensus S&P 500 Operating EPS ($) 85.28
YOY Change (%) 40 98.03
15 MSCI AC World Operating EPS ($) 22.97
YOY Change (%) 39 MSCI EM Operating EPS ($) 84.49
YOY Change (%) 38 25.53
11 92.61
10 108.21
106.81
10 28.46
28.23
11 104.04
103.12
12
Source: Morgan Stanley & Co. Research, CIRA, Morgan Stanley Smith Barney, Thomson Financial, Standard & Poor’s.
Data as of November 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.
9
Interest Rate Forecasts
Policy Rates (%)
US Eurozone Japan UK China
Morgan Stanley & Co. Inc.
Current Rate 4Q11F
0.00 – 0.25
1.25
0.10
0.50
6.56* 0.02
1.25
0.05
0.50
6.56*
10-Year Government Bond Yields (%)
US Eurozone Japan 2.02
1.77
0.72
UK 2.12
2.00
2.00
1.50
2.20
4Q12F
0.02
1.00
0.05
0.50
6.56* 2.25
2.75
1.40
2.50
Citi Investment Research & Analysis Current Rate 4Q11F Policy Rates (%)
US Eurozone 0.00 - 0.25
1.25
0.25
1.00
Japan UK China 0.10
0.50
3.50** 0.10
0.50
3.50**
4Q12F
0.25
1.00
0.10
0.50
3.50**
10-Year Government Bond Yields (%)
US 2.02
Eurozone Japan 1.77
0.72
UK 2.12
2.00
1.70
1.10
2.20
2.75
1.70
1.30
2.00
*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 LLC. Data as of November 2011.
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.
Please refer to important information, disclosures and qualifications at the end of this material.
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.
10
Stocks vs. Bonds and Cash Valuation
2 1
Standard Deviations From Average
4 3 Cash Rate/Dividend Yield Bond Yield/Dividend Yield 0 Equities Relatively Expensive -1 -2 Equities Relatively Cheap -3 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 3 -1 -2 -3 2 1 0 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 November 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.
11
US Secular Stock Bear and Bull Markets and Inflation Since 1946
Cyclical Bear Market in Equities Is Underway S&P 500 (log scale)
2,000 1,000
Bull 1 946 - 196 8 Av erage Annual Total Return Nominal = 1 4% Re al = 11%
600 500 400 300 200 100 60 50 40 30 20
Be ar 19 68 - 1982 Av erage Annual Total Return Nominal = 6 % Re al = (2 )%
Co re CPI S&P 500 Pri ce
Bull 1 982 - 200 0 Av erage Annual Total Return Nominal = 1 8% Re al = 15%
Core CPI (% )
Be ar 3/200 0 -3/2009 Av erage Annual Total Return Nominal = (5)% Re al = (7 )%
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% '4 6 '4 8 '5 0 '5 2 '5 4 '5 6 '5 8 '6 0 '6 2 '6 4 '6 6 '6 8 '7 0 '7 2 '7 4 '7 6 '7 8 '8 0 '8 2 '8 4 '8 6 '8 8 '9 0 '9 2 '9 4 '9 6 '9 8 '0 0 '0 2 '0 4 '0 6 '0 8 '1 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 April 2011.
Source: Morgan Stanley Smith Barney, Bloomberg, Ibbotson Associates and FactSet. Data as of October 2011.
The following disclosure pertains to Ibbotson Associates’ data on slides 12 and 13: (c) 2011 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) 2011 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.
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 Started in 1981
LT Bond Yie ld (YoY%) Core CPI (YoY%)
16
Bear 1946 - 1981
14
Bull 1981 - Present
12 10 8 6 4
Averag e Annu al To tal Return No minal = 2% Real = (2)%
Long Bond Yield Core CPI Av erage Annual Total Return Nominal = 12% Real = 9% 2 0 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
Source: Citi Global Weatlh Management, Bloomberg, Ibbotson and Factset.Note: Core CPI 5 YEAR ma; headline CPI prior to 1963.
98 00 02 04 06 08 10
©FactSet Research Systems
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 October 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.
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 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.
Securities’ (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI). While 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.
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
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