December 2014 Economic Outlook All data as of November 30, 2014 unless otherwise noted.
-4-2 0 2 4 6 8 10 12 14 16 18 20 22 24 Economic Outlook and Capital Markets Slow growth has characterized the current expansion Real GDP Growth From Past Recessions 140 135 130 125 120 115 110 105 100 95 Indexed to 100 at end of recession Quarters Before and After End of Recession 73-75 81-82 90-91 2001 Great Rec. 2 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
-4-2 0 2 4 6 8 10 12 14 16 18 20 22 24 Economic Outlook and Capital Markets Slow Growth reflected in below average productivity growth Productivity Growth-Recovery From Past Recessions 115 Indexed to 100 at end of recession 110 105 100 95 Quarters Before and After End of Recession 73-75 81-82 90-91 2001 Great Rec. Source: Bloomberg, WTIA 3 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Income growth can t expand without improved productivity Income Growth-Recovery From Past Recessions 125.0 120.0 Indexed to 100 at end of recession 115.0 110.0 105.0 100.0 95.0-12 -8-4 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 Months Before/After Recesssion End 1973-75 1981-82 1990-91 2001 Great Rec. 4 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Low wage growth: Inflation has been well contained 2.5 2.0 1.5 1.0 0.5 0.0 PCE Price Index CPI ex-food & Energy 5 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Low wage growth: Job gains in low paying industries Number of Workers Indexed to 100 at Jan 1, 2006 120 110 Big gains in employment in lower paying jobs 100 90 80 70 60 Manufacturing Construction Food & Beverage Temporary Leisure 6 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Declining oil prices bode well for future inflation readings Brent Crude Oil ($/bbl.) $160 $140 $120 $100 $80 $60 $40 $20 $0 7 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information. Source: Bloomberg, WTIA
Global savings from $40/barrel drop in oil exceed $1.3 trillion Annual Savings in $ billions World 1,319.48 Asia & Oceania 427.99 North America 342.21 United States 276.83 Europe 208.75 China 147.70 Middle East 117.23 Central & South America 102.63 Eurasia 68.48 Japan 66.15 Africa 52.18 India 51.23 Russia 48.47 Brazil 45.22 Saudi Arabia 42.71 Canada 35.40 Germany 35.09 Korea, South 33.93 Mexico 29.85 Iran 27.30 France 25.80 Indonesia 24.24 United Kingdom 22.02 Italy 19.20 Singapore 18.86 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 8 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Beyond oil, many commodities also coming down in price Reuters Continuous Commodity Index (CCI) 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 9 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Labor market slack: Non-Boomer participation rate Labor Force Participation Rate Ages 25-54 84.0 83.5 83.0 82.5 82.0 81.5 81.0 80.5 80.0 10 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
(%) Economic Outlook and Capital Markets Residual labor slack: unemployment differential still wide Unemployment Rate and U-6 Unemployment Rate 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 3.8% 7.2% 5.6% Unemployment Rate U-6 Unemployment Rate 11 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Job Openings (000) Economic Outlook and Capital Markets Reducing labor market slack: gains in prospective openings Job Openings (JOLT, 000) 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 12 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information. Source: Bloomberg, WTIA
(000) Economic Outlook and Capital Markets November report confirms job gains are accelerating Gains in Non-farm payrolls 600 400 200 0-200 -400-600 -800-1000 12 Month Avg. 13 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Manufacturing has provided a strong underpinning Index of Industrial Production 105 100 95 90 85 80 14 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information. Source: Bloomberg, WTIA
Corporate Earnings at record levels and building S&P 500 Index Estimated Earnings Next 12 Months 140 130 120 110 100 90 80 70 15 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information. Source: Bloomberg, WTIA
No recession on the horizon Conference Board Index of Leading Indicators 120 110 100 90 80 70 60 50 40 Source: Bloomberg, WTIA, NBER 16 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
(%) Economic Outlook and Capital Markets Economic Snapshot--International Urgency for Europe to get a better handle on their economic situation has escalated Real Inflation Adjusted Global Growth Actual 2013 and Projected 2014-15 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - (1.0) (2.0) 2013 2014 2015 Source: Bloomberg, WTIA, 17 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
United States vs Europe-Good vs Bad Deleveraging Consumer Credit Outstanding 3,500 3,100 2,700 2,300 1,900 1,500 5,500 5,000 4,500 4,000 3,500 3,000 U.S. Consumer Credit Outstanding ($ Bil) European Consumer Credit Outstanding ( Bil) Source: Bloomberg, WTIA, 18 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Y/Y Real GDP Growth Economic Outlook and Capital Markets United States vs Europe--Growth diverged in 2011 Year over Year Real GDP Growth 4.0 3.0 2.0 1.0 0.0-1.0-2.0-3.0-4.0-5.0-6.0 Eurozone United States Source: Bloomberg, WTIA, 19 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
% YoY Economic Outlook and Capital Markets Core Europe leading current slowing German economy turning down 20 10 0-10 -20-30 120 115 110 105 100 95 90 85 80 75 70 German Industrial Production (% Y/Y) IFO Pan German Business Expectations (RHS) Source: Bloomberg, WTIA 20 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Billions Economic Outlook and Capital Markets ECB looking to add but will it be enough? European Central Bank balance sheet 3,200 2,700 2,200 1,700 1,200 700 Source: Bloomberg, WTIA, 21 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Capital Market Trends U.S. Equities Leading the Way SP 500 Price and PE 2200 22 2000 20 1800 18 1600 16 1400 14 1200 12 1000 10 800 8 600 6 10/15/2010 10/15/2011 10/15/2012 10/15/2013 10/15/2014 LAST_PRICE PE (rhs) = 16. Source: Bloomberg, WTIA, 22 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
October swoon proved to be a correction--at least in U.S. Relative Performance Major Equity Markets Past 2 Years 160 150 140 130 120 110 100 90 80 70 11/30/2012 3/31/2013 7/31/2013 11/30/2013 3/31/2014 7/31/2014 Russell 3000 International Developed Markets (EAFE) Emerging Market (MSCI EM Index) Source: Bloomberg, WTIA, 23 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
VIX Index Economic Outlook and Capital Markets Volatility returns to pre-correction levels VIX-Equity Market Volatility 90 80 70 60 50 40 30 20 10 0 Source: Bloomberg, WTIA, 24 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Relative Valuations using Price to Sales S & P 500 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 0.4 0.7 0.9 1.2 1.4 1.7 1.9 3.0 EAFA 2.0 1.0 0.0 0.4 0.7 0.9 1.2 1.4 1.7 1.9 Emerging Markets 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.4 0.7 0.9 1.2 1.4 1.7 Distributions based on daily history from 1/1/2007 25 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Yield (%) Economic Outlook and Capital Markets Flatter yield curve likely as Fed considers policy change U.S. Treasury Yield Curves: historic and prospective 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 0 5 10 15 20 25 30 Years to Maturity US Trsy 1/31/2014 US Trsy 10/31/2014 Forward Curve 1 year out (as of 10/31) Source: Bloomberg, WTIA 26 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
Municipal Market Remains Attractive 95.6% Tax-Equivalent calculation assumes maximum marginal tax rate of 39.6% plus 3.8% ACA surtax. 27 2014 Wilmington Trust Investment Advisors, Inc. All rights reserved. Please see disclosures for important information.
A P P E N D I X Disclosures Advisory Service Providers Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Investment management and fiduciary services are provided by Wilmington Trust Company, operated in Delaware only; Wilmington Trust, N.A., a national bank; and Manufacturers and Traders Trust Company (M&T Bank), member FDIC. 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, mutual funds services and other securities 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 This material is provided for informational 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 their objectives, financial situations, and particular needs. The investments or investment strategies discussed herein may not be suitable for every investor. This material 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 opinions, estimates, and projections presented herein constitute the informed judgments of Wilmington Trust and are subject to change without notice. Expected return information in this presentation is derived from forecasting. Forecasts are subject to a number of assumptions regarding future returns, volatility, and the interrelationship (correlation) of asset 28 classes. 2013 Wilmington Actual events Trust or Investment results may Advisors, differ Inc. from All underlying rights reserved. 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 information in 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. An Overview of Our Asset Allocation Strategies Wilmington Trust offers five model asset allocation strategies each for taxable and tax-exempt investors with particular sets of objectives and risk tolerances: Aggressive, Growth, Growth & Income, Income & Growth, and Conservative. Each strategy can be implemented with or without allocations to hedge funds. On a quarterly basis we publish the results of all of these strategy models versus benchmarks representing static investments without tactical tilts. Model Strategies may include exposure to the following asset classes: US large-capitalization stocks, US small-cap stocks, developed international large-cap, developed international small-cap and emerging market stocks, inflation hedges (including global inflation-linked bonds and commodityrelated and global real estate-related securities), investment-grade bonds (corporate or municipal), high-yield corporate bonds and floating-rate notes, and cash equivalents. Directional and absolute return hedge funds are distinct to the strategies with hedge funds. Each asset class carries a distinct set of risks, which should be reviewed and understood prior to investing.
A P P E N D I X Disclosures Continued Risk Assumptions All investments carry some degree of risk. The volatility, or uncertainty, of future returns is a key concept of investment risk. Standard deviation is a measure of volatility and represents the variability of individual returns around the mean, or average annual, return. A higher standard deviation indicates more return volatility. This measure serves as a collective, quantitative estimate of risks present in an asset class or investment (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. Quality Ratings Quality ratings are used to evaluate the likelihood of default by a bond issuer. Independent rating agencies, such as Standard & Poor s and Moody s Investors Service, analyze the financial strength of each bond s issuer. Moody s ratings range from Aaa (highest quality) to C (lowest quality). Bonds rated Baa3 and better are considered investment grade. Bonds rated Ba1 and below are below investment grade (also high yield or speculative ). Similarly, Standard & Poor s ratings range from AAA to D. Bonds rated BBB and better are considered investment grade and bonds rated BB+ and below are below investment grade. Investing involves risks and you may incur a profit or a loss. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. The names of actual companies and products mentioned herein may be the trademarks of their respective owners. Indices 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, that would reduce returns. 29 2013 Wilmington Trust Investment Advisors, Inc. All rights reserved.