Wilmington Trust Reshapes Portfolio, Raising Allocations to U.S. Large-Cap and Emerging Markets Stocks to Overweight; Reduces Level of Tax-Exempt High Yield

WILMINGTON, Del., Dec. 14, 2020 /PRNewswire/ -- Wilmington Trust today unveiled its new portfolio outlook for 2021 as a key component of its annual Capital Markets Forecast titled, "Building Portfolios for Success: Where Are the Investment Opportunities for 2021 and Beyond?" The outlook dives into the firm's investment positioning for early 2021 and where Wilmington Trust sees the landscape shifting in the new year.

The firm expects the gap between its 12-month economic outlook and equity market valuation will start to close in 2021. The improving economy, potential for a divided government, and a supportive Federal Reserve all combine to provide one of the most constructive environments for equities since before the pandemic. Wilmington Trust increased its equity allocation in November 2020 to slightly overweight and favors emerging market equities alongside expectations for economic recovery, a weaker dollar, and a global shift toward digitization.

"The economic turnaround in the aftermath of the COVID pandemic will not be a straight line, as we expect many challenges and setbacks resulting in continued volatility for investors in the short term," said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors, Inc. "In this environment of short-term economic instability, we are advising our clients to look through near-term economic weakness, utilize any market dips as an opportunity to invest excess cash, and determine the best ways to stress test their portfolios to achieve future investment goals."

Wilmington Trust Portfolio Outlook Overview

• U.S. Large-Cap Equities (Outlook Neutral): Digital disruption and the Fed's commitment to low interest rates will continue to benefit tech-heavy U.S. large-cap equities, but this is countered by high valuations; vaccine distribution could benefit the market's laggards. Large firms are better placed to shift supply chains and to invest in new, productive technologies.
• U.S. Small-Cap Equities (Outlook Neutral): Small caps stand to advance the most from a faster economic recovery, but near-term economic risks remain; M&A activity could result in disruption—and selective investment opportunities—over the next 12 months.
• International Developed Equities (Outlook Neutral): Labor markets in Europe and the UK have been cushioned somewhat from protective labor practices, but we expect this to impair long-term productivity growth. Fiscal debt management continues to be challenging in the eurozone. A hard Brexit remains a risk largely unpriced into markets.
• Emerging Markets Equities (Outlook Overweight): The asset class stands to prosper from the structural acceleration of tech adoption around the world, and local firms are likely to adopt new productive technologies. Emerging markets (EM)—China, in particular—could profit from a more benign trade backdrop under a Biden administration and expectations for a weaker dollar; valuations of EM growth equities still look attractive relative to the U.S.
• Tax-Exempt Investment Grade (Outlook Overweight): We retain a modest overweight given near-term economic risks; potentially divided government poses less of a risk of dramatically higher rates over the next 12 months, but the long-term debt burden could drive rates higher (and returns lower) over a longer time horizon.
• Tax-Exempt High Yield (Outlook Underweight): Lower-rated municipalities, airports, public transportation, and higher education institutions face headwinds under our base case assumptions of fiscal stimulus, while current valuations do not appear to fully compensate for this risk.
• Real Assets (Outlook Underweight): Wilmington Trust strikes a slightly cautious tone on Treasury inflation-protected securities (TIPS), real estate investment trusts (REITs), and commodities broadly but sees the record levels of stimulus as supportive of a modest allocation to gold over a 12-month horizon.
• Alternatives (Outlook Neutral): A more constructive stance on equities leads us to reduce liquid alternatives to a neutral allocation; structural changes to the market and the potential for periods of higher volatility in the future necessitate a full allocation to the asset class.
• Cash (Outlook Neutral): We maintain a benchmark-weight to cash as incredibly low rates offset the opportunity cost of maintaining "dry powder" for future opportunities.

For more on the 2021 Wilmington Trust Capital Markets Forecast and investment outlook, please visit https://www3.wilmingtontrust.com/cmf-2021.

About Wilmington Trust

Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation's international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC.

Wilmington Trust Investment Advisors, Inc. (WTIA), a subsidiary of Manufacturers and Traders Trust Company ("M&T Bank"), is a U.S. Securities and Exchange Commission-registered (SEC) investment adviser providing investment management services principally to Wilmington Trust and M&T Bank affiliates and institutional clients. Registration with the SEC does not imply a certain level of skill or training. Additional Information about WTIA is also available on the SEC's website at https://adviserinfo.sec.gov/.

Investing involves risk and you may incur a profit or a loss. There is no assurance that any investment strategy will be successful. Diversification does not ensure a profit or guarantee against a loss. Past performance cannot guarantee future results.

Wilmington Trust's Capital Markets Forecast 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 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. The 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 forecasts presented herein constitute the informed judgments and opinions of Wilmington Trust about likely future capital market performance. Forecasts are 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. 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.

Some investment products may be available only to certain "qualified investors"—that is, investors who meet certain income and/or investable asset 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. 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.

The gold industry can be significantly affected by international monetary and political developments as well as supply and demand for gold and operational costs associated with mining.

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.

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.

Model strategies may include exposure to the following asset classes: U.S. large-capitalization stocks, U.S. small-cap stocks, developed international stocks, emerging markets 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.

Allocations Each strategy is constructed with target weights for each asset class. Wilmington Trust periodically adjusts the target allocations and may shift away from the target allocations within certain ranges. Such tactical adjustments to allocations typically are considered on a monthly basis in response to market conditions. The asset classes and their current proxies are: large–cap U.S. stocks: Russell 1000® Index; small–cap U.S. stocks: Russell 2000® Index; developed international stocks: MSCI EAFE® (Net) Index; emerging markets stocks: MSCI Emerging Markets Index; U.S. inflation-linked bonds: Bloomberg/Barclays US Government ILB Index; international inflation-linked bonds: Bloomberg/Barclays World exUS ILB (Hedged) Index; commodity-related securities: Bloomberg Commodity Index; U.S. REITs: S&P US REIT Index; international REITs: Dow Jones Global exUS Select RESI Index; private markets: S&P Listed Private Equity Index; hedge funds: HFRI Fund of Funds Composite Index; U.S. taxable, investment-grade bonds: Bloomberg/Barclays U.S. Aggregate Index; U.S. high-yield corporate bonds: Bloomberg/Barclays U.S. Corporate High Yield Index; U.S. municipal, investment-grade bonds: S&P Municipal Bond Index; U.S. municipal high-yield bonds: Bloomberg/Barclays 60% High Yield Municipal Bond Index / 40% Municipal Bond Index; international taxable, investment-grade bonds: Bloomberg/Barclays Global Aggregate exUS; emerging bond markets: Bloomberg/Barclays EM USD Aggregate; and cash equivalents: 30-day U.S. Treasury bill rate.

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SOURCE Wilmington Trust