Wilmington Trust Provides 10-Year Capital Markets ForecastAdrian Cronje, Vice President and Director of Asset Allocation, Wilmin
28 February 2007 - 2:18AM
Business Wire
Investment experts from Wilmington Trust, one of the nation�s
leading wealth managers, have released a 10-year outlook for the
capital markets. Their forecast calls for a period in which
investment returns will be more modest and in a much narrower range
than what has been seen in recent years. �There are no more obvious
bargains available, and the reward that can be expected from taking
additional risk is much lower today than it was five years ago,�
asserted Adrian Cronje, Ph.D., CFA�, author of the report. �It
would be a mistake to extrapolate the relatively benign conditions
and high returns of the last few years into the decade ahead.� The
most probable outcome over the next 10 years, Mr. Cronje writes, is
that economic growth around the world will continue to be robust,
making inflation more likely than deflation. As a result,
Wilmington Trust�s strategies emphasize equities, with a bias
toward large, high-quality stocks in the United States and toward
emerging markets within the international arena. Still, there are
several risks not yet reflected in the capital markets that could
lead to unwelcome surprises for investors. Mr. Cronje, who also
serves as director of asset allocation and a member of Wilmington
Trust�s Investment Strategy Team, believes these risks include
declines in labor force participation and productivity in the U.S.,
which would raise the twin threats of unexpectedly high inflation
and low corporate earnings; a potential currency crisis for the
dollar; unintended policy mistakes by any of the world�s central
banks, including the Federal Reserve; growing calls for greater
protectionism and amended tax policies that could harm economic
prospects; and global geopolitical disruption or another major
terrorist action. �The low risk premiums in today�s markets imply
that many things are expected to go well, when they may not,� Mr.
Cronje said. �Diversification and a long-term view will be
investors� best allies, as they always have been. Diversification
provides the best protection against negative surprises and a long
time horizon provides the best chance to take advantage of the
underlying cycles in capital market returns.� Wilmington Trust�s
strategies include allocations to inflation-linked bonds, real
estate, and commodities to guard against unexpectedly high
inflation; non-directional hedge funds to guard against
unexpectedly high levels of volatility; and fixed income holdings
to guard against unexpectedly low underlying economic growth. �Our
clients should participate in pleasant upside surprises if the
current momentum in the economy and the markets continues,� Mr.
Cronje said. �But our main emphasis now is to design asset
allocation mixes to preserve wealth after inflation and taxes when
risk premiums eventually widen. Over the next few years, we believe
that risk management will play a greater role than return
enhancement in the results investors experience. Effective risk
management is what will translate into higher sustainable spending
rates for clients.� Beyond the expected benefits from
diversification, Mr. Cronje also writes about other opportunities
Wilmington Trust has identified for protecting and growing clients�
real after tax spending power. Chief among these is the ability to
manage strategic asset mixes through a disciplined, objective
rebalancing process. �Tactical asset allocation is an
underappreciated source of risk reduction and return enhancement,�
he said. �When taking a 10-year view to guide strategic allocations
to stocks, it�s natural to bias one�s starting point for near-term
tactical asset allocation toward value because it�s an efficient
way to capture the equity risk premium. That is one reason why we
recommend investors consider the use of fundamentally weighted
strategies in tandem with more traditional market capitalization
weighted approaches.� The purpose of Wilmington Trust�s 10-year
capital markets forecast is to arrive at a reasonable
characterization of the potential distribution of future returns
and risks for public and private capital markets over longer
horizons; it is not to form precise percentage-point predictions.
The company looks out 10 years, Mr. Cronje said, because anything
less is too short with respect to having patience with asset
classes, and anything longer is too uncertain with respect to
projecting underlying economic conditions. The 10-year horizon also
serves to increase the number of asset classes the company can
consider, he added, because it can more readily compare the returns
and risks of alternative illiquid assets classes, such as private
equity and real estate, with their public, more liquid
counterparts. Mr. Cronje holds a Ph.D. in Macroeconomics and
Econometrics and a master�s degree in Economics and Finance from
the University of Cambridge, United Kingdom. He earned his
bachelor�s degree in Economics, with honors, from the University of
Cape Town, South Africa. He holds the CFA Institute�s Chartered
Financial Analyst� designation and a certificate from the U.K.
Institute of Management Research. Wilmington Trust Corporation
(NYSE:WL) is a financial services holding company that provides
wealth management and specialized corporate services to clients
throughout the United States and in many other countries, and
commercial banking services throughout the Delaware Valley region.
Its wholly owned bank subsidiary, Wilmington Trust Company, was
founded in 1903 and is one of the largest personal trust providers
in the United States and the leading retail and commercial bank in
Delaware. Wilmington Trust Corporation and its affiliates have
offices in California, Connecticut, Delaware, Florida, Georgia,
Maryland, Nevada, New Jersey, New York, Pennsylvania, South
Carolina, Vermont, the Cayman Islands, the Channel Islands, London,
Dublin, and Frankfurt. For more information, visit
www.wilmingtontrust.com. CFA� and Chartered Financial Analyst � are
trademarks owned by the CFA Institute. Journalists may obtain a
copy of Wilmington Trust�s report, 10-Year Capital Markets Forecast
for Strategic Planning, from the media contacts identified at the
top of this press release. The information contained herein is not
intended to be an offer or solicitation for the sale of any
financial product or service or 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. 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 or any other bank or entity, and are subject to
risks, including a possible loss of the principal amount invested.
Some investment products, including hedge funds, may be available
only to certain �qualified investors� � that is, investors who meet
certain income and/or investable assets thresholds. Past
performance is no guarantee of future results.
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