Outlook 2012
Delaware Investments portfolio managers took some time to reflect on the market conditions of 2011 and share their various perspectives on 2012. The wide range of viewpoints reflects the diversity of opinion that thrives at Delaware Investments.
Emerging markets
Liu-Er Chen describes the three macroeconomic drivers that are likely to affect emerging market performance in 2012, including:
- the sovereign debt crises in the euro zone
- the pace of economic growth in the United States
- a potential economic "soft landing" in China
Given the degree of uncertainty surrounding the resolution of each of these themes, Chen looks for volatility to remain high across the emerging market investment landscape in 2012. Over the long term, however, Chen believes that the secular drivers behind emerging markets remain unchanged.
Liu-Er Chen, CFA Senior Vice President
Chief Investment Officer –
Emerging Markets and Healthcare
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Fixed income — municipal
Municipal bonds had a strong 2011, overcoming headwinds that were particularly notable in the early months of the year. As 2012 gets under way, technical conditions for municipal bonds appear to be quite positive, though not without certain challenges. In this commentary, portfolio manager Greg Gizzi discusses several factors that could affect municipal bond markets as the year plays out. These include:
- manageable supply conditions
- increased emphasis on deficit-reduction policies across many states
- the possibility of volatility due to sovereign debt distress in Europe
Gregory A. Gizzi Vice President
Portfolio Manager
Head of Convertible Bond and Municipal Bond Trading
Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to the federal alternative minimum tax (AMT) that applies to certain investors. Capital gains, if any, are taxable.
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
The Barclays Capital Municipal Bond Index measures the total return performance of the long-term, investment grade tax-exempt bond market.
Standard & Poor’s credit rating agency. Bonds rated below AAA, including A, are more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories, but the obligor’s capacity to meet its financial commitment on the obligation is still strong. Bonds rated BBB exhibit adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics with BB indicating the least degree of speculation.
Fixed income — taxable
In the wake of several volatile, but generally successful, years for fixed income investors, Paul Matlack of the Delaware Investments Fixed Income team foresees 2012 as a year in which bonds return to their more traditional role within a portfolio: a means of generating income.
Matlack also discusses several themes that he believes could affect fixed income returns in 2012. These include:
- ongoing volatility due to a still-cloudy macroeconomic picture
- the continued health of the corporate credit market
- another year of low interest rates
Paul A. Matlack, CFA Senior Vice President
U.S. Fixed Income Strategist
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Global and international value equity
Ned Gray of the Delaware Investments Global and International Value Equity team reflects on effects of the past year’s events and volatility that overwhelmed global markets during much of 2011. Ned discusses his team’s approach to 2012.
He also discusses several themes that he believes could affect the global equity markets in 2012. These include:
- the ongoing euro-zone debt crisis
- the issues facing emerging market countries, both positive and negative (with a focus on China)
- the team’s emphasis on seeking what it views as "cheap" quality investments
Edward A. "Ned" Gray, CFA Senior Vice President
Chief Investment Officer –
Global and International
Value Equity
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Large-cap value equity
Ty Nutt and Carl Rice discuss their team's focus on several key portfolio themes for 2012, including: quality, cheap valuations, and a focus on downside risk. They also discuss attributes of companies they believe may have a good chance of outperforming the broader market in 2012. These include companies with:
- strong cash flows
- diversified business models
- relatively high dividend yields
D. Tysen Nutt Jr. Senior Vice President
Senior Portfolio Manager
Team Leader
Carl D. Rice, CFA Vice President
Senior Investment Specialist
Value investing focuses on buying stocks that are trading at bargain prices based on fundamental analysis, then holding them until they become fully valued. Typically, value investors select securities with lower than average price-to-book or price-to-earnings ratios and/or high dividend yields.
Diversification may not protect against market risk.
The P/E ratio is a valuation ratio of a company’s current share price compared to its earnings per share.
Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
The S&P/Case-Shiller 20-City Home Price Index measures the residential housing market, tracking changes in the value of single-family housing in 20 metropolitan regions across the United States.
The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Real estate securities and income solutions
Despite his belief that the global economy will experience slow growth as many of the past year’s challenges continue into 2012, Bob Zenouzi also believes that attractive opportunities to build income within the team’s investment portfolios will present themselves in the new year.
Zenouzi also discusses several themes he believes could affect the asset classes that his team will focus on in the upcoming year. These include:
- global debt levels in the developed markets
- widening credit spreads
- emerging property-side opportunities in Southeast Asia and Australia
Babak "Bob" ZenouziSenior Vice President
Chief Investment Officer –
Real Estate Securities
and Income Solutions (RESIS)
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.
REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations. A REIT fund’s tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.
“Nondiversified” Funds may allocate more of their net assets to investments in single securities than "diversified" Funds. Resulting adverse effects may subject these Funds to greater risks and volatility.
International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.
The views expressed in each outlook represent the Manager's assessment of the market environment as of December 2011, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the manager's current views. The views expressed in each outlook are general in nature and do not relate to a particular mutual fund.
Investing involves risk, including the possible loss of principal.
Certain statements made here are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe", "anticipate", "expect", "estimate", "project", "will", "shall" and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. The protection afforded by the safe harbor for forward-looking statements provided by the PSLRA are claimed hereunder.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially.
Investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this document.