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MIDYEAR UPDATE: Do Municipal Bonds Make Sense for You? With David Litvack, Head of Tax Exempt Research, U.S. Trust Please see important information at the end of this program Recorded July 14, 2016 Mr. LITVACK: I’m David Litvack, head of Tax Exempt Research, and I’m here to tell you about our outlook for municipal bonds in the second half. For the first half, we saw municipal bonds perform really well. Demand has been very strong, from investors looking for tax-exempt income. And supply of municipal bonds has been relatively limited. So as a result, we’ve seen yields come down and municipal bond performance strong for the first half, both in investment-grade munis, as well as high-yield munis. Fundamentally, we’re pretty optimistic on municipal credit. However, there are three areas where we have concerns, and we’re watching, public pensions, oil-producing states, and of course, Puerto Rico. On pensions, we’re concerned because over the last 10 or 15 years, public pensions in the United States have actually deteriorated quite alarmingly. We’re concerned about Illinois, Kentucky, and New Jersey, amongst some others. On oil, we’re concerned about the price decline over the last two years, and the impact that’s had on certain states, mostly Alaska, North Dakota, Louisiana, and Oklahoma. With regards to Puerto Rico, Puerto Rico has been undergoing some severe economic and fiscal contraction, over the last 10 or 15 years. On July 1, Puerto Rico defaulted on about $1 billion worth of debt. Congress has been watching this with great concern. And they passed, a law that puts in place a financial control board on Puerto Rico, and also gives them a stay on credit litigation. And that’s designed to help them get their financial house in order. However, we’re still concerned about Puerto Rico bonds, and we’ll know more about how Puerto Rico’s prospects will go, as we see that process unfold over the next few months. In summary, we’re positive on municipal bonds as a prudent investment for taxsensitive investors, although we do advise investors to stay high quality and avoid going down the credit spectrum, in search of yield. 1 Important Information: Investing involves risk, including the possible loss of principal. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss. The investments discussed have varying degrees of risk. Bonds are subject to interest rate, inflation and credit risks. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT). Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks. Global Wealth & Investment Management is a division of Bank of America Corporation (“BofA Corp.”).Merrill Lynch Wealth Management, Merrill Edge®, U.S. Trust and Bank of America Merrill Lynch are affiliated sub-divisions within Global Wealth & Investment Management. Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and other subsidiaries of BofA Corp. Merrill Edge is available through MLPF&S, and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., and other subsidiaries of BofA Corp. The Private Banking and Investment Group is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Group's Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill Lynch's obligations will differ among these services. The banking, credit and trust services sold by the Group's Private Wealth Advisors are offered by licensed banks and trust companies, including Bank of America, N.A., member FDIC, and other affiliated banks. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of BofA Corp. Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of BofA Corp. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value © 2016 Bank of America Corporation. All rights reserved. ARVV7D4J 2