- Outlook 2014
- U.S. and Europe: Slow and Steady
- China: Consumers Keep Spending
- Fixed Income: Options for a Low Rate World
- U.S. Energy: Game-Changing Growth
View 2014 Market Outlook
- Investors seeking growth should focus on developed market equities, MLPs and exposure to Chinese consumers.
- Investors should favor credit-oriented bonds and munis over traditional fixed income vehicles.
- Emerging markets have long-term potential despite short-term challenges.
Despite a host of ongoing challenges worldwide, investors drove many risk assets higher in 2013. Developed-market equities stand out, while emerging market stocks and bonds, as well as some alternative asset classes, saw less impressive results. What does 2014 have in store for investors? President and CIO Art Steinmetz and Chief Economist Jerry Webman address the major trends shaping the year ahead.
Steinmetz explains why investors seeking growth should focus on developed market equities, MLPs and exposure to Chinese consumers. He also believes income investors should favor credit-oriented bonds and municipal bonds.
Webman argues that the U.S. economy is still in the early stages of the business cycle and that U.S. economic expansion may have room for more growth. He believes U.S. equities will likely end the year 2014 higher and once again outperform government bonds. Global opportunities will also likely emerge as Europe’s fragile recovery gains steam and emerging market demographics start to yield interesting new investment ideas.
Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a Fund’s share prices can fall. Further, a portion of some funds’ distributions may be taxable and may increase alternative minimum tax (AMT) for investors subject to that tax; distributions from net realized capital gains are taxable as capital gains. Below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and political and economic uncertainties. Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss.
Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in an Oppenheimer SteelPath MLP Fund does not offer the same tax benefits of a direct investment in an MLP. The Funds are organized as Subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depend on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution which could result in a reduction of the fund’s value. MLP funds accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund's after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.
These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are subject to change based on subsequent developments.
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