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This market commentary has been prepared for general informational purposes by the
team, who are part of Macquarie Asset Management (MAM), the asset management business of Macquarie
Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary
reflects the views of the team and statements in it may differ from the views of others in MAM or of
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and economic environments and opportunities are based on the team’s opinion, belief and judgment.
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not guarantee or otherwise provide assurance in respect of the obligations of these other Macquarie
Group entities. In addition, if this document relates to an investment, (a) the investor is subject to
investment risk including possible delays in repayment and loss of income and principal invested and
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return on or the performance of the investment, nor do they guarantee repayment of capital in respect
of the investment.
Past performance does not guarantee future results.
Diversification may not protect against market risk.
Fixed income securities and bond funds can lose value, and investors can lose
principal, as interest rates rise. They also may be affected by economic conditions that hinder an
issuer’s ability to make interest and principal payments on its debt. This includes prepayment risk,
the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity at
the time when interest rates are lower than what the bond was paying. A portfolio may then have to
reinvest that money at a lower interest rate.
Market risk is the risk that all or a majority of the securities in a certain
market – like the stock market or bond market – will decline in value because of factors such as
adverse political or economic conditions, future expectations, investor confidence, or heavy
institutional selling.
Currency risk is the risk that fluctuations in exchange rates between the US dollar
and foreign currencies and between various foreign currencies may cause the value of an investment to
decline. The market for some (or all) currencies may from time to time have low trading volume and
become illiquid, which may prevent an investment from effecting positions or from promptly liquidating
unfavorable positions in such markets, thus subjecting the investment to substantial losses.
Credit risk is the risk of loss of principal or loss of a financial reward stemming
from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk
arises whenever a borrower expects to use future cash flows to pay a current debt. Investors are
compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt
obligation. Credit risk is closely tied to the potential return of an investment, the most notable
being that the yields on bonds correlate strongly to their perceived credit risk.
Investors must have the financial ability, sophistication/experience, and
willingness to bear the risks of an investment in private market securities. Such securities may be
available only to qualified, sophisticated investors, may have liquidity constraints, and may bear the
risk of investment in private markets securities.
Private market investments may entail a high degree of risk and investment results
may vary substantially on a monthly, quarterly or annual basis. Among many risk factors, some are
particularly notable. These include, without limitation, the general economic environment, the health
of the housing market, employment levels, the availability of financing, the quality of servicing the
assets backing the securities, the seniority and credit enhancement levels for structured securities,
government actions or initiatives, and the impact of legal and regulatory developments. Additionally,
private markets strategies may represent speculative investments and an investor could lose all or a
substantial portion of their investment.
International investments entail risks including fluctuation in currency values,
differences in accounting principles, or economic or political instability. Investing in emerging
markets can be riskier than investing in established foreign markets due to increased volatility,
lower trading volume, and higher risk of market closures. In many emerging markets, there is
substantially less publicly available information and the available information may be incomplete or
misleading. Legal claims are generally more difficult to pursue.
Investment strategies that hold securities issued by companies principally engaged
in the infrastructure industry have greater exposure to the potential adverse economic, regulatory,
political, and other changes affecting such entities.
Infrastructure companies are subject risks including increased costs associated
with capital construction programs and environmental regulations, surplus capacity, increased
competition, availability of fuel at reasonable prices, energy conservation policies, difficulty in
raising capital, and increased susceptibility to terrorist acts or political actions.
Inflation is the rate at which the general level of prices for goods and services
is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe
inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a
minimum.
Recession is a period of temporary economic decline during which trade and
industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
A sector is a segment of the economy that includes companies providing the same
types of products or services. Although companies within a sector tend to be reasonably consistent in
their fundamentals, these fundamentals may differ substantially from one sector to another. For
example, some sectors are cyclical, rising and falling with changes in the economy while others are
defensive, maintaining their strength despite economic ups and downs.
A Treasury yield refers to the effective yearly interest rate the US government
pays on money it borrows to raise capital through selling Treasury bonds, also referred to as Treasury
notes or Treasury bills depending on maturity length.
The shape of the yield curve is closely scrutinized because it helps to give an
idea of future interest rate change and economic activity. There are three main types of yield curve
shapes: normal, inverted and flat (or humped). A normal yield curve is one in which longer maturity
bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An
inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields,
which can be a sign of upcoming recession. A flat (or humped) yield curve is one in which the shorter-
and longer-term yields are very close to each other, which is also a predictor of an economic
transition. The slope of the yield curve is also seen as important: the greater the slope, the greater
the gap between short- and long-term rates.
Yield curve inversion is when coupon payments on shorter-term Treasury bonds exceed
the interest paid on longer-term bonds.
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 US stock market.
Index performance returns do not reflect any management fees, transaction costs, or
expenses. Indices are unmanaged and one cannot invest directly in an index.
Economic trend information is sourced from Bloomberg unless otherwise noted.
All charts are for illustrative purposes only. Charts have been prepared by
Macquarie Asset Management unless otherwise noted.
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