MacroResearchBoard

Long-Term Investors: Lower Your Expectations – June 1, 2020

Twice a year we examine the very long-term outlook for all major global financial asset markets, and how balanced portfolios might perform. Last week’s report updated our research, and provided a sober read for those hoping for a continuation of the high returns that have accrued since the early-1980s. In a nutshell, that era is over, and the future is expected to provide meagre average returns given today’s starting point for valuations.

The base-case outlook over the next decade is for slightly weaker economic growth and somewhat higher inflation than last decade, a combination that is negative for multi-asset portfolio returns: we expect only a 2.2% real return for a balanced U.S.-dollar portfolio. A structural overweight on equities in a multi-asset portfolio is warranted, whereas the low level of yields will condemn government bonds to losses in real terms over the next 10 years. Within fixed-income, investors should favor spread product, and EM and select European markets offer the best aggregate return prospects for equities.