Surveying Economic Assumptions and Capital Market Projections
The following papers all contain long-term forecasts for the expected returns of major asset classes. However, the precise definition of a long-term time horizon varies from one firm to another. To some asset managers, this equates to a five-year period of forward-looking projections, whereas others choose to look as far as 20 years into the future when conducting the same type of exercise.
Although a direct comparison may not be possible due to differing time frames, these papers represent the best selection of economic insight, capital market assumptions, and long-term projections of asset class returns to be uploaded to Savvy Investor in the past quarter.
Based upon their long-term return models, QMA's projections for the expected return of a typical 60/40 portfolio has not changed since Q4 2020 (at 4.1%), despite the additional gains in equity and fixed income markets over the period in question.
For compliance reasons, this paper is only accessible in certain geographies
Invesco's capital market assumptions are constructed using a bottom-up "building block" approach, where estimates are formed for each driver of returns. These estimates are then rebased in terms of eight different currencies to suit the needs of a wide range of global investors.
PGIM Fixed Income conducts analysis on U.S. labour force data, examining labour force participation and the components of GDP growth in order to determine when the U.S. unemployment rate might reach pre-Covid-19 levels.
Within their Long-Term Capital Market Expectations paper, MFS projects outward over a 10-year time period. Beginning with a helpful chart of risk/return expectations, the authors then delve into their brief multi-asset update on 2020 returns and more immediate considerations for 2021.
PineBridge updates their Capital Market Line projections for multiple asset classes based upon their forward-looking five-year return expectations. One of the insights that they highlight from this analysis is the comparative value inherent within emerging market debt versus other fixed income assets.
As UBS Asset Management describes, their five-year return expectations for risk assets have been meaningfully reduced, largely due to recent gains.
Meketa projects out to 20 years for their calculations of geometric expected returns by asset class. They also compare their current projections to those of one year prior, and provide a host of additional information within this 80-page chartbook.
PIMCO's Capital Market Assumptions are updated semi-annually, providing information about their estimated returns for a range of asset classes over a five-year time horizon.