Schroders
August 16, 2016
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Seven-year asset class forecast returns: 2016 update

Our seven-year returns forecast largely builds on the same methodology that has been applied in previous years, as explained in the appendix to this document; and has been updated in line with current market conditions and changes to the forecasts provided by the Global Economics team.

This document compares our current return forecasts to those last published in July 2015.

One key change this year has been an overhaul of our methodology for equity returns forecasting to better capture changing trends in earnings performance, which is explained in greater detail in the appendix.

However, as a result equity returns are not readily comparable between this year and previous years.

Summary

The table below summarises our asset class forecasts for the next seven years.

  • Cash and bonds now universally offer a negative real return, while all equity markets bar the UK offer positive returns.
  • Credit markets find it difficult to escape the pull of negative rates in bonds and cash, but still offer some small inflation-adjusted gains.
  • Alternative assets look to be the next most attractive asset category after equities, but in generally it looks like Asian (Japan, emerging markets, but especially Pacific ex Japan) equities are the best bet.

 

Source: Schroders Economics Group, July 2016. The opinions stated include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee that any forecasts or opinions will be realized. Sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell.

Macroeconomic outlook

Our overall growth forecast for the next seven years shows a recovery in the world economy, although one that is sub-par by past standards.

We have again downgraded our short-term growth forecasts for the US to reflect a more pessimistic outlook for labour force and productivity growth, and some impact from the UK referendum vote.

Demographics are expected to weigh on the participation rate, and we do not see productivity growth returning to pre-crisis rates.

Inflation too has been revised lower, outside of the eurozone. Inflation in the emerging markets (EM) has seen the largest downgrade, driven by markets like Brazil and Russia where inflation is dropping from very high levels in 2015.

Beyond EM, the fall is driven mainly by the weaker growth outlook and in Japan by the apparent failure of monetary policy as negative rates backfire. Higher eurozone inflation results chiefly from a weaker euro.

Please find the full analysis of asset class returns at the link below.

 

http://hvst.co/2aYRInL 
Disclaimers & Disclosureskeyboard_arrow_up

This site is for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein. This site is solely intended for use by institutional investors and institutional-investment industry consultants.

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.

Schroders Capital is the private markets investment division of Schroders plc. Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit www.schroderscapital.com

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.



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