Alternative Thinking

2019 Capital Market Assumptions for Major Asset Classes

1Q19

Topics - Asset Allocation Portfolio Construction Strategic Asset Allocation

Read Time - 15 min

${ numberSection } ${ text }
2019 Capital Market Assumptions for Major Asset Classes

This article updates our estimates of medium-term (5- to 10-year) expected returns for major asset classes. It also includes a section on estimating expected returns for private equity and real estate. Selected estimates are summarized below. The year 2018 saw cheapening across many asset classes, and compared to last year expected returns are somewhat higher for equities, U.S. Treasuries and credit. However, from a historical perspective, nearly all long-only investments still have low expected real returns. The expected real return of the traditional U.S. 60/40 portfolio is 2.9%, compared to a long-term average of 5% (since 1900 1 1 Close Based on historical real yields for U.S. large-cap equities and 10-year Treasuries; methodology and sources described in Appendix of the paper. ).

 

Source: AQR; see Exhibits 3-6 for details. “Non-U.S. Developed Equities” is cap-weighted average of Euro-5, Japan, U.K., Australia, Canada. “Non-U.S. 10Y Govt. Bonds” is GDP-weighted average of Germany, Japan, U.K., Australia, Canada. Estimates are for illustrative purposes only, are not a guarantee of performance, and are subject to change. Not representative of any portfolio that AQR currently manages.

Show more

AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

 

The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

 

Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. Hypothetical performance results are presented for illustrative purposes only.

 

Diversification does not eliminate the risk of experiencing investment loss.

 

Certain publications may have been written prior to the author being an employee of AQR.

This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.