Alternative Thinking
2020 Capital Market Assumptions for Major Asset Classes (Supplemental Estimates as of March 31, 2020)
May 6, 2020
Topics - Asset Allocation Portfolio Construction Strategic Asset Allocation
This supplement provides a special update to our estimates of medium-term (5- to 10-year) expected returns for major asset classes. This update reflects the large changes in prices for many asset classes due to the impact of COVID-19 in Q1 2020. We believe our estimates are reasonable midpoints for setting medium-term expectations. However, uncertainty is even higher than normal, suggesting large allocation shifts are unlikely to be warranted.
Source: AQR, Consensus Economics, Bloomberg and Barclays. Estimates as of December 31, 2019. Error bars cover 50% confidence range, based on analysis from Alternative Thinking Q1 2018 and adjusted for current expected volatilities. These are intended to emphasize the uncertainty around any point estimates. Not only are the return forecasts uncertain, but also any measures of forecast uncertainty are debatable. Forecasting requires humility at many levels. 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.
U.S., Non-U.S. Developed and Emerging Market Equities
Source: AQR, Consensus Economics and Bloomberg. Estimates and methodology subject to change and based on data as of December 31, 2019. “Non-U.S. Developed Equities” is cap-weighted average of Euro-5, Japan, U.K., Australia and Canada. “Euro-5” is a cap-weighted average of large-cap indices in Germany, France, Italy, Netherlands and Spain. Each estimate is the average of two approaches, based on earnings and payouts (both dividends and buybacks) respectively. See main article for details.
U.S. 10Y Treasuries and Non-U.S. 10Y Govt Bonds
Source: Bloomberg, Consensus Economics and AQR. Estimates as of December 31, 2019. Rolldown return is estimated from fitted yield curves and based on annual rebalance. “Non-U.S. 10Y govt. bonds” is GDP-weighted average of Germany, Japan, U.K., Australia, Canada.
U.S. IG Credit and U.S. HY Credit
Source: Barclays, Bloomberg, AQR. Estimates as of December 31, 2019. OAS and duration data is for Barclays U.S. Corporate Investment Grade (IG) Index and Barclays U.S. Corporate High Yield (HY) Index. Index durations are 7.9 years and 3.1 years respectively.
Commodities
Long-run average return of an equal-dollar-weighted portfolio of commodity futures.
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The Portfolio Solutions Group (PSG) provides thought leadership to the broader investment community and custom analyses to help AQR clients achieve better portfolio outcomes.
This document 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.
This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and AQR Capital Management, LLC (“AQR”) to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. This document is not to be reproduced or redistributed to any other person. The information set forth herein has been provided to you as secondary information and should not be the primary source for any investment or allocation decision. Past performance is not a guarantee of future performance. Diversification does not eliminate the risk of experiencing investment losses.
This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
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. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. Diversification does not eliminate the risk of experiencing investment losses.
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