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Alternative Thinking
2023 Capital Market Assumptions for Major Asset Classes
1Q 2023
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also include two special topics: one highlighting the case for emerging market equities, and the other assessing the impact of large interest rate rises on various risk premia.
Alternative Thinking
Should Your Portfolio Protection Work Fast or Slow?
Q4 2022
2022’s drawdown provides a clear picture for the types of strategies that can actually deliver in a “slow burn” market downturn. While some options-based strategies have generated positive returns, in many cases they have disappointed. In contrast, trend following strategies have generally posted very strong returns. Looking ahead, many of the macro conditions that have been advantageous to trend following are still in place—and have historically tended to persist.
Alternative Thinking
New Rules of Diversification
Q3 2022
During the first half of 2022, equity markets tumbled around 20% from their peak, with losses on typical stock/ bond portfolios almost as large. More worryingly, this type of downturn may be unfamiliar to many younger investors: with inflation still high, there is little prospect of central banks riding to the market’s rescue. We assess the prospects for stock and bond markets after the H1 selloff, consider the impact of macroeconomic risks on a range of investments, and explore the use of diversifying investments to fortify portfolios.
Quick Clips
Quick Clips: The Stock/Bond Correlation
Q2 2022
For the past two decades, the stock/bond correlation (SBC) has been consistently negative, and investors have been able to rely on their bond investments for portfolio protection when equities sell off. However, macroeconomic changes – like heightened inflation risk – could push this key asset allocation input into positive territory.
Are Value Stocks Cheap for a Fundamental Reason?
August 25, 2021
The value spread remains unusually high, which has led investors to be concerned that value may be cheap for a reason. In this short presentation, our Portfolio Solutions Group (PSG) explains how we evaluate this spread and illustrates our view that the current high value spread is forecasting higher expected returns, and not low fundamental growth rates.
Alternative Thinking
2021 Capital Market Assumptions for Major Asset Classes
Q1 2021
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also discuss what investors should expect from the stock-bond correlation in the coming decade.
Alternative Thinking
Fire and Ice: Confronting the Twin Perils of Inflation and Deflation
Q4 2020
The COVID-19 pandemic and the responses to it by governments, central banks and consumers have unleashed both disinflationary and inflationary forces, but we do not know which forces will win over the longer term. We explore the historical inflation sensitivities of a range of different investments and present the benefits of both risk-balanced asset allocations and dynamic directional strategies to prepare for uncertain times.
Alternative Thinking
Was That Intentional? Ways to Improve Your Active Risk
September 28, 2020
Investors try to outperform their strategic asset allocation benchmarks by taking active risks. Some of these are intentional, but others are low-conviction or even unintentional, which can be a large part of a portfolio’s total active risk. When it comes to beating a strategic asset allocation benchmark, reducing these unintentional active risks may among the clearest sources of “low hanging fruit”.
Alternative Thinking
2020 Capital Market Assumptions for Major Asset Classes (Supplemental Estimates as of March 31, 2020)
May 6, 2020
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.
Alternative Thinking
2020 Capital Market Assumptions for Major Asset Classes
January 29, 2020
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes, and introduce a method for quantifying the expected return on cash.