Barings Multi Asset Group combines the underlying factors that will drive markets over the long term with today’s valuations to produce total return forecasts for major asset classes over the next ten years.
Highlights From Our Multi Asset 10-Year Forecasts
- For many asset classes, valuations have improved over the past 12 months but they are still not cheap versus a long-term history. Indeed it is valuations, not economics, which present the more meaningful headwind to long-term returns from today’s starting point. Most asset class valuations have only a limited buffer against losses from an economic recession taking place over the next ten years.
- Consensus estimates of trend economic growth are too low. Although demographics will be a headwind, our core belief is that real economic growth will remain decent—though far from stellar. Inflation looks to be structurally lower than in previous cycles, though.
- We have further developed our ESG framework this year, to explicitly include— together with governance—environmental and social factors into our analysis. We continue to believe ESG considerations are important for long-term asset allocators.
- Some of the asset classes with higher return forecasts are to be found within credit. In equities, the U.K. appears to be the world’s most unloved market, allowing for the highest return potential from here from a combination of low valuation and high dividend payout. Instead, U.S. equities are the lowlight—valuations remain at lofty levels, such that long-term investors may be left disappointed.
- Each year, we revisit, debate and refine our forecasts. On occasion, we also create additional asset class forecasts—this year we added forecasts for European High Yield to our ten-year framework for the first time.
- Investors will need to be more dynamic and selective about asset classes. Over the past 30 years, a traditional balanced strategy delivered an annual return of around 8% per annum. For the next ten years, a static balanced portfolio will most likely deliver less than 3% per annum.1
- The history of strategic forecasting at Barings: we dust down our ten-year forecasts made in 2003–2008. On balance, they have been an extremely useful guide to the future.
1. Bloomberg. Barings calculations as of February 28, 2019.