February 11, 2020

Capital Market Outlook: What’s in Store for the 2020s?

To view a larger version, click here: Capital markets outlook

While Arnerich Massena believes these forward-looking     expectations are reasonable, we can provide no assurance  of their accuracy. Expected returns for each asset class  are conditional on an economic scenario; actual returns in the event the scenario comes to pass could be higher or   lower, as they have in the past, so an investor should not expect to achieve returns similar to these expectations.  Actual investment portfolio results may vary due to market risk, investment selection, timing, expenses, taxes, and  other factors. This information is not intended as a      recommendation to invest in any particular asset class or strategy or as a promise of future performance.

In the 2010s, U.S. equities hurtled to new highs in the wake of the global financial crisis. However, as we move into the 2020s, the question on many investors’ minds is, “can these good times continue?” Our short answer is yes, but the location of the good times may change.

Each year, Arnerich Massena updates its long-term (10-year) forward-looking estimates of asset class return, volatility, and correlation that we use to develop portfolios and project ranges of potential investment outcomes.  The chart below provides an overview of our capital market outlook for the coming decade.

Some highlights:

  • The exceptionally strong recent performance of U.S. equities has led to diminished expectations for the 2020s.
  • International and EM equities lagged in the 2010s and are now at attractive valuations that can lead to superior performance in the 2020s.
  • Returns on core (investment-grade) fixed income from developed countries will likely be low due to exceptionally low market yields.
  • Private market investments will continue to offer the opportunity to earn returns that are higher than those that are available through the public markets.

For an institutional investor who may seek to earn 5-7% (or higher) over the long term, the 2020s may pose some mindset and behavioral challenges, since many of the most successful and easy-to-implement ideas of the 2010s may be destined to be subpar performers in the 2020s.

Rather, we expect that niche and overlooked investments such as private equity, private real estate, and international and emerging market equities are likely to be among the best performers in the 2020s.