Investment returns in the next decade will likely lag well behind what has been recorded over the past 30 years, suggests New York-based J.P. Morgan Asset Management in a white paper released last week.
The white paper that provides the firm’s perspective on long-term asset class returns and risks, which indicates that returns will be weaker in the years ahead.
“Our 2016 assumptions anticipate a challenging investment environment, characterized by moderate economic growth, generally stable inflation and returns over the next 10-15 years that we expect to fall well short of those achieved during the past 30 years,” said Michael Feser, portfolio manager and managing director, J.P. Asset Management Multi-Asset Solutions, in a statement.
The white paper’s macro outlook assumes steady inflation and subdued long-term growth. It notes that changes to its assumptions include: a deteriorating outlook for U.S. Treasury returns; improving, but still uninspiring, public and private equity market return expectations; and relatively more attractive assumptions for credit, value added real estate and infrastructure.
The outlook for the hypothetical investor with a 60% equity, 40% fixed income portfolio “has improved slightly, in terms of risk-adjusted returns,” the white paper concludes. And “the expected return for relatively safer assets have fallen further, while the expected return for riskier assets has improved, relative to last year.”
“We see the search for attractive risk-adjusted returns spanning public and private markets globally and expect that diverging central bank policies and credit cycles, among other factors, will prevent a uniform global business cycle from emerging in the near term, emphasizing the importance of flexibility and diversification,” Feser added.