How To Prepare For The Low Return Environment Ahead by Richard Turnill, BlackRock
BlackRock’s Global Chief Investment Strategist Richard Turnill explains why investors aiming for higher returns over the next five years should be prepared to stomach this.
The big takeaway from this week’s chart of the week: Investors aiming for higher returns over the next five years should be prepared to stomach more volatility.
Was Ben Graham's big purchase of GEICO shares actually a value investment? Perhaps it was contrary to what many believe. "In 1948, we made our GEICO investment and from then on, we seemed to be very brilliant people." -- Benjamin Graham, 1976 Both Benjamin Graham and Warren Buffett can attribute a large part of their Read More
This week we updated our quarterly “capital market assumptions” estimates for future returns. We now see lower potential returns ahead for many asset classes over the next five years, given moderate economic growth and stretched valuations.
The bars in the chart below show our annual return assumptions for selected asset classes over the next five years, while the dots show our expectations of volatility.
Low Return Environment Ahead
Many of our return assumptions are now at or near post-crisis lows, with many expected returns below historical averages, according to our analysis using Bloomberg data. These assumptions reflect lower global growth over the five years, in line with a long, flat U.S. recovery.
Generating returns is likely to be particularly challenging for investors in U.S. assets. We see a wider gap between the prospective returns for safe-haven and risk assets, reflected in higher expected returns for equities versus bonds and for non-U.S. equities versus U.S. equities. Alternatives come with higher returns, but also higher volatility and illiquidity.
The bottom line: Generating higher potential returns over the longer term will likely involve accepting more volatility or illiquidity risk, or focusing on assets with higher return potential. Read more about the lower return environment ahead in my latest weekly commentary.