Research

Unconditional capital market assumptions: Harvesting centuries of asset history to build a robust view of the future

We assess a set of asset class returns through the breadth of global history to inform long-term investment strategies.

By: Dirk Hofschire Irina Tytell
Updated: 1/25/2024
Key Takeaways
  • Our unconditional capital market assumptions (CMAs) provide the foundation for assessing asset returns over the long term and can be utilized to inform strategic portfolio management decisions, assess portfolio attributes such as expected returns, volatility, or diversification, and set expectations for investment outcomes.
  • The unconditional CMAs represent our return expectations in a steady-state environment that is independent of current market conditions, complementing our secular CMAs that emphasize forward-looking expectations over a 20-year horizon and are linked to prevailing conditions.1
  • Our innovative approach is based on unique insights on why assets earn returns and draws on aggregated historical distributions of multi-country returns.
  • While U.S. history is weighted heavily in our considerations, we also account for future scenarios in which 20th-century “U.S. exceptionalism” does not repeat itself perpetually.
  • We expect that equity returns in the U.S. and other developed markets will be similar over long-term periods, that emerging market equities will earn an additional risk premium, and that short-term, cash-like investments will have a modest positive real return.
  • Our analysis suggests lower long-term expected returns across most asset classes—including stocks and fixed-income securities—compared with returns in recent years.
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AART Active management Asset allocation Business cycle Equity Fixed income Long-term research Portfolio construction
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