Equities
Global equities 5-year expectations
Region | Region | Equilibrium Geometric Return (%) | Equilibrium Geometric Return (%) | 5-Year ExpectedReturn Local (%) | 5-Year ExpectedReturn Local (%) | 10-Year Expected Return Local (%) | 10-Year Expected Return Local (%) | Local Standard Deviation (%) | Local Standard Deviation (%) | 5-year Expected Return in USD Unh (%) | 5-year Expected Return in USD Unh (%) | 10-year Expected Return in USD Unh (%) | 10-year Expected Return in USD Unh (%) | Unhedged Standard Deviation (%) | Unhedged Standard Deviation (%) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Region | US Large Cap | Equilibrium Geometric Return (%) | 7.4 | 5-Year ExpectedReturn Local (%) | 5.1 | 10-Year Expected Return Local (%) | 5.5 | Local Standard Deviation (%) | 16.1 | 5-year Expected Return in USD Unh (%) | 5.1 | 10-year Expected Return in USD Unh (%) | 5.5 | Unhedged Standard Deviation (%) | 16.1 |
Region | Australia | Equilibrium Geometric Return (%) | 6.5 | 5-Year ExpectedReturn Local (%) | 8.5 | 10-Year Expected Return Local (%) | 8.7 | Local Standard Deviation (%) | 18.3 | 5-year Expected Return in USD Unh (%) | 8.7 | 10-year Expected Return in USD Unh (%) | 8.8 | Unhedged Standard Deviation (%) | 22.1 |
Region | Canada | Equilibrium Geometric Return (%) | 6.6 | 5-Year ExpectedReturn Local (%) | 6.8 | 10-Year Expected Return Local (%) | 6.9 | Local Standard Deviation (%) | 18.3 | 5-year Expected Return in USD Unh (%) | 7.6 | 10-year Expected Return in USD Unh (%) | 7.5 | Unhedged Standard Deviation (%) | 22.1 |
Region | Eurozone | Equilibrium Geometric Return (%) | 7.0 | 5-Year ExpectedReturn Local (%) | 8.3 | 10-Year Expected Return Local (%) | 8.6 | Local Standard Deviation (%) | 18.9 | 5-year Expected Return in USD Unh (%) | 9.1 | 10-year Expected Return in USD Unh (%) | 9.8 | Unhedged Standard Deviation (%) | 21.4 |
Region | Japan | Equilibrium Geometric Return (%) | 6.9 | 5-Year ExpectedReturn Local (%) | 5.7 | 10-Year Expected Return Local (%) | 5.6 | Local Standard Deviation (%) | 18.9 | 5-year Expected Return in USD Unh (%) | 8.3 | 10-year Expected Return in USD Unh (%) | 8.1 | Unhedged Standard Deviation (%) | 21.4 |
Region | Switzerland | Equilibrium Geometric Return (%) | 5.8 | 5-Year ExpectedReturn Local (%) | 7.3 | 10-Year Expected Return Local (%) | 7.6 | Local Standard Deviation (%) | 17.3 | 5-year Expected Return in USD Unh (%) | 7.3 | 10-year Expected Return in USD Unh (%) | 8.4 | Unhedged Standard Deviation (%) | 19.8 |
Region | United Kingdom | Equilibrium Geometric Return (%) | 6.9 | 5-Year ExpectedReturn Local (%) | 8.6 | 10-Year Expected Return Local (%) | 9.8 | Local Standard Deviation (%) | 18.3 | 5-year Expected Return in USD Unh (%) | 9.5 | 10-year Expected Return in USD Unh (%) | 10.5 | Unhedged Standard Deviation (%) | 20.9 |
Region | Developed Mkts | Equilibrium Geometric Return (%) | 7.5 | 5-Year ExpectedReturn Local (%) | 6.1 | 10-Year Expected Return Local (%) | 6.5 | Local Standard Deviation (%) | 14.9 | 5-year Expected Return in USD Unh (%) | 6.6 | 10-year Expected Return in USD Unh (%) | 7.0 | Unhedged Standard Deviation (%) | 15.4 |
Region | Developed x US | Equilibrium Geometric Return (%) | 7.3 | 5-Year ExpectedReturn Local (%) | 7.5 | 10-Year Expected Return Local (%) | 7.9 | Local Standard Deviation (%) | 15.1 | 5-year Expected Return in USD Unh (%) | 8.7 | 10-year Expected Return in USD Unh (%) | 9.1 | Unhedged Standard Deviation (%) | 16.7 |
Region | Emerging Mkts | Equilibrium Geometric Return (%) | 8.3 | 5-Year ExpectedReturn Local (%) | 11.0 | 10-Year Expected Return Local (%) | 11.6 | Local Standard Deviation (%) | 21.9 | 5-year Expected Return in USD Unh (%) | 11.2 | 10-year Expected Return in USD Unh (%) | 11.3 | Unhedged Standard Deviation (%) | 26.0 |
Region | Global Equities | Equilibrium Geometric Return (%) | 7.7 | 5-Year ExpectedReturn Local (%) | 6.8 | 10-Year Expected Return Local (%) | 7.2 | Local Standard Deviation (%) | 15.3 | 5-year Expected Return in USD Unh (%) | 7.2 | 10-year Expected Return in USD Unh (%) | 7.6 | Unhedged Standard Deviation (%) | 16.0 |
Region | Global x US | Equilibrium Geometric Return (%) | 7.7 | 5-Year ExpectedReturn Local (%) | 8.5 | 10-Year Expected Return Local (%) | 8.9 | Local Standard Deviation (%) | 16.1 | 5-year Expected Return in USD Unh (%) | 9.3 | 10-year Expected Return in USD Unh (%) | 9.7 | Unhedged Standard Deviation (%) | 17.8 |
For equities, we develop our Baseline, or five- and ten-year, equity assumptions based on several inputs: projected earnings growth, dividend yields, and a reversion to fair value as determined by our proprietary valuation models. We base these inputs on current economic conditions and market pricing, analysis of historical trends and relationships, and our judgment about future trends.
Our valuation models indicate that the US equity market is overvalued, while most of the rest of the markets are near fair value or undervalued. We project for the next five years US large-cap equity returns in the 5% range, global equities around 7.2%, developed ex-US around 8.7%, and emerging markets equities around 11.2% (note all returns are in USD terms).
It is helpful to break expected returns down into their building block components. For US equities, we expect valuation contraction of 1.3% per year, while in developed markets outside the US we project an expansion of multiples to add around 0.8% in local terms (boosted by a 1.1% appreciation for undervalued currencies).
Baseline five-year expected returns: Equity return decomposition (in %)
Sector | Sector | Equilibrium US Large Cap | Equilibrium US Large Cap | US Large Cap History * | US Large Cap History * | US Large Cap** | US Large Cap** | Dev Mkts x US** | Dev Mkts x US** | Emg Mkts** | Emg Mkts** | ACWI** | ACWI** |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sector | Inflation (Local) | Equilibrium US Large Cap | 2.0 | US Large Cap History * | 2.9 | US Large Cap** | 2.0 | Dev Mkts x US** | 1.4 | Emg Mkts** | 3.0 | ACWI** | 1.9 |
Sector | Real Growth | Equilibrium US Large Cap | 2.3 | US Large Cap History * | 2.2 | US Large Cap** | 2.2 | Dev Mkts x US** | 1.9 | Emg Mkts** | 3.9 | ACWI** | 2.3 |
Sector | Dividends | Equilibrium US Large Cap | 2.9 | US Large Cap History * | 3.9 | US Large Cap** | 2.2 | Dev Mkts x US** | 3.2 | Emg Mkts** | 2.7 | ACWI** | 2.6 |
Sector | Valuation | Equilibrium US Large Cap | 0.0 | US Large Cap History * | 0.7 | US Large Cap** | -1.3 | Dev Mkts x US** | 0.8 | Emg Mkts** | 0.9 | ACWI** | -0.3 |
Sector | Compound | Equilibrium US Large Cap | 0.2 | US Large Cap History * | 0.3 | US Large Cap** | 0.0 | Dev Mkts x US** | 0.2 | Emg Mkts** | 0.4 | ACWI** | 0.1 |
Sector | Total Return Local | Equilibrium US Large Cap | 7.4 | US Large Cap History * | 10.0 | US Large Cap** | 5.1 | Dev Mkts x US** | 7.5 | Emg Mkts** | 10.9 | ACWI** | 6.8 |
Sector | Currency Effects | Equilibrium US Large Cap | N/A | US Large Cap History * | N/A | US Large Cap** | N/A | Dev Mkts x US** | N/A | Emg Mkts** | N/A | ACWI** | N/A |
Sector | Unhedged | Equilibrium US Large Cap | 0 | US Large Cap History * | 0 | US Large Cap** | 0 | Dev Mkts x US** | 1.1 | Emg Mkts** | 0.2 | ACWI** | 0.4 |
Sector | Hedged | Equilibrium US Large Cap | 0 | US Large Cap History * | 0 | US Large Cap** | 0 | Dev Mkts x US** | 1.9 | Emg Mkts** | -1.9 | ACWI** | 0.4 |
Sector | Total Return Unhedged | Equilibrium US Large Cap | 7.4 | US Large Cap History * | 10.0 | US Large Cap** | 5.1 | Dev Mkts x US** | 8.7 | Emg Mkts** | 11.2 | ACWI** | 7.2 |
Sector | Total Return Hedged | Equilibrium US Large Cap | 7.4 | US Large Cap History * | 10.0 | US Large Cap** | 5.1 | Dev Mkts x US** | 9.4 | Emg Mkts** | 9.0 | ACWI** | 7.2 |
