Slower growth and market performance

Five-year capital market expectations

UBS Asset Management Investment Solutions

Our five-year (2019-2024) expectations in brief

UBS Asset Management’s Investment Solutions team conducts ongoing macroeconomic research to develop our baseline five- and 10-year return expectations. Drawing on the breadth and depth of expertise provided by more than 100 professionals and an over-36-year asset management track record, our capital market expectations quantify risk/return expectations for a broad set of asset classes, incorporate current market and economic conditions and provide a key component for modeling a portfolio’s strategic asset allocation.

  • As global growth slows, our five-year return expectations are adjusted downward for most developed-market assets, while our expectations are increased for some emerging markets
  • Over the next five years, we expect average annual global growth of 2.8% and average global inflation of 2.3%
  • Real growth on average should be slightly lower than in the previous decade


  • US equities are overvalued and we expect mid-single digit returns
  • Most non-US markets are fairly valued or undervalued. We expect high single digit returns

Fixed income:

  • With negative nominal yields still predominant in many developed markets, we expect very low fixed income returns. For many markets, investors should prepare for negative nominal returns


  • For the next few years, we have lower expectations for unlevered real estate
  • For US private equity we expect returns in the high single digits, but not on par with some of the touted returns of the past. We expect unhedged global private equity to outperform the US

Special topic: Chinese financial markets

  • As China continues its rapid transition from an emerging to a developed market, we believe that Chinese equities and fixed income will continue to offer investors unique opportunities

The UBS approach to capital market assumptions

Capital market expectations (CMEs) are critical inputs in designing an investment strategy that will help investors meet specific objectives. A pension plan, for example, has liabilities with certain wage, payout and inflation assumptions; an endowment may plan for distributions based on university budget growth; or a family office may have income and real growth objectives. Ultimately, the CMEs must have an economic logic and consistency behind them that tie into the larger setting that investors face.


We develop our Baseline, or 5-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. 

Fixed income

To develop our fixed income return expectations, we start with current yields and apply our judgement about the future direction of interest rates (returns are today's yield + changes prices and income over time). 


Although cash may seem like a 'residual' asset class, it is actually a key component of the capital markets.


We model currency movement based on a long-run trend to fair value (as determined by our adjusted purchasing power parity measure) and the path of relative inflation and interest rate differentials (i.e. real rates).


We model alternatives on a case-by-case basis. Some of them—private equity, for example—can be viewed as a straightforward extension of equities. Others, like hedge funds, are very idiosyncratic and are based on cash+ models. 

Economic Background: Growth and inflation

Over the next five years (2019-2024), we expect average annual global growth of 2.8%, slightly lower than the 2.9% average annual growth from 2014-20181 . We expect inflation to average 2.3% across the globe.

China Assumptions

With the broader inclusion of China into global equity and fixed income indices, investors need to understand this unique market.

Risk and correlation

Risk and correlation play an important role in portfolio construction. We use a factor approach to build our covariance matrix.

Our methodology for setting market expectations and valuation

This paper presents our approach to intermediate-term capital market expectations, which we call our baseline. We produce them by starting from very long-term capital market expectations, which we call equilibrium assumptions, and taking into account current market and economic conditions as well as asset class valuation.