BNY Mellon Investor Solutions has released its capital market return assumptions (CMAs) for the next decade, providing investor guidance for long-term policy portfolio development.
Covering the equity, fixed income and alternatives markets, BNY Mellon predicts higher-than-expected returns in all three areas compared to 2022’s CMAs. This is a result of market volatility and asset repricing over the course of 2022, the company says.
In equity markets, the CMAs expect real earnings to grow alongside regional GDP growth expectations, with a reasonably strong correlation between the two in the long-term seen historically.
Fixed income markets return predictions are also ‘notably higher’ for the majority of asset classes, BNY Mellon says. This is due to higher yields seen in 2022 when compared to 2021.
BNY Mellon Investor Solutions states that alternatives should be a more important element of long-term investors’ portfolios. Expected returns are expected to be in line with publicly traded markets on a risk-adjusted basis, plus incremental return for alpha and liquidity.
Sinead Colton Grant, global head of BNY Mellon Investor Solutions, says: "After a challenging and volatile year in financial markets, our 2023 CMAs reflect higher expected returns over the next 10 years for most asset classes.
“While the expected returns of traditional assets have increased relative to our 2022 CMAs, we continue to believe that higher allocations to alternatives and private assets are critical components of fully diversified portfolios that generate more consistent long-term returns."
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