For qualified investors

Low returns ahead

We see global yields rising further but within limits: the US Federal Reserve (Fed) is likely to raise interest rates only gradually, and structural dynamics such as ageing populations keep us in a
low-return world.

What’s changing?

Economic enthusiasm should be viewed in context: while growth prospects have improved, they remain lacklustre compared with historical norms. Our five-year capital market assumptions are restrained by powerful forces such as stagnant productivity growth and slow-growing (or shrinking) workforces in much of the world – all against a backdrop of richly valued asset prices. This means asset allocation requires a rethink.

Relative value

BlackRock's five-year asset class return assumptions, January 2017

Low returns ahead

Sources: BlackRock Investment Institute, BlackRock Solutions, Citigroup, MSCI, JPMorgan, March 2017.
Notes: the bars show BlackRock's annualised nominal return assumptions for the next five years in US dollar terms. Indexes used for fixed income are the respective Bloomberg Barclays indexes, except for EM debt (JPMorgan EMBI Global Diversified Index). Equities use the respective MSCI indexes. The assumed return of the 60/40 equity/government bond portfolio uses the MSCI USA Index for equities and the Bloomberg Barclays US Aggregate Index for bonds. This information is not a recommendation to invest in any particular asset class or strategy or a promise of future performance. Indexes are unmanaged and used for illustrative purposes only. They are not intended to be indicative of any fund's or strategy's performance. It is not possible to invest directly in an index.

As the above chart shows, we believe potential returns for taking on more risk still look attractive amid high valuations in traditional favourites like US Treasuries. Credit instruments, which are based on lending to riskier corporate as opposed to government borrowers, offer an attractive trade-off between returns and risk, in our view. For example, we expect US investment-grade corporate bonds to offer more yield than long-dated US Treasuries in the next five years at less than half the volatility. Within credit, we generally prefer higher-quality bonds such as investment grade.

 

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Suggestions for a low return environment: Core income, managed volatility

You may consider:

This material is prepared by BlackRock and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2017 and may change as subsequent conditions vary.

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