The Vanguard Group is an American investment firm with about $7 trillion in global assets under management. It is the largest provider of mutual funds and the second-largest provider of exchange-traded funds in the world after BlackRock. The chart below shows their forecasts for major asset classes based on their internal models. Almost all large fund managers have their own forecasts, and readers should note that this is merely one set of forecasts amongst many. There is no way of predicting the future, and such quantitative models can provide a general idea of how different asset classes might perform in the future – but obviously they should be considered a guide and not a guarantee.
With that disclaimer made, Vanguard’s Capital Markets Model has produced this set of 10-year annualised return forecasts for both equity and fixed income markets. These projections were published on 17 May 2023, and are based on 31 March 2023 data.
Source: Visual Capitalist
A few key takeaways: Vanguard expects international equities (range of +6.4% to +8.4% pa) to outperform US equities (range of +4.1% to +6.1% pa) over the next decade. It also expects US growth stocks to under-perform (+1.4% to +3.4%), because US growth stocks are perceived to be over-valued (one only has to think of the mega-tech names, e.g. Nvidia, which is on a PE of 200x).
As far as fixed income returns, Vanguard expects high returns from US high yield corporate bonds (+5.5% to +6.5%) and emerging market sovereign bonds (+5.6% to +6.6%). It anticipates inflation over the next decade to average around 2-3%.
Readers should note the column on the far right of the graphic “Median Volatility,” which reflects expectations of the volatility for the asset class. This is worth paying attention to, because high volatility assets can be expected to bounce around far more than low volatility assets, and investors with short investment time frames can suffer losses if they exit the investment at an inopportune time.
These forecast returns are somewhat lower than long term average returns, based on Vanguard’s view that equities are over-priced at present. Unfortunately, the graphic doesn’t include Australian asset classes. It is Clime’s general view that Australia’s many advantages (e.g. rich natural resources, proximity to Asia, a well-regulated legal and corporate system, an educated and growing population, stable political framework based on democracy, rewarding entrepreneurship while having generous social welfare support) will mean we are likely to outperform US equities over the long term.
Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770. The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.