Ninety One’s Capital Market Assumptions framework focuses on the key drivers of long-term performance. We do this to better understand possible future returns, enriching discussions with our clients.
Our framework emphasises income payments across asset classes, as they are both readily measured and pivotal in determining returns.
We divide returns into three components. The first – income – is a tangible, known entity, but the other two are subject to misestimation:
Yield is historically the single most important explanatory factor for income-generating assets
The extent to which income is expected to change over time
The price per unit of income likely to apply at the end of the period (typically, 10 years)
A clear divergence has emerged between fixed income assets, where prospective returns have moved towards historic average outcomes, and equities, where expected returns remain low relative to long run historic outcomes and well below the prospective returns that have been on offer at the bottom of major historic bear markets.
Our current Capital Market Assumptions (30 September 2023) remain somewhat bearish in aggregate: we anticipate that a traditional 60% global equity, 40% global government bond portfolio will deliver a 4.9% annualised return for the next decade in nominal terms, when hedged into US dollars. This is higher (0.7%) than our last update six months ago but remains markedly down from our forecasts in March 2020 in the immediate aftermath of the COVID sell-off. An increased allocation to higher risk fixed income assets would increase portfolio return expectations, at the cost of higher correlations to equities.
We continue to see a need for considerable value-add from asset allocation and security selection decisions as well as from identifying investments that will benefit from structural growth tailwinds to achieve investment objectives.
Source: Ninety One proprietary Capital Market Assumptions as at 30 September 2023.
These estimates are gross of fees (returns can be reduced by management fees and other expenses incurred) and reflect the view of Ninety One’s multi-asset team, whilst the views of other teams across Ninety One may differ. Details on our Capital Market Assumptions methodology available upon request.
General risks. Forecasts are inherently limited and modelling involves risks, assumptions and uncertainties, they are forward looking and are not guarantees nor a reliable indicator of future results. Actual returns could be materially higher or lower than projected. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. The value of investments, and any income generated from them, can fall as well as rise. Costs and charges will reduce the current and future value of investments. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.